The 1% visa limit for employing foreign workers in India-based projects announced by the ministry of labour and employment?even as the ministry of power is scrambling to get employment visas to ensure completion of 4,000 MW of power projects with Chinese equipment this financial year?indicates the growing dilemmas confronting Indian policymakers in a fast globalising economy.

On one hand the rapid increase in demand for skilled workers, funnelled by the growing investments in infrastructure, has necessitated larger use of foreign workers in sectors like power, gas, road, port and air transport. On the other hand the government sees the increasing inflows of foreign labour as a hindrance to the full utilisation of local skill.

Such a domestic policy stance also flies in the face of persistent efforts being made by India at the WTO to liberalise the movement of mode 4 service suppliers, whereby individuals can travel from one country to another to supply services. Commitment made by most countries on mode 4 under Gats has been largely limited to high-skill categories like managers, executives and specialists, and intra-corporate transfers. While pledges made on movement of highly skilled workers account for 40% of the commitments, 50% are accounted for by inter-corporate transfers. And the Indian policy stance can only complicate the developing countries? efforts to further liberalise developed country commitments on low-skill personnel, which are now very limited and restricted to a handful of countries.

A major problem in liberalising trade in services under mode 4 in India and the world over is that the temporary use of foreign labour is governed by immigration legislation and labour market policy, and not by trade policy. So far, the resistance to the liberalisation of trade in services under mode 4 has been confined to developed countries, which try to restrain flow of foreign workers through complicated administrative procedures, quota restrictions for visas and strict limitations on entry. And this is a major barrier for developing countries who see a great opportunity to reap the gains from liberalisation of services trade through movement of skilled and semi-skilled workers.

But despite such restrictions on supply of services through mode 4, many developing countries have gained from the export of skilled and unskilled labour. While Germany is an important destination country for workers from Turkey, Pakistan is an important destination for Afghan workers. In the case of Indian workers, the major destinations include the Gulf countries and the US. The countries with the largest number of emigrant Indian workers include Saudi Arabia (1.8 million), the UAE (1.8 million), the US (0.9 million), Oman (0.7 million), Kuwait (0.6 million), Qatar (0.4 million) and Singapore (0.3 million).

And developing countries have gained massively from the flow of migrant workers as it has helped accelerate the flow of remittances to the source countries. The flow of workers? remittances to the developing countries has shot up from $85 billion in 2000 to $188 billion in 2005 and then surged up a massive $285 billion by 2007. Estimates are that it has now touched $328 billion in 2008. India has been the biggest gainer with remittances touching $52 billion in 2008. This makes India?s hard policy stance on workers visas all the more perplexing, especially since the country has gained substantially from the supply of skilled and unskilled labour.

The gains made by developing countries are largely because developed countries faced with demographic problems and high-wage workforces have sought to allay some of their problems by importing foreign labour. The most prominent among the foreign labour employers is the US, which employed 3.2 million foreign workers by the middle of the decade, followed by Japan with 2 million workers, the UK with 1.9 million workers and Australia with 1.8 million workers.

What makes the India visa restriction even more galling is the uniform 1% limit for all companies and sectors. Experience across the world shows that the need for foreign workers varies sharply across sectors. In the case of the US, the largest share of foreign-born workers was in education (15%), followed by wholesale & retail trade (13.7%), mining, manufacturing and energy (13.6%), construction (11.5%) and agriculture and fishing (2.5%). In sharp contrast, the share of foreign-born workers in Germany was the highest in mining, manufacturing and energy (29.3%) followed by wholesale & retail trade (14%), health and community services (10.2%), hotels & restaurants (7%), construction (6.3%), and education (4.4%). Indian policymakers would hence do well to work towards a more liberal visa policy to match the requirements of an increasingly sophisticated economy.

p.raghavan@expressindia.com