Foreign Secretary Philip Hammond and Sushma Swaraj, External Affairs Minister of India at the 2014 Regional Pravasi Bharatiya Divas Convention in London, 17 October 2014.
Source: Wikimedia Commons
Foreign Secretary Philip Hammond and Sushma Swaraj, External Affairs Minister of India at the 2014 Regional Pravasi Bharatiya Divas Convention in London, 17 October 2014. Source: Wikimedia Commons

Diaspora Direct Investment and the ‘growth story’

The push for DDI is an extension of the economic logic of our times.

(This is an essay from our print quarterly 'Diaspora: Southasia Abroad'. See more from the issue here.)

On 28 September 2014, a 19,000 strong crowd comprised predominantly of Indian Americans, gathered in Madison Square Garden in New York City. They were there to cheer on a man who less than a decade ago had been banned from travelling to the US for his role in the 2002 Gujarat massacre. Striding into centre stage now as the newly elected Prime Minister of India, Narendra Modi thanked the audience for the "kind of love [that] has not been given to any Indian leader ever". This validation by overseas Indians, he said, was a loan that he would repay by "forming the India of [their] dreams," by making it easier for the cheering crowds and their extended community to return to India and bring their talents back to the homeland. In less euphemistic terms, Modi's message, as reiterated in his series of meetings with Indian American entrepreneurs, was that his government was committed to ensuring that India would be open for business, particularly for its diaspora.

'A time to return'
A few weeks after Modi's triumphant return from New York, Sushma Swaraj, India's new external affairs minister, who also happens to be responsible for the Ministry of Overseas Indian Affairs, echoed this message in a different context. Since 2007, the Indian government had been involved in organising regional Pravasi Bharatiya Divas conferences around the world as a way to "allow participation of the Indian diaspora" who were unable to attend the annual meetings held in India. Inaugurating the London meeting in October 2014, Swaraj told her audience that "now is the time to come to India", since there were "immense opportunities" waiting for them, especially in the fields of "manufacturing, infrastructure development, education, health… science and technology, research and innovation". To facilitate this participation, the Bharatiya Janata Party (BJP)-led government was committed to providing "efficiency, accountability, speedy decision making… and [a] favourable business environment". Should the members of the hugely successful overseas Indian community experience any difficulty or bureaucratic red tape in their efforts to return to their homeland and participate in "India's growth story", all they needed to do was to let the minister know and she would solve their problems.

The fact that the BJP government has been courting a particular layer of the expatriate Indian community by promising new investment opportunities, a more benign bureaucracy, and generally favorable business climes, is in and of itself not particularly surprising. It is a well-known fact that amongst the major political parties in India, the BJP is perhaps the best connected to various diaspora associations, particularly in North America. The Hindutva network, as numerous scholarly and investigative works over the past two decades have pointed out, puts the BJP in a unique situation. The centre of this network is of course the Rashtriya Swayamsevak Sangh (RSS), which is a cadre organisation that emphasises the importance of spreading the ideology of the Hindu Rashtra. The RSS, connected as it is to numerous think tanks, grassroots and relief organisations, led the initiative to found the Vishwa Hindu Parishad (VHP), the global arm of the movement. Based in India and abroad, these organisations, along with their distinctive women's groups, have aided the BJP (itself initiated by the RSS and the most important political front for the network) over the past several decades as the party has tried to present itself as representing the aspirations of the Indian people.

One aspect of this relationship involves the associations particularly of those based abroad, acting as a public relations arm of the BJP. Another aspect, pertaining to the financial clout of these associations, as well as their direct involvement in buffering the coffers of BJP activists in India, remains somewhat murky. Anecdotal evidence suggests that the much-publicised fundraising drives by various pro-Modi groups (particularly the Overseas Friends of the BJP, which organised over 200 chai pe charcha – conversations over tea – prior to the recent elections) did provide an overseas source of capital to the ruling party. The question of how much this funding amounted to is hard to answer, but it is telling that a recently established organisation like the innocuous sounding Indian American Community Foundation (IACF, described often as an umbrella grouping of three hundred US-based organisations) could host a 'private' and supposedly 'apolitical' rally in one of the most expensive venues in New York City at a cost of approximately USD 3.5 million, featuring Modi. Given these connections, it is plausible that the moves by the BJP government to create an investment-friendly environment are an effort to repay its overseas constituency for its support in the electoral victory.

