Let us make in-depth study of the dangers and risks of globalization for India.


Globalisation is not without dangers and risks. Stakes of poor countries like India are much higher for pursuing pro-globalisation policies.

The historical experience of the colonial period shows that free trade and capital inflows helped imperialist countries more than the poor under-developed countries. With help of free trade and capital investment in some particular spheres, the developed countries exploited the poor countries which happened to be their colonies and drew away resources from them.

With achievement of independence by the developing countries, though the situation today is vastly different but the developed countries has not shed their behaviour of promoting their own interests at the cost of developing countries. In fact, as has been stressed by Joseph Stiglitz, a Nobel Laurate in economics, that while US and European countries preach free trade and globalisation, they actually practice protectionist polices to safeguard their domestic industries.


Imposition of tariffs on imports of steel and grant of subsidies on farm products and cotton textiles by the developed countries such as the USA to protect their domestic industries which caused wide­spread protests around the world is a shining example of such double standards. To quote Stiglitz, “I have always been struck by the divergence between the policies that America pushes on develop­ing countries and those practiced in the US itself”. Therefore, he advises that the developing countries should look carefully not what America says but at what it did in the years when America emerged as the industrial power, and what it does today.

Even Dr. Manmohan singh who has been the votary of free trade and free capital flows between countries in his address to the United Nations General Assembly in September 2011 said that recent events had called into question that globalisation would always do social good. He lamented the tendency on the part of developed countries to adopt protectionist policies to protect their own inter­est at the cost of the developing countries. To quite him, “Till a few years ago, the world had taken for granted the benefits of globalization and global interdependence. Today we are being called upon to cope with the negative dimensions of those very phenomena.”

An important disadvantage of globalisation is the danger posed by free flows of capital, espe­cially portfolio capital, which are highly volatile and are a source of great macroeconomic instability. When there are large capital inflows into a country, the currency of a currency appreciates which makes its exports costlier and therefore cause reduction in them which not only adversely affects its current account balance of payments but also adversely affects its levels of GPP and employment. Besides, excess capital inflows in an economy lead to the expansion on money supply and if not sterilized-by the RBI will add to the inflationary pressures in the economy.

On the other hand, when there are large capital outflows from an economy they cause deprecia­tion of the national currency which though tend to increase its exports but carry some risks. First, depreciation makes the imports more expensive and therefore leads to the rise in prices of commodi­ties and raw materials imported from abroad and causes cost-push inflation in the economy.


Further, depreciation of a national currency, say the Indian rupee, will raise the burden of external debt as more rupees are required to pay for a US dollar. Further, countries like India badly need foreign capital flows to finance its current deficit. In the absence of adequate capital flows, some US dollars will have to withdrawn from foreign exchange reserves resulting in the decline in our foreign exchange reserves. As foreign exchange reserves are available in limited quantity in the absence of adequate capital flows to India year after year deficit in current account cannot be easily financed.

Therefore, in view of the present author, case for globalisation, is theoretically quite sound. If promoted in its true spirit by all countries, it would lead to rapid economic growth in both the devel­oped and developing countries. But, the developed countries are interested in promoting their own interests even at the cost of the poor developing countries on whom they impose policies of liberalisation and globalisation through their greater say in World Bank and IMF.

Therefore, globalisation and reduction of tariffs and removal of quantitative restrictions on imports from US, Japan and European countries, carry a good deal of risk for them. This is quite evident from the recent failure of talks held under the auspices of WTO at Doha, Seattle and Cancun.

These talks to liberalise trade between the developed and developed countries failed because US and EU (European Union) were not willing to reduce huge subsidies they are providing to their farmers on agricultural products and also subsidies on exports of these products.


This support by the developed countries to their farmers prevent agricultural exports from the developing countries. In this way exports from developing countries are prevented even when they enjoy comparative advantage in their production. That is why the people of the developing countries of Asia, Africa and Latin America are protesting against them during the multilateral talks being held under the auspices of WTO.

US’s Tariffs on Imports of Steel and Subsidies on Cotton Textiles:

Besides, another example of protectionist’s policy of US is its imposition of the higher tariffs on imports of steel and subsidies on cotton textiles which prevent exports of these commodities from the developing countries, especially African countries and India. USA tried to use some provisions of WTO agreements re­garding use of “safeguards for protecting employment” to defend these import tariffs and subsidies on cottons textiles.

Recently, in Nov. 2003, WTO dispute settlement body has given its verdict against the imposition of higher tariffs on steel by the USA and has asked it to scrap them. The reluctance of USA to remove tariffs on imports of steel and subsidies on cotton textiles is against the spirit of globalisation.

Efforts in USA to ban BPO:

Through business process outsourcing (BPO), American firms and businesses are getting various types of services such medical transcription, insurance connected work, various types of office jobs done through telecommunication and computer internet in call-centres from India.

This BPO has created good deal of employment opportunities for Indian educated youth. But recently there is anti-BPO campaign in the USA and UK. Some US states are even trying to enact laws to prevent BPO and thereby use of foreign (Indian) cheap skilled labour.

This is against the spirit of free trade as India has a comparative advantage in these business processing services because of its educated skilled labor is available at comparatively much lower wages. Some Americans have argued “our resources should not be used to create jobs overseas when we have skilled workers and unemployment at home”.

But business processing services for American business firms are like exports from India based on comparative costs advantage and therefore to prevent them to protect employment of American labor is an argument in favour of protection.