No case for job quotas in Indian states

Other Indian states have toyed with the idea of enforcing such a quota at various points of time.
Representational Image. (File | EPS)
Representational Image. (File | EPS)

A recent law passed by the Haryana state government, reserving 75% of private sector jobs in the state up to a specified salary slab of Rs 50,000 per month for local candidates, has brought to the fore the contentious issue of job quotas and their desirability. Such job quotas, while having been permitted by the Supreme Court earlier, have been restricted to the public sector, with a cap of 50% of jobs for locals.

Haryana is not the first state to try and enforce a job quota in the private sector industrial establishments. Other Indian states have toyed with the idea of enforcing such a quota at various points of time. These include Gujarat, which had an 85% reservation for locals through a government resolution passed in 1995, which was never enforced; Maharashtra had 80% of jobs reserved for local domiciled persons by way of a government resolution, even though it was not legislated. Karnataka tried to put in place a 100% reservation for blue-collar jobs in sectors other than biotech and infotech in 2016. Tamil Nadu also sought a reservation of 50% for locals, which hasn’t been implemented. Madhya Pradesh and Telangana have also experimented with such reservations for locals in private sector jobs.

Haryana’s job quotas are more problematic because of the high business investments in particular belts, especially in Gurgaon and Manesar, which have led to the latter emerging as centres for job creation for people from neighbouring states.The argument for job quotas at the regional level arises from the need to provide employment to the local population, more so since public sector jobs have been shrinking continuously. Thus, for instance, a survey conducted by the Centre for Monitoring Indian Economy (CMIE) revealed the large and growing disparity between unemployment rates of Haryana and the overall national rate. Unemployment rate (the number of unemployed persons as a percentage of the total number of persons in the labour force) in Haryana thus moved from 1.8% in August 2017 to 43.2% in April 2020. The national unemployment rate, on the other hand, stood at 4.1% and 23.5% in 2017 and April 2020 respectively. The latest data however reveal that while the unemployment levels at the national level (as of 6 March 2021) has reduced to 6.9%, Haryana had the highest unemployment rate among all states at 26.4%. 

The state government has advanced two other reasons for such a law: one, to discourage migrant influx seeking low-paid jobs and two, to reduce the proliferation of slums due to the pressure of rising population on existing infrastructure. Besides, the state’s contention is that such norms imposed on the private sector are in lieu of government support to the private sector by way of subsidies, cheap land, etc. This was the rationale given by the Gujarat government in 2019, for instance, to stop subsidies to firms flouting the state government norms requiring 85% employment of locals.

Besides such laws being fundamentally against the Indian Constitution and lacking constitutional basis, there are economic arguments against states racing to preserve jobs for locals in their respective regions and adopting ‘beggar-thy-neighbour’ policies.

The current labour laws are stifling enough for firms, especially for Micro, Small and Medium Enterprises (MSMEs). Such firms, including MSMEs, may paradoxically, try and switch to capital-intensive techniques despite their liability of smallness, so as to avoid the burden of such stifling laws that restrict firms and industries from attracting cheap labour, besides placing the onus of tracking the origin of their employees on firms. This, in turn, will further increase unemployment and damage the cause of labour in India, besides encouraging capital-intensive techniques in a capital-scarce country like India.

A related second argument has to do with the private sector trying to attract the best talent at the lowest costs possible. Such a drive is not based on considerations of caste or creed, and even less so on place of residence or birthplace. While affirmative action based on grounds of equity is justifiable, such action that involves providing locals with reservation in jobs has no merit on both equity and efficiency grounds. It would be a moot point whether firms would hire expensive and possibly less skilled labour or simply prefer to shift production techniques or even locations to other states with relatively greater ease in doing business.

Such laws also affect the competitive advantage of recruiting firms. While such laws may appear to be pro-state, they actually are anti-India, by affecting the  competitiveness of the nation’s firms vis-a-vis that of their global competitors in world export markets. Openness is an important criteria for free and fair trade, and labour mobility is an important pillar of such openness.

Finally, labour mobility has an indirect effect of equalisation of wages across states. Laws imposing job quotas will lead to further depression in wages of labour in some of the backward states. The impact on Gross Domestic Product may be far from small.

Thus, on efficiency, equity and constitutional grounds, there is no case for job quotas in the private sector. State governments are advised not to introduce mutant strains within the legal frameworks, which would have long-term ramifications on the economic health and social fibre within their respective regions.

Tulsi Jayakumar
Professor, Economics at Bharatiya Vidya Bhavan’s SPJIMR. Views are personal
(The author is also the Chairperson of Family Managed Business at SPJIMR)

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