Indeed, any attempt to explain the ongoing feting of the Indian diaspora cannot afford to overlook the peculiar position and role of the BJP in creating what its ideologues have called Vishwa Bharati (Global India). That being said, it is perhaps even more important not to over-emphasise this role, for this process of wooing not only predates the current BJP government, but also involves parties from all parts of the political spectrum. In fact, the courting of non-resident Indian (NRI) investors began in the 1980s under Indira Gandhi's government, and gained momentum under the Congress-led government in the 1990s. Even as they announced the adoption of a major structural adjustment programme in 1991, some members of the P V Narasimha Rao  government finessed the theme of the NRI investor as an integral part of the new Indian economy, as someone who could lead the way out of the country's economic quagmire. The leitmotif of the successful 'global Indian' who, if given the chance, an efficient bureaucracy, and the removal of outdated state controls, would prove to be a vital resource for a resurgent India, has since then been reiterated in various versions, by every single political party in power. This of course raises the question of why the diaspora-investor is now the holy grail for the ruling elite – a question that takes on an added piquancy given two factors.

The first, pertaining specifically to India, is that while emigrants have been a steady and increasingly valuable source of remittances over the past several decades, their contributions to foreign direct investment (FDI) has been negligible. This despite the fact that for at least two decades, Indian governments have consistently sought ways to attract what has come to be known as Diaspora Direct Investment (DDI), including in recent times with the establishment of the Ministry of Overseas Indian Affairs, and the affiliated Overseas Indian Facilitation Centre. Secondly, the Indian government is far from being unique in pursuing the diaspora avenue as an alternative to traditional FDI. A large number of countries – in Asia, in Africa, in the former Soviet Republics and the Eastern Bloc, and in Latin America – have all not only attempted similar measures, but have in fact been actively encouraged to do so by international institutions including the International Monetary Fund (IMF) and the World Bank. So why is it that diasporas have become such an attractive prospect for governments and international institutions alike at this historical juncture?

On one level, the answer seems self-evident. As policy memos from national and international agencies reiterate, a large number of countries have a growing emigrant population and these populations are responsible for the very significant flow of remittances across borders. In addition to this fact, there are also conjectures about the strength of the emigrants’ national affiliations – since they have familial ties to the homeland, it would follow that they have a greater stake in its development. For these reasons, the growing attention paid to the notion of DDI is but an extension of rational economic planning.

However, it is this writer’s contention that the reasons noted above are not sufficient enough to understand the nature of DDI in the present moment. Discussions of DDI – why it is so important, why it remains untapped and what needs to be done to channel it – are fundamentally premised on the claim that the ongoing structural transformation of the global and national economies along neoliberal lines is not only beneficial to all, but also the only way forward. As such, even though the discussions are wrapped in the rhetoric of ‘national confidence’ or the desire of migrants to give back to their homeland or the notion of ‘economic growth’, the main pay-off remains the furthering of an agenda of deregulation and privatisation. To see how this logic operates, it is useful to track the path through which discussions of DDI unfold in general and then move to the specifics of the Indian case.

The diaspora difference
According to the United Nations, as of 2013, over 230 million people live outside of their countries of origin. A distinct proportion of this figure consists of migrants who have in the past several decades moved from what has been categorised as the ‘Third World’ to the ‘First’. While the nature of the migrants (for instance, whether they are blue-collar or white-collar workers) and the conditions of their migration (very broadly, whether it is considered legal or illegal, and if the former, the constraints on their travel visas etc.) varies across different contexts, they do share a crucial trait. For the most part, these migrants have come to constitute diasporic communities that have retained close links to their homeland; and they tend to maintain these links through a constant and growing stream of remittances.

