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How Indian factories are trying to overcome labour shortages as economy reopens

Some companies are promising free travel tickets, housing & food to draw workers to urban areas, others are hiring new faces from nearby locations.

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New Delhi/Mumbai: A mass exodus of workers that followed India’s harsh lockdown is forcing businesses to review their labor policies as they try to lure the people back with incentives as the economy reopens.

While some companies are promising benefits such as free travel tickets, housing and food to draw workers to urban areas, others are managing by hiring new faces from nearby locations. Some are trying a mix of both.

“We have offered food and other incentives to woo them back to sites,” said V.V. Benugopal, country manager with Linfox Logistics India Ltd., a unit of Australia’s Linfox Group. The company is also skilling a new workforce to mitigate potential delays in return of the migrant labor and arranging buses for workers’ transportation, he said.

India tried to stop the migration of labor in the initial weeks of its stringent stay-at-home restrictions. However, the daily wage laborers started heading back to their rural homes after running out of food and cash in cities.

Disturbing scenes of workers and their families walking for miles, reminiscent of days after India’s partition of 1947, forced Prime Minister Narendra Modi to facilitate their return. Later, the nation’s administration allowed businesses to reopen after growth forecasts suggested the economy was heading for its worst performance in decades.

The result is a shortage of labor. It’s adding to challenges for companies and pushing up their labor costs as they try to match incentives that are being provided by the government back in their rural homes.


“The shortage of labor has affected the construction projects which will slightly delay the completion,” said Rajan Bandelkar, president of the National Real Estate Development Council’s Maharashtra unit. The realty body is trying to bring back the workers, including by air, he said.

Finance Minister Nirmala Sitharaman in March announced free food, fuel and cash transfers to workers and farmers, in addition to providing jobs to the poor in rural areas, for three months. Modi last week extended the free food program until November.

Freebies from the government aren’t the only factor keeping workers from returning to their previous jobs in cities. By staying in their villages, they are saving big on rent, which makes a sizable dent on their earnings in urban centers.

In the absence of those benefits, they will eventually return to work, said Sudeep Sen, business head for industrial manufacturing and engineering at TeamLease Services Ltd., one of India’s largest staffing companies.

Also read: Why industries in Maharashtra are reluctant to employ Marathi workers despite shortage

Easy-paying Jobs

For now, the efforts of companies to bring them back seem to be yielding some results. Indian Railways’ train services to various cities from Uttar Pradesh and Bihar — home to the bulk of migrant workers’ population — are running full, according to a report in the Times of India.

India’s jobless rate dropped to 11% in June after hovering above 23% in the previous two months, according to data from the Centre for Monitoring Indian Economy Pvt. That’s in part due to the return of some workers after factories reopened, and partly because of the government stepping up spending on its jobs program, the research firm’s Managing Director Mahesh Vyas wrote in Business Standard.

Workers get paid 202 rupees ($2.71) for a day’s labor under the rural jobs program and they are guaranteed at least 100 days of employment in a year. Modi’s government increased this year’s allocation for the scheme by 400 billion rupees.

“I had more than 500 migrant laborers working in various plants,” said M.K. Hamsa, founder of Southern Plywood Group company in the state of Kerala, one of Asia’s biggest plywood manufacturing hubs. “I am willing to offer food and other incentives for those wanting to return.”

Rising Costs

Protocols related to social distancing and higher spend on getting and retaining talent are worrying companies about the costs of doing business when consumption, which is the bedrock of the economy, has already taken a hit.

“Focus is also on hiring and training local talent available,” said TeamLease’s Sen. There’s an increase of as much as 10% in hiring costs, which would push up operating costs in the coming months. “Reset and restart came at an additional cost with facilitation of safety, social distancing preparation.”

The impact is so severe on some companies that they had to scale down their business plans.

“All migrant laborers left from our international ship repair facility and dry dock site,” said Jose V.J., director of finance at state-run Cochin Shipyard Ltd. “The delay has forced us to slash our capital expenditure plans by half.”- Bloomberg

Also read: How fiscal regression can force Modi govt to take sub-optimal economic decisions


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