17 Nov 2008, 0021 hrs IST, Sudeshna Sen, ET Bureau
LONDON: Even as India’s Rulers head back from their weekend chat with world leaders of the G-20 at Washington, the one question everyone is

going to ask them is “Where does this leave us?” In a swift series of events that has taken even globalisation experts like Paul Krugman by surprise, it seems as if the world shares the downside of globalisation – far more obviously than its upsides, given the scope and scale of the global impact of the financial crisis.

Globalisation is a risk, as well as an opportunity, and one key theme that will dominate discussions in public and private forums is the key global risks India is facing in the face of the crisis.

Recent research from the World Economic Forum identifies some key areas of risk, both domestic and international, but top of the list is the risk of an increased risk of retrenchment from globalisation. WEF estimates this risk has a likelihood of about 5-10% of happening, but could impact India on a scale of more than $1 trillion.

At the opening session of the India Economic Summit, business leaders called for countries to reject protectionism and work towards the conclusion of the Doha Round of global trade negotiations under the World Trade Organization, and reinforced faith in the multilateral system, echoing the views of the Washington summit.

There is a clear danger that rising protectionism in recession-hit countries will affect high-growth ones like India. But, WEF’s India@risk 2008 report warns that a greater risk can come from a deeper retrenchment from globalisation, which can manifest itself not only through decreased world trade, but also through countries taking a tougher stance on issues such as climate change, resource management, and the role and reform or international organisations.

Boil it all down, and the issue is – now that the global prosperity pie is becoming smaller, how do we ensure India’s share, or potential share, doesn’t get eaten up by hungry and scared economies on the other side of the world? We’re in danger of getting, using the pop-culture understanding of the concept in the US is, ‘Bangalore’d by increasingly frightened western economies.

According to the World Economic Forum’s global Risk Network, managing the impact of this risk will considerable investment over the long term from the private and the public sector to ensure domestic investment and prosperity is strong enough to counter the potential downturn – by countering energy, food and national security risks. Make sure we have enough oil, water, food, education, land and infrastructure resources, and strong domestic legal financial and political institutions that can strengthen India’s immune system against global recessionary viruses.

Another way out, the WEF recommends, is to increasingly look East, and build trade and diplomatic ties with emerging and developing economies in Africa, Asia, South East Asia, China. In short, drop the focus on the western world and focus on the rest of the world and other growing markets.

On the financial side, asset price collapses another extremely high-risk area identified by the WEF’s risk team – in the WEF global competitiveness report 2008, India is ranked 109 out of 134 countries, mainly because the government runs the world’s 127th highest deficit, and India’s government borrowings rank at 113.

“India’s dependence on capital inflows to finance its current account deficit is a macro-economic risk and the global crisis could generate a sharp increase in capital outflows and generate a further fall in share and asset prices, and reduce the availability of finance,” the report concludes. Hence, it is necessary to ensure an investment climate that encourages the domestic and international private sector to create stable dollar inflows, the study recommends. For this, land, legal and infra frameworks become essential.

Overseas, among long-term investors, especially after the Singur drama, there is a more sophisticated understanding of India, and that India is not one, but many economies; that the regional and state disparities and differences are huge. While this might make it easier for the richer states to attract FDI, it will continue to put intense internal pressure on the socio-economic fabric of the state.

There’s one upside though. The global economic crisis may be just what the doctor ordered to force our policy-makers and business leaders to stop dragging their feet, and make the structural reforms, both for domestic and international trade that will be needed to survive the downturn. Perhaps a better question to ask is not where the US recession will leave us, but what can we do?