As estimated by the World Bank, in 2013 alone, the amount of remittances that flowed to developing countries amounted to USD 404 billion, an increase of 3.5 percent over the previous year. Among the largest recipients of officially recorded remittances were countries like India (USD 70 billion), China (USD 60 billion), the Philippines (USD 25 billion) and Mexico (USD 22 billion), followed by others like Nigeria, Egypt, Pakistan, Bangladesh, Vietnam and Ukraine. But perhaps smaller and lower-income countries provide a starker picture when it comes to understanding the significance of remittances. For a country like Tajikistan, for instance, remittances last year amounted to 52 percent of the GDP; for the Kyrgyz Republic, 31 percent; and for Nepal and Moldova, 25 percent.

Given these kinds of numbers, it is not surprising that international financial institutions as well as the governments of the recipient states have become invested in facilitating the flow of remittances. The World Bank has determined that migrants pay an average of 7.9 percent of the total amount of money being sent home as transaction costs on both ends. Consequently, it has been pushing for states to adopt measures that would reduce this cost to around 5 percent, saving migrants around USD 16 billion per year. While this policy is yet to be adopted, receiving states, on their part, have engaged in a concerted effort to streamline the process of transferring funds across borders. However, this is merely one part of the story. There is another critical statistic pertaining to diaspora remittances: even when based solely on the recorded government data, remittances account for nearly three times the official development assistance (a measure of the international flow of aid) provided to developing countries. In this context, it is not surprising that policymakers at both national and global levels have greater ambitions in highlighting the importance of diasporas than the mere pursuit of increased remittance flows. What they seek are ways to channel the economic resources of diasporas into direct investments in national economies, whether it is in the private sector or some version of the public sector. In other words, the mantra these days is not so much remittances per se, as much as it is Diaspora Direct Investment.

The arguments supporting the conscious, intensified drive for DDI are at one level quite familiar. Supporters argue that this form of investment can spur growth across sectors and in different ways. These investments, it is claimed, serve to increase capital stock and provide greater liquidity to developing economies, even as they improve domestic capacity to carry out essential research and development. In addition, diaspora-led multinational firms entering the market provide new technology to local businesses and customers. In doing so, they can improve the supply chain and reduce the overall costs of the multinationals’ own overseas operations. The overall effect, therefore, is said to be an improvement in the efficiency and productivity of business operations, increased profitability and improvement in the welfare of consumers.

As even a cursory perusal of the justifications outlined above should make evident, the arguments in favor of DDI are almost exactly the same as those made about the critical importance of FDI in general. However, what is noteworthy is that these arguments are contingent on presenting DDI as a better alternative to FDI. Unlike the latter, it is argued that DDI is driven by those who have social and familial connections to the country they are investing in, and thus, have a better sense of the various political and cultural nuances of doing business across borders. Their return to the country of origin in the guise of investors adds to the general stock of human capital, while reversing the ‘brain drain’ trends of earlier decades. Because they are dealing with co-nationals of a sort, diaspora investors, it is argued, are even more likely than foreign investors to enable the spillover of technological know-how to domestic firms. Such investors are said to have a greater stake in the timely and efficient completion of specific projects as well as the overall welfare of the general population, in part due to a sense of national pride and duty to the homeland. Furthermore, unlike with FDI, where most profits tend to eventually flow out of the country, DDI is said to promote ‘capital recycling’, with a significant portion actually staying on in the developing country. To put it crudely, the fact that the investment comes from sources that might be considered ‘native’ (or at least formerly ‘native’) as against ‘foreign’ makes DDI seem more reliable, flexible and also more directly linked to the prospect of economic growth.

