When elephants fight it is the grass that suffers

A few weeks ago, many foreign nationals in India received an e-mail from people with whom they had never been in contact, who claimed to be government officials. The message asked them to report to government departments by a particular date, leave the country and return with a fresh visa.

Some thought this might be a prank. It wasn't. The informal e-mails were legitimate. Some businesses managed to get the government to delay the departures of their employees who were foreign nationals; others had the requirement waived altogether. What was the fuss about? It had nothing to do with containing terrorism, nor was it a new way for the government to regulate business. The real motive was to tackle the problem of the increasing number of Chinese nationals who work as employees of Chinese projects in India, after entering India on "business" visas.

Like any other country, India has several categories of visas. The business visa allows foreign nationals to enter the country to do business; negotiating with Indian counterparts, participating in conferences and seminars, and so on. These visas are also used, legitimately, by consultants on short-term projects, working with Indian subsidiaries or companies that may be their clients. India grants these visas quite liberally.

Then there are employment visas. As with many other countries, India places onerous requirements on those seeking to hire foreign nationals; chief among them being whether the company has made efforts to recruit an Indian national with similar skills. Permission is granted in sectors where there are shortages. Some Indian firms have senior executives who are foreign nationals but few have a large number of foreign nationals on staff.

Foreigners are hired in creative and media industries, hotels and tourism, engineering projects, the finance sector and others, because they bring a set of skills presumably in short supply in India. With Chinese business presence growing in India, the situation has changed. Official estimates say about 25,000 Chinese nationals live and work in India, usually on projects run by Chinese firms. Many, if not most, of these workers have entered India on business visas. Some work as engineers and technicians, but many perform low-skill jobs including welding, driving, masonry and carpentry.

India argues that those low-skilled workers should apply for employment visas and, as many of these workers perform tasks for which India has an abundant labour supply, presumably they would be denied. Palaniappan Chidambaram, the home minister, has already said so. When a US company invests in India, there are distinct advantages for it to recruit locally, as Indian wages are lower than what is paid to employees back home.

With China, it is different. Low labour cost is one of its chief advantages. It is therefore economically viable for China to bring workers from China to India. While a Chinese worker is paid far higher than an Indian worker would be in their home country, that worker's salary is still lower than what a western firm would pay its unskilled workers. This is not unique to India. This is what China does wherever it invests, particularly in large construction projects. Not only does it bring its capital, it brings its workforce.

This has led to resentment in some places. While the Chinese workers who go overseas are hard working, they do not integrate easily with local communities. They import what they need or hire Chinese suppliers to provide them with familiar products, not contributing to the local economy. This is not unique to Chinese companies; when western mining firms operate abroad they also create an enclave in which their workers and families feel at home.

The lack of social interaction between them and local communities sometimes results in conflict. Chinese employers like Chinese workers not only because of their productivity and cultural familiarity, but also because they are employing them on their terms. China does not allow independent trade unions, for example. Indian unions are not allowed to organise Chinese workers working at Chinese projects in India.

But unlike other countries desperate for Chinese investment, India can afford to stand firm. With its economy slowing down, some Indians have begun to question whether India needs Chinese workers to do jobs that Indians can do just as well. Finding work for the poor is a major government preoccupation. India has an expansive rural employment generation programme, the National Rural Employment Generation Scheme (NREGS), which is aimed at creating jobs for the poor.

Surely, some argue, the state can direct its welfare spending at more appropriate targets, if qualified poor workers could be absorbed into working for Chinese projects instead of depending on welfare. But economics and culture are not the only reasons behind Indian moves. This summer, China began treating Indians from the state of Jammu and Kashmir differently. If they applied for a Chinese visa, they were granted one on a separate sheet, not on their passport.

India protested, and recently denied permission to a Kashmiri academic to board a flight because his visa was not on his passport. Many Indians thought China did this to back Pakistan over its claims on Kashmir but that ignores the fact that Kashmir is divided not among two, but three countries. China occupies one piece of Kashmir and claims bigger parts of adjacent territory. China also does not recognise the McMahon Line dividing India and China. Nor does it recognise Indian sovereignty over Arunachal Pradesh, its far north-east state.

These geopolitical disputes may seem arcane but they cannot be brushed aside. China is already a world power; India aspires to be taken seriously as one. China is the world's fastest-growing large economy; India is not too far behind. Both are part of the Group of 20 (G20) leading and developing economies. Both are becoming centres of excellence for industries and services. Bilateral trade and investment are rising quickly.

Just as China is developing skills in services and even in the English language to challenge India's lead, India is building a reputation for products and services aimed at people with limited means. Great ideas aimed at the low-income market are often tested in India, not in China. This is not because China does not have a market of poor people; even its official statistics claim it has almost 200 million people who earn less than $1 (Dh3.67) a day.

There is much they can achieve together and much they can waste with a power struggle. Any misstep in the delicate dance between the giants would have catastrophic results not only for the two countries, but for the world. Both sides need cooler heads to prevail. In an increasingly borderless world, visas are a powerful way a nation can assert its sovereignty. China needs to stop treating Indians from Kashmir differently. India needs to establish clearer guidelines about who can and cannot work there, and under what circumstances.

Erecting barriers and walls is bad business practice. Salil Tripathi is a former economics correspondent of the Far Eastern Economic Review, now based in London