Date:24/05/2007 URL: http://www.thehindu.com/2007/05/24/stories/2007052405841900.htm

Business

SEZs' role in job creation open to question: WTO

Special Correspondent

Wants farm sector's problems addressed

CHENNAI: The WTO Secretariat, in its report prepared for India's fourth trade policy review (TPR) taking place in Geneva from Wednesday, has said that cost effectiveness of schemes like Special Economic Zones, and 100 per cent export-oriented units and tax holidays for investors in generating incremental investment and employment "is open to question".

The report said, "as many of the industries attracted, especially by the SEZs, appear to be capital intensive, it is not clear that this is the most effective way to create employment opportunities, especially for the less-skilled labour force". It noted that according to India's Finance Ministry, revenue forgone from such schemes was Rs. 53,800 crore in 2006-07, with an additional Rs. 2,100 crore estimated for the SEZs

In respect of the agriculture sector, it said "labour productivity is only around one-sixth of its level in the rest of the economy... Public investment in infrastructure and research has been inadequate due to crowding out by spending on direct and indirect subsidies to the sector". It noted that the contribution of agriculture and allied activities to the country's GDP continued to decline, from 23 per cent in 2001 to 18 per cent in 2005-06.

It noted that further growth in manufacturing "is hampered by a lack of infrastructure and labour market rigidities" besides high tariff barriers in some sectors like textiles and clothing and automobiles.

The WTO said public expenditure on infrastructure and human capital development is constrained by the "relatively low level of taxes as a proportion of the gross domestic product (GDP)" as well as by spending on subsidies. Structural reforms needed to be accompanied by a monetary policy that contained inflationary pressures. Deeper reforms were also required in agriculture to "address the sector's relatively low productivity and the problems of marginal farmers, reflected in social indicators such as poverty and infant mortality". Continued structural reforms and greater investment in physical and human capital would help India reap the "demographic dividend", the WTO added.