These arguments, supporters of DDI claim, are not merely abstract assertions given that they have already been proven to be true in specific national contexts. In particular, the Chinese case is constantly highlighted as indicative of how DDI can be used to spur economic growth. The story of China’s emergence as a major world economic power has now gained almost mythic proportions amongst politicians and policymakers proposing economic reforms. A critical part of this narrative pertains to how the country transformed itself from a land shunning FDI to becoming one of the world’s foremost destinations for investors. The numbers tell their own story in this regard. In 1980, China attracted a mere USD 596 million in FDI. By 2013, this number had grown to a record-breaking USD 117.6 billion. What is even more striking is that a significant portion of that investment – well over 50 percent as calculated over the past three decades – came from overseas Chinese, particularly those living in Hong Kong, Taiwan and the Pacific Rim. As FDI analysts have noted, some of these numbers are a bit dubious, given the ‘round-tripping’ – i.e., a noticeable trend of investors from mainland China redirecting their capital through neighboring countries in order to benefit from the special FDI/DDI incentives. However, that fact is not allowed to mar the main story. China’s ability to attract DDI, it is argued, set it on the path of becoming the world’s largest economy, and therefore it only makes sense to assume that the policies it followed would be a workable blueprint for countries that possess a substantial diaspora.

Following this logic, the World Bank, for instance, has formally established a special task force that helps clients develop and institute “innovative financial instruments” such as diaspora bonds aimed at leveraging “migration and remittances for national development purposes”. The ultimate promise of such instruments is, of course, the replication of the Chinese growth story across borders. It is these developments that form the context of diaspora policies being touted as a critical link that help economic reforms mutate into economic growth in varying national contexts. India is no exception to the rule.

Investing in the diaspora
In many ways, India is the country that is most comparable to China in terms of the strength and relative economic power of the diaspora. The government-established High Level Committee on the Indian Diaspora (2001) estimated the global Indian diaspora population at roughly 20 million, around 1.9 percent of the total Indian population at the time. The figure for the Chinese diaspora, calculated by Global Commission on International Migration (2005) was between 30-40 million, approximately 2.9 percent of the Chinese population. As mentioned earlier, the Indian diaspora today is the source of the largest flow of remittances in the world, followed closely by the Chinese diaspora.

There are however many differences between the Indian and Chinese diasporas (even before one gets to the distinctions within the groups themselves), including the history of emigration, their geographical locations and professional profiles. But the one that concerns Indian policymakers the most is the difference pertaining to levels of investment. India has not been as successful in attracting the same levels of FDI as China. While that is considered a problem in itself, what is even more problematic from the policymaking perspective is that in contrast to the Chinese diaspora, the Indian diaspora’s contribution to the total investment flowing into the country is estimated at less than 5 percent. It is this issue – the question of why India has failed to attract DDI at levels comparable to China – that has formed the crux of deliberations amongst those studying the Indian state’s changing relationship to its diaspora, be it academics or policymakers.

To a large extent, these studies and policy briefs stick to a common narrative structure. Many of them begin with a quick sketch of the history of Indian emigration, pointing to the significance of the colonial era in the creation of specific pockets of the diaspora in parts of Africa, Southeast Asia and the Pacific islands, before moving to a discussion of post-Independence migration. This migration, which became more marked by the mid-1970s, was primarily towards the West, but followed two distinct trajectories. One, focused on West Asia, comprised of the migration of primarily blue-collar workers to the oil-rich economies of the Gulf countries. The other, directed towards the countries of Western Europe and North America (particularly the United States), consisted of the migration of highly skilled white-collar workers and their families. Unlike the migrants of the colonial era, these migrants, whose very existence led to the creation of the legal-juridical category of the non-resident Indian, retained close ties to their homeland, becoming a reliable source of remittances and transforming familial fortunes and in certain cases, even local state economies (particularly in Kerala).

