Does India Need a Work Permit Regime?

01 October 2006

Anil Malhotra and Ranjit Malhotra, Malhotra & Malhotra Associates

This article also looks at suggestions like provisions for medical tourism, electronic visas, fast track processing of visas for blue chip workers and corporate personnel, and measures to cope up with the trends of reverse migration.

The principal Indian legislation regarding entry, presence and movement of foreigners is contained in the Foreigners Act 1946, which also provides for the framing of relevant rules regulating the registration of foreigners. Section 3 of the 1946 Act confers unfettered powers on the Indian Government for regulating and restricting the movement and presence of foreigners in India.

Furthermore, section 6 of the earlier Registration of Foreigners Rules 1939 details relevant procedures for the registration of foreigners visiting India.

The power to grant or refuse permission to foreigners to enter India, and subsequent restrictions on employment, have been provided in the Foreigners Order of 1948. Section 3 of the 1948 order gives power to the civil authority having jurisdiction at port or place to grant or refuse permission to a foreigner to enter India. Further, clause 3 of section 3 of the 1948 order provides that the civil authority may attach such conditions as it thinks fit to the grant of leave to enter and such conditions may be varied in such manner or cancelled as the government deems fit.

In addition, section 10 of the 1948 order places restrictions on the employment of foreigners in public sector undertakings. This section states that no foreigner shall, without the written permission of the civil authority, engage in employment in any public sector undertaking supplying electricity, power, water and petroleum products.

Section 10 of the 1948 order has to be read in conjunction with the provisions of the Foreign Exchange Management Act, 1999 (FEMA), which came into force on 1 June 1999. The provisions of FEMA mandate that no foreign national or person resident outside India, without prior permission of the Reserve Bank of India (the principal regulating authority of the Indian banking system), shall engage in any employment or practice any profession or carry on any occupation, trade or business in India.

In the background of the FEMA provisions, it is necessary to refer to the Reserve Bank of India guidelines pertaining to the short-term engagement of foreign nationals by Indian firms and companies. The bank has granted general permission to Indian firms and companies to engage the services of foreign nationals (including non-resident persons of Indian nationality or origin) on short-term assignments subject to the following conditions:

• Where the period of engagement of the foreign national exceeds one year at a time, prior clearance of the Ministry of Home Affairs must be obtained. If the period of engagement exceeds three months, the concerned foreign national must hold a valid employment visa. If the period of engagement is less than three months it is sufficient for the concerned foreign national to hold a valid visa for employment or business purposes.

• The total duration of engagement of foreign nationals by the applicant firm or company does not exceed twelve man months in a calendar year.

• The amount of the remittance sought is in accordance with the terms of the contract, which is entered into by the applicant firm or company with the foreign national or company.

• The services of the foreign national are not covered either by any foreign collaboration agreement or under any warranty or guarantee obtained providing for deputation of the foreign nationals without any remuneration or any payment during the warranty or guarantee period.

• Application for remittances of remuneration to foreign nationals is to be made in form A-2 along with a statement in form EFT (in duplicate) and a ‘No Objection Certificate’ from the income tax authorities.

• Cess (a technical term in Indian law for tax) under the Research and Development Cess Act, 1986 is paid on all payments made to foreign nationals in India in rupees towards their passage, fares and local living expenses.

It can be asserted that the prime concern of the stringent legislation and judicial decisions pertaining to the entry, presence and movement of foreigners in India, including business visitors, remains to safeguard the interests of national security. At the same time, the Reserve Bank of India acts like a watchdog, keeping a serious check on the flow of funds to and from India routed through business channels and persons.

There is a clear case now for framing a new set of consolidated rules focusing exclusively on business immigration into India, which should replace the existing outdated and rigid provisions. The present immigration requirements are certainly not conducive to the substantial foreign direct investment that is presently taking place in India. The Indian government has taken great care in suitably updating, modifying and introducing rules and regulations with regard to foreign equity investment into India, while the business immigration provisions have been completely ignored. As in the European Union, safeguarding freedom of movement for goods and capital is one thing, facilitating the free movement of business personnel is another.

Our government could also explore the possibility of having a limit on the number of work permit visas, like the H-1B cap imposed by the US government.

