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Last Updated: Wednesday, 20 December 2006, 11:39 GMT
India warning on globalisation
By Soutik Biswas
BBC News, Delhi

Joseph Stiglitz
Professor Stiglitz says globalisation has spurred India's economy
A Nobel-prize winning US economist has warned that public services could suffer in countries like India as a result of globalisation.

Professor Joseph Stiglitz told the BBC News website that globalisation had led to lower tariffs, an important source of public revenue.

"A decline in tariff leads to less money for the governments to spend on its people," Professor Stiglitz said.

He won the Nobel Prize in 2001 for his work on the economics of information.

The 63-year-old economist's book Globalization And Its Discontents is a scathing critique of how international financial and trade organisations are affecting economies and societies.

Professor Stiglitz said globalisation had played an important trigger in the buoyant Indian economy - it grew at over 9% in the six months to this September. But he said it had been given too much credit for the growth.

"Much of [India's] early growth [after liberalising the economy in 1991] came from a change in internal government policies - from anti-business to more market friendly policies," he said.

"I feel some excess credit was given to external liberalisation rather than internal liberalisation for India's economic growth."

Meltdown fears

Professor Stiglitz said that India also gained by its investments in sectors of higher education, which helped the country to reap the benefits of the information technology revolution.

The Indian infotech industry is expected to exceed $36bn in revenues this fiscal year, a growth of nearly 28% over last year. Export earnings contributed to 64% of the revenues.

Indian farmers
India needed to move to more 'value-added' agriculture

On the other hand, he felt that that external liberalisation had "exposed India to inequalities of the global trading system".

The large number of debt-ridden cotton farmers taking their lives across India is "clearly related" to the American agricultural subsidies that depress prices and make cotton farmers elsewhere worse off, Professor Stiglitz said.

Asked if India could face a economic meltdown of the kind experienced by Brazil and Argentina in the past leading to political and social instability, Professor Stiglitz turned his attention to the dangers posed by "excessive" liberalisation of capital markets.

"Much of the volatility in the 1990s in Latin America was related to capital markets instability. The poor took the brunt of the [meltdown] and bore the cost," he said.

"The bottom-line is, that India has so far avoided that kind of extremes."

But Professor Stiglitz warned that if the country liberalised its capital markets "rapidly, it would expose itself to the kind of volatility" which led to downturn and instability in Latin America.

Environmental impact

More importantly, he said one of the main threats to India's growth came from the increasing threat to the environment caused by "resource-intensive" growth.

"There are going to be more cars, houses, roads in the present pace of development. It is very natural. But all this is also very resource-intensive."

"The environmental impact of such resource intensive growth can be substantial given India's very large population. This can begin affecting living standards," he said.

The stock exchange in Mumbai
'Excessive capital market liberalisation could hurt India'
Professor Stiglitz said India had not managed its farm sector properly - water, he said, was already a precious commodity in large parts of the country where the water table was falling.

"[In this respect] India is living on borrowed time," he said.

On whether India could make the leap from a predominantly farm economy to more industrial one even after missing a conventional industrial revolution, Professor Stiglitz said different countries could easily have different patterns of development.

'Mixed palette'

A successful farming economy like Denmark, he said, had moved to low value added farm products to high value-added ones, and done very well.

Pointing out that jobless growth was a concern in all economies, Professor Stiglitz said India could very well prosper with a "mixed palette" of farm, service, manufacturing economies.

"I read today that India has only as many hotel rooms as New York. Now if India can promote tourism, some real high end tourism as opposed to backpacking which the country is famous for, then it can generate a large number of jobs," he said.

Professor Stiglitz feels that the economies of Asian 'giants', India and China, will continue to do "very, very well".

A car factory in India
Manufacturing is helping drive the Indian economy

On whether totalitarian systems with globalised economies work better than democratic systems with less globalised ones, he said democracy was a "very strong asset" for India.

"The difference [between the economies of India and China] has not so much do with democracy, but the failure [of India] to invest adequately in education and health".

"The successful regions in India, for example, are growing as fast as China. The challenge is how do we get the backward areas to catch up."

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