A report prepared for the fourth Trade Policy Review of India, drawn up by the WTO Secretariat, has questioned the cost-effectiveness of Special Economic Zones (SEZs) -- 100% export-oriented units and tax holidays -- in generating incremental investment and employment in India. 

Since many of the industries that SEZs attract are capital intensive, it is unclear how these can be create employment, especially for less skilled labour that needs jobs the most, the report says.

It noted that finance ministry figures put the revenue foregone from these projects at Rs 53,800 crore in 2006-07, with an additional Rs 2,100 crore estimated for SEZs. The Asian Development Bank and the International Monetary Fund have also questioned the viability of the Indian government’s promotion of SEZs, which requires dispossessing farmers of their land.  

The trade policy report lauds ongoing economic reforms but says that further reforms are necessary to sustain fast economic growth, in particular to address infrastructure bottlenecks such as transport and electricity, which continue to constrain growth.

The report adds that further structural reform is required to address the relatively low productivity in agriculture and the problems faced by marginal farmers reflected in social indicators such as poverty and infant mortality.

Continued structural reform, the report says, together with greater investment in physical and human capital would also help generate much needed productive employment for new entrants to the labour force. “This would help India to reap the ‘demographic dividend’, with one-third of its population currently below the age of 18.”

Trade Policy Reviews are an exercise, mandated in WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals. For each review, two documents are prepared: a policy statement by the government of the member under review, and a detailed report written independently by the WTO Secretariat.

May 26, 2007