The boom in the Indian technology industry has precipitated the return of non-resident Indians to their motherland, as they are finding the same opportunities and working conditions on their home soil. For these blue chip workers the attraction of coming back to their roots is a bigger motivating factor than the money. A new trend is also now emerging whereby highly skilled foreign manpower is employed on Indian soil by foreign parent companies to run their businesses in India.

The lure of a career in the United States, especially in technology, proved irresistible to India’s best and brightest engineering graduates through the 1990s and even up to as recently as a few years ago. But with the maturing of the US technology industry and the rapid expansion of India as a centre for software programming and business process outsourcing, thousands of Indian engineers and managers are opting to go back to their homeland.

The trend is raising fears of a brain drain. Some business leaders are worried that the immigrant Indian entrepreneurs who helped fuel the US technology boom might now start companies in India and take whole classes of jobs with them.

Neither the US nor the Indian government keeps count of how many Indian employees have left the American workforce to return to India. The Economic Times, a business publication in India, estimated this summer that 35,000 have returned to the largest Indian hightech centre, which is now in and around Bangalore. That is still a small fraction of the approximately 2.4 million Indian residents of the US, a number that includes Indiaborn residents as well as US citizens of Indian heritage. Massachusetts is home to an estimated 65,000 Indians. For details of this see the article titled “High-tech talent flows back to India,” published in The Hindu, New Delhi Edition, 9 August 2005.

Similarly, foreign personnel of blue chip companies are coming in large numbers to India to set up and manage offices on behalf of their parent foreign companies. Hence, this scenario all the more warrants the introduction of a work permit scheme. Bangalore alone has 300,000 software professionals, as recently reported in the Statesman on 16 December 2005. We are losing out on a large amount of revenue in terms of visa fees; this aspect of the matter has been completely ignored by the government. The reverse brain drain has started. It is not only confined to blue chip professionals but even extends to very young adventurous westerners coming to work in call centres in Bangalore and Mumbai purely on account of their proficiency in European languages. It has been recently reported in the media that some 30,000 expatriates work today for Indian technology and outsourcing companies, about triple the number two years ago, according to the National Association of Software and Services Companies at New Delhi (Nasscom).

In July 2005, in an effort to make India a global hub for medicare, the Indian government introduced a medical visa for foreigners seeking special treatment for extended periods. Previously, such patients had to enter the country on a tourist visa, valid for barely six months, and subject to extension by the Union Home Ministry alone, causing them tremendous inconvenience if extended medical treatment was required. Not just that, the government also liberalised the student visa regime by allowing the applicant to pursue many courses subject to a mere extension of the visa at the level of the Foreign Regional Registration Office (FRRO). For details see the article entitled ‘Visa regulations relaxed for treatment cases’, published in The Economic Times, Chandigarh Edition, 9 July 2005.

Additionally, on account of changing economic conditions and a world without borders, we need to keep pace with the times in the area of immigration law. We also need to think about fast-track processing of visas, which of course can entail a charge for premium processing – electronic visas would be very beneficial for the software industry. Like in the UK there is fast-track processing of work permits. The turnaround time can be less than 24 hours. But it entails a premium price, which some of the ‘big boys’ are willing to pay. We need a centralised work permit issuing authority here in India, which could be a nodal agency akin to the Reserve Bank of India. This system can be put into place by laying down and following clear cut, crystallised policies and guidelines for issuance of work permits by a single window regulatory body. And, of course all this should come at a price. Also, for foreign personnel the benchmark for visa fees should be in dollars.

Coming to electronic visas, initially the same can be made available to blue chip companies and multinationals. Such startup accreditations can be put in a database approved by the Securities and Exchange Board of India. This is a board set up by an act of parliament to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.

We also need a useful website with public information about immigration and visa matters. Presently there is no Indian website either run by the government or a private agency that offers comprehensive consolidated information on immigration rules; and guidelines followed by the Ministry of Home Affairs are not publicised or made available to the public readily. A great deal of running around is required at times to get hold of the relevant information.

Faced with restrictions on the movement of people in the services industry, which is the fastest growing sector in Indian economy, it is time the country had a work permit regime in place – it could also be a potential revenue spinner.

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