Labour Shortage Due to Ridiculously High Tea Plantation Wages, Importing Labour Not the Solution
Posted on August 30th, 2016
There is no shortage of labour in Sri Lanka as a whole. What is being experienced is shortage of labour in certain business sectors while excess labour in other sectors. This shifting of labour between industries should happen and the government must facilitate it. Importing more labour will worsen the situation with rising unemployment and unrest and worsening of balance of payment. Local businesspersons with poor economic knowledge argue importing labour is the solution without realising the economy-wide impact it creates though it will give them higher profit. The government must take a national view of the economy than only look after profit concerns of UNP voters.
The Unprofitable Tea Industry Draining Out the Economy
Tea plantations is an unprofitable industry today. A collective of plantation companies lamented that they are making loses repeatedly mainly due to lower tea prices in world market and very high labour costs. This is only the tip of the problem. Real losses of tea plantations are much higher when massive government subsidies are taken into account. Annual direct subsidies to tea plantation industry is about $300 million (45 billion rupees) and indirect subsidies in terms of workers’ welfare is another $100 million (15 billion rupees) a year, at the very least. Added to the losses, tea plantation industry is a $600 million (90 billion rupee) loss making industry. When the cost of destruction of catchment areas, heavy water usage by plantations and the resident population to man the plantations and opportunity cost of cultivation of edible crops factored in, the real losses will be even higher.
All this is for a $1.3 billion foreign currency earning from tea exports. It is not worth it. When direct imports (fertilizer, machinery, fuel, shipping, vehicles) and indirect imports (goods and services of workers and executives) by the tea plantation industry are factored in the net export value is significantly reduced.
Due to both these factors – tea industry creating losses for the economy and its real net foreign earning being low – the government must forthwith withdraw all subsidies, direct and indirect, to the tea industry. Allow unprofitable companies go bankrupt. This will move factors of production now tied into an unprofitable industry into profitable ones. Land will be released along with labour, capital and entrepreneurship. Profitable companies (without government subsidies) will survive. Their net export earnings will be significant.
Shifting of Labour
Labour force released by the collapse of unprofitable and environmentally destructive tea plantations will be absorbed by labour-short profitable industries. This cannot happen today because loss-making plantation companies continue to operate under government (taxpayer) subsidies paying the highest labour rate in the country to plantation workers. Even their social welfare is paid by the government and companies! These ridiculous benefits (the highest in the world in US dollar terms in the tea industry) have tied these workers to this bankrupt industry. Once these companies stop operations, they will search for labour jobs elsewhere. This is the solution to labour shortages in other industries.
However, not all conceivable industries are profitable. Some are not profitable given available factors of production. Government intervention (including importing labour from India) will only worsen their losses and the burden on the economy. These industries should be allowed to go into bankruptcy so the factors of production tied by them will be released for profitable industries.
The Middle East provides huge economic opportunities for women currently working in the plantation sector. That can also boost the balance of payment and external reserves of the country without any burden on the economy. Their net earnings will also be higher than now.
Importing Labour Makes No Economic Sense
Although Indian labour is cheaper than local labour, they take the earnings with them to their families in India. Sri Lanka’s foreign reserves will drop and balance of payment will worsen as they take money from the country. This will worsen the current balance of payment crisis and the debt crisis. Although there is money to be made for unemployed Indian workers in Sri Lanka thanks to their cheaper rate, in the long term this diminishes. Flight ticket cost is significant and cost of living in Sri Lanka is higher than in India. Taxpayer funded government hospitals, roads and other facilities will have to cater to Indians which will be an added cost burden. All these added costs will make it unprofitable for Indians to work in Sri Lanka in the long term. Proposed rail link may reduce the cost to Indians but the loan, interest and running losses of the railway will have to be paid by Sri Lanka.
Professional labour imports make better economic sense to both Indian workers and Sri Lankan employers. There is a severe shortage of doctors, construction engineers and ICT professionals in the country (due to brain drain). However, Indian imports will worsen the situation. Even more locals will leave the country and will be unable to find suitable employment. Drain on foreign reserves will be even higher as they earn and repatriate more than labourers. Sri Lanka and and India have a double taxation treaty which means Indian workers and companies in Sri Lanka will have a different more favourable tax regime. Transfer pricing will be used to create losses in Sri Lanka while showing a profit in their Indian head office.
Post-ETCA Economic Disaster
After ETCA, the balance of payment will worsen as more profit and wages are repatriated to India. Reciprocal benefits won’t be available to Sri Lanka as current trade balance with India indicates. More will be borrowed from foreign sources to close the trade deficit. State expenses will rise sharply to sustain these borrowings, cater to Indians patronising state hospitals, administrative services, roads, etc. ETCA is all about shifting India’s burden to Sri Lanka. No successful Indian worker or professional will want to work in Sri Lanka as they must be already employed in India. Alternatively, suitably qualified Indian professionals migrate in drones to developed countries. That leaves only fraudsters and unproductive people to seek work in Sri Lanka. Hosting and housing them will be a burden for Sri Lanka. Soon after ETCA, Sri Lanka will end up in a worse situation than Greece.
Lankan businesses that hope to thrive by imported Indian labour are in for a crude shock. Indians will set up rival businesses in Sri Lanka that will have tax advantages not available to Lankan companies. They will be closer to better quality Indian imported workers than Lankan companies. They will soon takeover the market from local businesspersons. It will be game over for most local entrepreneurs.
Unemployed, severely taxed on both consumption and earnings, hopeless of getting jobs at desired salary levels and socially marginalised, the local population will protest. If their interests are not regarded and democratic means of change of policy cannot be achieved, violence will erupt. Unlike 1971 and 1989, this level of violence cannot be put down by war crimes and excesses. In previous instances, only a fraction of the population supported JVP’s bankrupt political and economic policy. ETCA will turn most of the population against the government. Pro-Indian stance will isolate the country from its largest donor and investor – China. It will be one horror story if ETCA is signed without regard to these.