Rationing foreign workers

Rationing foreign workers

India has had a good crisis—investments, stock markets and job creation have come roaring back and, unlike in the West, there is no question that the future is better than the past. That’s why India’s new immigration policy strikes a jarring note. But a few more words on the country first.

India has had a great couple of decades—more children go to school, infant mortality is down and per capita income growth is corroding structural poverty, hunger and lack of shelter. An internship in India is the hottest resume story in top global business schools, and India experience is so much in demand at multinational companies that some are doing away with the patronizing “hardship allowance". India’s rise saw the clubby Group of Seven countries invite us to join the Group of Twenty. And our cultural soft power—yoga, music, movies—has never been greater.

But while we celebrate our progress relative to where we were a few decades ago, our objective lies in where we need to be. At least 45% of our children are malnourished, 58% of our youth suffer some degree of unemployability and there are more cellphones than toilets in the country. It is crucial, therefore, that we avoid anything that sabotages the resources and growth flowing our way. Our attitude to foreign workers has an important bearing in this context.

Unfortunately, India’s new immigration policy seems to have been counselled more by fear and ego rather than reason. It caps the number of foreign workers at five for smaller organizations and at 20 for bigger ones. Indian missions abroad have been authorized to grant job visas for up to 1% of the total employment of an Indian company, subject to a maximum of 20, though this rule will not apply to IT (information technology) and IT-enabled service (ITeS) companies. It also creates a salary floor of $25,000 for workers in these two categories. If an Indian company wants to hire more than 20 foreign nationals, it will have to apply to the ministry of labour in New Delhi. This policy is economically irrational, arbitrary and inconsistent with a rising India. Let’s look at why.

Economically irrational

To paraphrase Mark Twain’s words, there is always a good argument and a real argument. The good argument is that India has more to gain from open borders for capital, technology and labour, and we risk retaliation from other countries by implementing such caps. This holds true even in the face of “chop shop" characterizations of companies such as Infosys.

But the real argument is that poverty reduction comes through improvements in the productivity of people. And the fastest way to improve productivity is to spice up the recipe. China’s export model made it the workshop of the world—greatly increasing labour productivity, quality and skills. This is now leading to higher wages. India’s IT and ITeS companies serve the world, but their expatriate hiring is mostly offshore and market facing. The large bulk of our economy is driven by domestic consumption and investment, and there are many sectors—healthcare, education, hospitality, retail and so on—which can see productivity leaps by hiring people who have seen the movie before. Acquiring foreign talent is a better policy than foreign investment, though both are desirable.


The new policy’s use of company size as the key variable for calculating immigration eligibility is random. Why 20? Why 1%? Why create discrimination with a higher minimum wage of $25,000 for foreigners? Why the bias against labour-intensive sectors? Why exempt IT and ITeS businesses from the cap? Why not extend the waiver to labour-intensive service businesses such as hospitality, healthcare, education, retail and so on? Shouldn’t all skill and labour-intensive businesses receive priority over capital-intensive ones? Wouldn’t India be better off with experienced masseurs, chefs, teachers, and nurses who would act as master trainers in apprenticeship programmes that spread and upgrade skills? On what basis will the labour ministry grant “licences" to hire foreigners? The track record of the ministry in the current corrupt and random licensing regime of contract labour does not create confidence, especially because visa approvals require more nuanced and complex judgement. Fundamentally, this immigration policy creates a licence raj that will breed corruption, regulatory arbitrage and discontent.

Inconsistent with rising India

When I landed in the US for my MBA in 1994, The Wall Street Journal had a front page article saying India was more interesting than important. That has changed: The global economic crisis has reinforced the fact that we don’t have to be Western to be modern. India missed its tryst with destiny for the first 40 years after independence. But its recent rise has created hopes for an even better future. Countries—like people—which are confident of their capabilities and culture do not act defensively or worry about spiteful reactions to past wrongs.

India’s genius for centuries has been openness to foreigners because of our self-confidence in assimilating their genius. This is not the time to review that strength by creating an immigration policy that can only hurt us.

Manish Sabharwal is chairman, TeamLease Services.

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