By the early part of the new millennium, one particular group within this new Indian diaspora – trained IT professionals who had already played a critical role in shaping the American Silicon Valley – was willing to redirect their expertise and financial resources to India. The support they were offered by the various Indian governments during this period allowed members of the Indian diaspora to help shape the country into a powerhouse in the field of information technology. Unfortunately, however, this success has not been replicated across other sectors, where the involvement of the diaspora has been virtually non-existent. The reason for the lack of DDI across sectors, it is then asserted, is the absence of real structural transformation of the Indian economy. This then becomes the basis of the policy prescriptions that follow.

For all the claims made over the past two-and-a-half decades about economic transformation, India, it is argued, remains far from a hospitable destination for direct investment. This state of affairs is considered to be quite tragic given the profile of the over 20 million strong Indian diaspora, its considerable wealth (with one recent report estimating it at USD 1 trillion and an annual income of USD 400 billion), technical skill and expertise. India’s failure to capitalise on this ‘accomplished group’ and its effort to ‘lure them or their capital back’ is presented as a strategic blunder. It was after all the strong commitment by the Chinese Communist Party to follow through and provide favourable conditions for investment, particularly in the industrial and manufacturing sectors, which provided the impetus for China’s phenomenal economic growth. The Indian state, given its sizeable, wealthy, and skilled diaspora, has the same kind of raw material available. All it needs are the right structural incentives, particularly less government regulation, greater labour flexibility and adaptability. These measures would help ensure that economic resources as well as technical and business know-how of the hugely successful Indian diaspora are channelled into DDI, and into the replication of China’s growth story.

This narrative is noteworthy in part because versions of it (with minor variations about the historical specificities of particular migrations) can be found in analyses of diaspora policies across national contexts, and those commissioned by various international organisations. What is more significant is that it reveals how the focus on DDI serves to further a very specific political-economic agenda. The starting point of any analysis of the economic potential represented by migrants is of course the diasporas themselves. But, with a few quick sleights of hand, diasporas in general tend to become those who have the ability to invest in sectors such as industry, technology or finance (by definition, a much narrower stratum of entrepreneurs), and the barrier to the realisation of their potential becomes the insufficient embrace of neoliberal restructuring.

Historically speaking, this is not a novel move in the annals of Indian politics. There is a common myth that the Indian economy was only freed from its archaic socialist leanings by the much-needed economic reforms of 1991. Even without going to the question of how ‘socialist’ the Indian economy ever was, it is important to correct this misapprehension. The structural reforming of the Indian economy had begun much earlier than 1991, even though there had been attempts to give it a different gloss. Indira Gandhi’s government, which had embarked on this programme in the early-1980s tried to pretend that the economic restructuring was part of unilateral domestic initiative, unconnected to the major IMF-loan that it had received. There was even a new term coined for the set of policy initiatives that the Indian government put forth – ‘homegrown conditionalities’ – which strangely enough coincided with the kind of deregulation otherwise insisted upon by the IMF.

It was under the aegis of this restructuring that the figure of the NRI-investor first strode into political centre stage. Mrs Gandhi’s NRI Portfolio Scheme, introduced in 1982, allowed for portfolio investment in Indian companies by “non-residents of Indian nationality or origin”, or companies that were owned by such non-residents to the extent of at least 60 percent. The scheme soon ran into rough weather with one particular case involving the UK-based Swraj Paul becoming a cause célèbre. The legal battle between Paul and two major Indian companies (DCM and Escorts Ltd) involving claims of a hostile takeover was a protracted affair that quickly devolved into a referendum of sorts about the nature of the Indian economy as well as the dubious figure of the diaspora investor. It ended with a temporary setback for both Paul and those pushing for deregulation.

