As India steps up its reforms and opens up the economy further, industrialisation moves ahead creating greater demand for power, steel, etc for user industries in the infrastructure sector and elsewhere. Creation of additional capacities in the two vital sectors has become the order of the day.

As companies from Europe and USA vie for contracts for a greater share in the pie of development, Indian developers look for easy and quicker completion of projects at competitive costs. Be it in the power or steel sectors, the Chinese, with their unstinted record worldwide for erecting projects in the shortest possible time at the most competitive rates, emerge as winners. They are the largest producer, consumer and importer of steel in the world.

No wonder several projects in the power sector and steel sector have gone to the Chinese construction companies necessitating the import of skilled labour from the land of the dragon. When all seemed to be going well, a government notification in September this year restricting the use of expatriate labour has adversely hit several power and steel projects. This has resulted in cost and time overruns on several projects.

Power sector adversely hit

The power sector having 30,000 MW of power being created by Chinese companies employing a large labour force for several state power utilities and IPPs have been hit hard. Several appeals have been made by the power secretary H S Brahma to the cabinet secretary to relax the rules for existing projects so that the Chinese workers on the projects are not repatriated home but continue their work to ensure timely completion of the projects.

Reliance Industries Ltd and APGENCO were among the worst affected of the developers.

The issue...

What started it all? A government notification issued by the ministry of labour restricted the use of foreign workers to just one per cent of the total workforce on the project. The argument being that India is a labour-rich country and its workers should not be denied employment opportunities.

The quota thus imposed is arbitrary, bad for business and hypocritical as well, industry sources feel. Because, while India on the one hand limits expatriate labour on its soil, it complains against the arbitrariness of the US on the issue of H1-B visas. The policy is only self-defeating because it denies local Indian labour access to superior skills at construction of sophisticated projects, which would have been appropriated by the foreign workers.

Steel expansion hit

But the most glaring instance of discrimination and injustice meted out by the policy is the steel sector which is quite different from the power sector. In the power sector, once a power plant is set up, it is handed over to the developer by the foreign collaborator.

In the case of the steel sector, the scenario is different. A steel project brings immense benefits as it's a continuing one. The infrastructure that grows around a steel project is immense – township for one, warehouses for storage, logistics and so on.
Steel capacity augmentation is on hold. Arcelor Mittal has postponed scans on its projects in Jharkhand and Orissa and so has the South Korean steel giant Posco which supplies large quantities of steel for automaker Hyundai in India. It may not exactly be on the issue of policy on expatriate labour but other factors which does not induce them to go forward.

One of the worst affected steel projects in India is the 2.2 million tonne capacity plant being erected by the Kolkata-based Electrosteel Castings Ltd. Nearly 3000 Chinese skilled labour were working on the steel plant being constructed in Jharkhand (Bokaro). Substantial progress had been achieved on the project with financials, acquisition of land and plant and machinery getting erected.

Time and cost overruns will affect viability

The project was scheduled to be erected in a record time of 18 months by Chinese companies against the normal time taken of about 36 to 48 months. The Indian Embassy in China refused to convert the business visas into employment visas and large portion of the Chinese skilled labour had to return home as per the regulations enforced by the labour ministry in September. The relaxation which was granted for a month since September also ceased by October end.

The project is now at a virtual standstill and faces the danger of cost and time overruns which the developers can ill-afford. If executed by Indian labour, the project could be completed only by 2011 or 2012 against the original commissioning date of March 2010. The original projected cost of the plant is about Rs 8000 crore. This threatens to balloon up to about Rs 10,000 crore which would have a cascading effect hitting every user industry in the value chain, industry sources claim.

Highly placed retired civil servants including Naresh Chandra, former Cabinet Secretary and R C Jain, former advisor to J K Government, have made impassioned appeals to the government to see the larger interests of allowing existing projects to be completed as scheduled by continuing to use the foreign labour force (Chinese) the project employed. Appeals have been made to the steel secretary Atul Chaturvedi and Cabinet Secretary K M Chandrasekhar. Even the prime minister is understood to have been apprised of the problem.

The project requires a minimum of 3000 workers to have their business visas converted into employment visas or work permits to finish the project within next four to five months. At present it has only 20 Chinese skilled force working on the project as stipulated by the September regulation of the labour ministry.

Will the government allow this steel project to languish? A million dollar question!

Meanwhile there are some indications that the work visas for skilled Chinese labour working on power projects may double because restricting such a category of workers in the power could lead to a generation shortfall of 30 per cent which the country can ill-afford.

The steel sector could be hit worse if no relief is provided because the demand for steel by user industries has gone up considerably.