How morality and ethics shaped India’s economic development

In a world leaning away from globalization, governments face a tough choice: Should they block dominant foreign companies to protect local businesses, or welcome them in hopes of fast-tracking economic growth and modernization?

In his recently published book, "Traders, Speculators, and Captains of Industry: How Capitalist Legitimacy Shaped Foreign Investment Policy in India" (Harvard University Press, November 2025), Jason Jackson, associate professor in political economy and urban planning in the MIT Department of Urban Studies and Planning, explains that these policy decisions aren't just math, but long-standing and often heated moral debates over how businesses should conduct themselves, and who they serve.

Jackson argues that morality has a long history in economics and deserves more attention because, while ever-present in economic policy discourse, moral beliefs are often under-recognized or underappreciated.

"India is an exemplary case of ways in which moral beliefs shape economic policy decisions," says Jackson. "But at the same time, I think it's representative of a general feature of capitalism. It's the perfect case."

Jackson's focus on India for this book stems from his interest in industrial policy and the politics of international development. Multinational firms have long been a source of controversy. They are seen as bringing two crucial resources to developing countries: finance and technology. However, while multinationals are potentially valuable contributors to economic development through the mechanism of foreign direct investment (FDI), they can also be monopolistic, dominating local industries and displacing domestic firms.

This long-standing tension in foreign investment policy became the backdrop for several emerging markets in developing countries - Brazil, Russia, India, China, and South Africa (BRICS) - in the early 2000s. India was growing at an extremely high level - 6-7 percent annually - and Indian companies were doing well, including those in industries that were seen as key to development, such as autos. Jackson wanted to understand why Indian companies were holding their own relative to foreign firms, which dominated more manufacturing in other places, and planned to focus on the period from the 1980s through the 2010s that coincides with the period of economic liberalization in India and, more broadly, with globalization. But while conducting field work, Jackson noticed that in describing how they made industrial policy decisions, Indian policymakers drew distinctions between firms that were fashioned in moral terms. There were some firms that policymakers believed would invest in technology and provide good jobs, and other firms - both foreign and domestic - seen as exploitative and not interested in engaging in activities that would advance economic growth and industrial transformation.

"I realized these distinctions had deep salience," says Jackson. "My interlocutors would describe firms - especially foreign firms they saw as simply trading, or as exploitative - as 'New East India' companies, referencing the famous East India Company that was the governance authority in colonial India, but had been defunct for more than 150 years. That forced my research to become more historical, increasingly relying on archival work to make sense of these moralized distinctions between different types of business actors, whether foreign or domestic, and to understand how these beliefs became so powerful across Indian society."

"Moral categories of capitalist legitimacy"

Jackson says there are several ways in which social scientists think that policymakers make decisions. One view considers the competing interest groups policymakers must negotiate with, in which case outcomes may depend on one group having more influence or power than others. Another approach assumes these individuals make decisions based on self-interest, particularly when their choices are perceived as corrupt.

"But what I found is that neither of these approaches gave enough credence to the ways in which policymakers in India grapple with quite technical and complex policy decisions regarding the type of development they want to promote in their country, and the types of companies they thought could help to achieve their development goals." says Jackson. "Therefore, I was more interested in trying to understand what kind of ideas and beliefs animated their decision-making."

What Jackson found was that Indian policymakers viewed both foreign firms and local Indian companies through what he terms "moral categories of capitalist legitimacy." Would these firms invest in productive technologies? Would they provide good employment for the local population? Or would they be exploitative? These criteria were not only applied to multinational corporations. Even Indian family-controlled business groups were evaluated as to whether the gains accrued stayed within the confines of the extended family or whether they provided broader societal benefits.

Coca-Cola goes to India

The story of Coca-Cola in India is an example of the tension experienced with regulating foreign investment where multinational companies were seen as exploitative. The company made its initial foray into India in the 1950s, and over the next two decades its reach became extensive. In the late 1970s, India's Minister of Industry George Fernandes was visiting a village in Bihar - a state with one of the highest levels of poverty - when he asked for a glass of water. Instead, he was told the water was not suitable to drink, and was given Coca-Cola.

"This struck Fernandes as deeply problematic," says Jackson. "He later recalled thinking that 'after 30 years of freedom in India, our villages do not have clean drinking water, but they do have Coca-Cola - which, of course, is made with purified water, so safe to drink. How was this possible?'" Fernandes returned to his office in New Delhi determined to do something about it.

Just a few years earlier, India had passed a law, the Foreign Exchange Regulation Act (FERA), which required foreign companies to dilute their equity to no more than 40 percent. The law was explicitly designed to encourage technology transfer, but Coca-Cola had not complied. Fernandes told Coca-Cola that it had to take on an Indian partner or it would have to leave. Coca-Cola chose the latter. In the following year, IBM was also kicked out of India when it similarly balked at complying with FERA and sharing its technology.

"These companies were very much seen in the mold of the East India Co.," says Jackson. "A firm comes from abroad and extracts resources from India while giving little benefit to the country. These are all very clearly morally coded beliefs that played a crucial role in these policy decisions."

With Coca-Cola out of India, the beverage market became wide open, and several Indian companies emerged. Thums Up, an Indian cola brand - founded by Ramesh Chauhan '62 - took off and became the dominant cola by the 1980s. Chauhan developed its own unique formula independently.

In 1991, India accelerated its economic liberalization, especially around FDI, and FERA's standards were diluted. Coca-Cola returned to India, again without a partner. Other major brands, including Pepsi, had also entered the market. By then, Thums Up had a market share in India of well over 80 percent, but, concerned with its ability to compete in a war between the deep-pocketed American multinational giants, Thums Up sold out to Coca-Cola for $60 million in 1993, a figure that was later deemed to be small.

Trader, speculator, or captain of industry?

Jackson says that in India, there were two competing interpretations of this story. In one version, Fernandes kicking out a global multinational firm was seen as a developing country establishing its economic sovereignty by making a bold policy decision and "risking all kind of geopolitical blowback that might follow from the U.S.," says Jackson. "In this view, the Indian government's bold move allowed local entrepreneurs and local companies like Chauhan and Thums Up to emerge."

Yet an important counter narrative emerged that challenged the view that companies like Thums Up and figures like Chauhan are enterprising entrepreneurs.

"Maybe they just took advantage of protectionism to form a company and make some money," says Jackson. "So rather than being an intrepid captain of industry, observers wondered whether maybe Chauhan was 'simply a trader' who took advantage of policy protection, but sold out as soon as the market became competitive."

Later developments added some credibility to this view. Ironically, Coca-Cola was unable to remove Thums Up and Limca, another soda brand from Chauhan's company, from its product lineup, and both remained extremely popular and widely consumed. This suggested to many observers that Thums Up could have survived the cola wars had it not sold out to the American multinational. The public had acquired a taste for the distinctly Indian beverages that Chauhan had created.

"This narrative encapsulates this kind of tension policymakers face: If we provide policy support to our enterprising entrepreneurs and they thrive, will they also do well for the country? Or are they simply opportunists who will take advantage of policy support in ways that benefit themselves but have little broader benefits to the country," says Jackson.

This episode was just one of dozens of instances of conflicts between Indian companies and multinational firms in the liberalizing 1990s and 2000s, which the government was often compelled to adjudicate. Throughout this period, the question persisted: How would policymakers identify the business figures who could be agents of industrial development and economic transformation, whether foreign or domestic?

Ramesh Chauhan for one continued an enterprising path. He turned his attention to the bottled water industry in India and his brand - Bisleri - remains one of the country's leading bottled water brands today.