The changing nature of the global capitalist economy as it moved from the Keynesian phase to the neoliberal phase resulted in the realignment of social forces amongst the ruling class across the board. Without going into the details of the political struggles that ensued, it should be noted that in India this realignment saw the weakening of the old storied industrial faction of the bourgeoisie that had long roots in the nationalist movement, and the gradual emergence of a new faction which embraced the ‘sunrise industries’ and favoured privatisation. The main implication of these changes was that within the span of a decade since the attempts by Mrs Gandhi’s government, neoliberal economic restructuring was not only back, but presented as the only way forward. And to provide the ‘homegrown’ gloss, with it returned the figure of the successful NRI, the ‘global Indian’ who was only waiting for these reforms to reinvest in the motherland.

It is perhaps apt that the same Swraj Paul, who was once reviled in the Indian Parliament for representing rapacious foreign interests, has become emblematic of this new valourised investor. Already much feted by the Indian government, Paul took the stage at the 2014 regional Pravasi Bharatiya Divas celebrations in London. Speaking after External Affairs Minister Sushma Swaraj, Paul used his own experiences to claim that expatriates have wanted to give back to India since the 1980s, but had been prevented from doing so because of “some members of the establishment, some politicians and local business community”. To encourage the diaspora to invest in the country, Paul concluded, India needed to remove the “barriers” to “expat engagement” and simplify its rules. In other words, to ensure the flow of DDI, what was needed was a greater commitment to deregulation.

FDI by other means
The idea that migrant populations around the world might be interested in investing in their homeland, and shaping its future, is not in itself a preposterous proposition. In a historical sense, and certainly in the Indian case, populations abroad have been an intrinsic part of political struggles waged in their homeland. What is problematic, however, is the attempt to harness and direct this investment in the service of a particular understanding of economic growth. The notion of DDI, as distinct from the more spread-out remittances, is but the continuation of FDI by other means. In fact, other than claims of a co-national origin, there is nothing to separate the diaspora investor from another foreign investor. So, in pursuing this line of thought, it might be useful to ask whether the events of say, Nandigram, would be any different from the perspective of the local inhabitants, if the investors in question had belonged to Swraj Paul’s Caparo Group as against the Indonesia-based Salim Group.

The returns sought by investors, whether diasporic or foreign, are premised on the guaranteed existence of certain conditions. Euphemistically termed ‘flexibility’ or ‘adaptability’, what these conditions actually mean are low wages, and removal of any existing protection for workers – such as can be found in the Special Economic Zones (SEZ). The idea behind an SEZ is to create a small enclosed territory within a country where a different set of regulations (land, labour and tariffs) apply in order to attract businesses that would supposedly not consider opening operations under other conditions. Under the SEZ law passed by the Indian Parliament in 2005, for instance, the benefits offered to potential investors include a five-year holiday on profit taxes, exemption from import and export duties, and fewer licensing requirements. Furthermore, investors are also given the leeway to treat the land harnessed for the SEZ as a property deal, since by law only 50 percent of that land needs to be used for industrial activity. While the deal might be tempting for investors, it is important to note that the territories targeted as potential SEZs are not unoccupied lands. To establish such zones requires the displacement of the people who live and labour on the land, and in most cases – as seen in Nandigram – the process is far from peaceful or just. In the long run, the growth it promotes thus remains far from equitable. In fact, if one looks closely, the Chinese story should serve more as a cautionary tale than as a model.

China, the country that is touted as the model for DDI, ranks amongst the most unequal societies in the world today. As the People’s Daily pointed out, around twenty years ago, the Gini coefficient (zero representing absolute equality and one representing absolute inequality) for family net wealth in China was 0.45. By 2012, the measure of the country’s inequality stood at an astonishing 0.73. According to reports from Peking University, a third of the country’s wealth is concentrated in the hands of one percent of its population, with the poorest quarter of citizens owning about one percent of the total wealth. It is this kind of ‘growth’ that is presented as the prize that can be won with the participation of diaspora investors. For this reason, the notion of DDI deserves closer critical scrutiny.

~Latha Varadarajan is an associate professor of political science at San Diego State University. She is the author of The Domestic Abroad: Diasporas in International Relations and Imperialism Past and Present (co-authored with Emanuele Saccarelli), published by Oxford University Press.

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