Finance, Foreign Investment and Underdevelopment: The New Faces of Dependency in India
It argues that the relations of dependency have reemerged under new guises. Dependency has moved from simple flows of trade and direct investment to the power of international finance, portfolio investment and consultancy services to define India’s role in the international economy. The truism among international investors that India’s future is with services rather than industry has led to higher costs and more restricted access to technology for India’s manufacturers, while information technology services have developed strong links with leading transnational corporations at the expense of developing its own intellectual capital. Further, the new emphasis on foreign direct investment in raw material extraction and consumer services has eclipsed traditional arrangements that could increase domestic value-added activities as part of state-mandated or –encouraged joint ventures. Lastly, India’s growing energy requirements have not inspired greater attention in alternative energy sources, but rather created incentives for investment in downstream energy processing, such as oil refineries and electricity transmission, that increases demand and arbitrage without expanding supply. These characteristics of the post-reform economy have made India subject to more dependent relationships, even as the international economy and the structures of dependency have changed.
This paper will also suggest some of the theoretical mechanisms that are driving the new dependency. First, the international demonstration effect has driven consumers to change their behavior ever more quickly as global communications and information have increased, stimulating imports and putting ever greater pressures on the state to encourage foreign investment to finance current account deficits, without regard to quality of long-term sustainability. Second, macro-institutional change has dramatically decreased the state’s ability to regulate cross-border transactions, in institutional finance in particular. And third, cognitive-ideational frameworks fashioned in the West that concern how the Indian economy is conceptualized achieve a certain level of hegemony through educational and institutional linkages, thus perpetuating how India is framed within the global economy.