High wages in Kerala a bane for others

A massive garments factory at Mancheswar Industrial Estate in Bhubaneswar pays tailors on its payroll Rs 6,000 a month. That works out to Rs 200 per day, as little as $3. The company that counts Gap, Esprit and Tommy Hilfiger as its clients, and runs several garment units in Bengaluru, Delhi, Tirupur and Salem, is happy with the low labour cost in the eastern state and hopes to build more capacity there. Of course, this cost advantage may be the backbone of most outsourcing units in the country. But there is a lurking danger that India is emerging as an immensely imbalanced country with distinct labour economics.

Our conviction that India is growing into one big homogeneous market post the rollout of GST may be completely misplaced.

While big cities such as Mumbai and New Delhi are providing comparatively higher wages, the tiny southern state of Kerala is contributing its might to the growing imbalance by attracting productive labour from across the country with very high salaries. An unskilled labourer working in a farm in Kerala earns around Rs 700 a day, and a skilled worker – a carpenter or mason -- can demand anything above Rs 1,000 a day.

This is primarily because Kerala faces a severe shortage of labour. As Keralites went aboard en-masse looking for greener pastures, the state had no option but to attract migrant labour with higher salaries.

Wages of a carpenter is around three times more in Thiruvananthapuram than in Madhya Pradesh's Bhopal. Unskilled men and women labourers get wages of Rs 650-700 in Kerala, over two-and-half times higher than the prevailing wages in cities such as Varanasi and Kota. In contrast, a worker at a ship-breaking yard in Bhavnagar or a diamond polishing unit in Surat earns around Rs 300-400 per day.

No wonder, migrant labourers make a beeline to this industrially less-developed and politically sensitive state.

Kerala has around 40 lakh migrant workers, with 2.4 lakh workers joining them every year, as per a 2016 study by the autonomous Gulati Institute of Finance and Taxation (GIFT). These migrants earn Rs 25,000 crore annually, with nearly two-thirds of it going to the four states of West Bengal, Bihar, Assam and UP. (In contrast, Keralites working abroad earned around Rs 63,200 crore in 2016, with their total number shrinking to 16 lakh, as per a study by the Centre for Development Studies.

During the last 6 years (between 2012 and 2018), the average salary of unskilled workers in Kerala has nearly doubled to Rs 700 per day today from Rs 350. The state government has in the draft labour policy now proposed to fix a minimum wage of Rs 600 per day. Employers running hospitals, restaurants, or units of construction, transport, seafood and plantation, have, however, raised concerns over spiralling labour cost and demanded productivity-based wages, but the government has stuck to its guns.

Kerala is now eyeing growth in service sectors such as tourism, hospital and information technology. On their part, West Bengal, UP, Gujarat and Odisha are vying with each other to attract industries and generate employment. Everyone promises single-window clearance and ease of doing business, and signs memorandum of understanding with industries just to inflate the investment figure. But the big question is: can states have a sustainable development model built on the extremely low-cost labour that borders on exploitation?

Wage inflation in one state is bad news for others.

The writer is editor, DNA Money.
He tweets @AntoJoseph