By clearly stating that no more work visas will be given to unskilled and semi-skilled labourers from China, the government may have ended the political controversy surrounding the issue of temporary workers from China. An estimated 30,000 Chinese workers of such type had been working on various projects?mostly power projects?across India. The decision, however, raises some uncomfortable questions for the government.
Remember, that most of these Chinese workers are not employed by Chinese firms who have set up shop in India. In fact, the big users of imported Chinese labour are Indian firms. The government says that there is no ?need? for imported labour in the unskilled and semi-skilled category, because there is plenty available locally and arguably at comparable or even lower wage rates. While that may indeed be the case, the government seems to have turned a blind eye to understanding why Indian firms, driven as they are by the profit motive, still choose to import such labour (that would normally involve a higher cost than recruiting locally).
From all accounts, there are two reasons why firms are opting to import labour. First, and most critically, India?s archaic labour laws?which the broader polity has little interest in reforming?are a huge disincentive for firms to hire workers on their payroll. For firms which work on a project to project basis, it is impossible to hire labour on a ?permanent? basis, as is required by our labour laws, which frown upon ?hire and fire.? Given that constraint, firms are forced to outsource their labour requirements to another party. This, of course, raises the cost?the firm which gets the outsourcing deal will obviously charge a commission above the regular charges for labour. It also creates a larger principal-agent problem, because the outsourced, contracted labour does not have a direct stake in the firm or project they are working on.
Add to this the fact that Indian labour?and this is the second reason for importing labour?in general works at lower productivity levels than similarly skilled labour from China. Anecdotal evidence suggests that Chinese workers put in longer hours and complete projects at a much faster speed than Indian workers do. This is not to argue that Indian workers are inherently less competent or hardworking?it?s just that work ethics and working cultures are different.
However, for senior management at profit making companies, what matters most is efficiency, not culture and nationality. They are, therefore, making the right decision by importing labour from China. As far as projects get completed faster, it involves a huge benefit to the Indian economy at large.
So, from the viewpoint of economic efficiency, the government has made a bad decision by restricting the import of temporary unskilled and semi-skilled labour from China. And if the government wants Indian firms to hire Indian labour, there are better, more efficient solutions. The first best solution is to reform labour laws to make them more flexible. But if they don?t want to go that far for political reasons, just allowing competition from Chinese workers would have forced Indian workers to become more professional and efficient, if they wanted the same jobs. By completely restricting competition from outside, there is no incentive for Indian labour to improve its standards.
It may seem cruel to equate human labour with physical goods but the economic construct is the same?trade is good and free trade is optimal. Look at what years of trade protectionism did to the quality and standards of our industry and look how they have lifted their game after liberalisation. Competition is always good and that goes for labour as much as for physical goods and services. The government has missed this important nuance by simply banning the import of unskilled and semi-skilled Chinese labour. Instead, the government should focus on skill upgradation and training of locals so that firms hire them out of free choice.
Interestingly enough, the government has also, perhaps unwittingly, ceded the high ground India traditionally holds on permitting greater mobility of labour (particularly temporary workers) in international negotiations, particularly at the WTO. It is, after all, the rich, developed countries which are protectionist about the movement of labour with low skills. We have little ground to stand on if we ask the EU, for example, to liberalise its laws to allow temporary workers from India, when we don?t allow Chinese citizens a similar privilege. Of course, the West and Gulf countries need low skilled immigrant labour because there is a scarcity whereas in India the issue is of productivity and labour laws, not scarcity?a quality rather than quantity problem. Still, it doesn?t help to appear to have double standards.
If the government is really serious about helping low skill Indian labour, it should reform labour laws immediately, rather than play populist politics.
dhiraj.nayyar@expressindia.com