In today’s Finshots, we explore how state governments are trying to boost local employment and whether passing reservation laws is really the best way to do it.
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The Story
The Karnataka state cabinet’s latest job reservation Bill for locals has become the talk of the town, stirring up quite a bit of controversy.
And unless you’ve been living under a rock, you probably already know that the state government in Karnataka wants to create jobs for locals by reserving half or more private jobs. Now, this may not mean that people moving to Karnataka won’t get jobs. They just need to live in the state for at least 15 years and know Kannada, the local language. If they meet these criteria, they’re considered locals, no matter where they originally come from. Essentially, it’s a preference for people of the state.
But this begs the question ― Do these domicile-based job reservations make sense, especially in the private sector?
Well, there are three ways to look at it.
For starters you could look at it through the constitutional lens.
See, Karnataka isn’t the first state to come up with this idea. States like Haryana, Maharashtra, Madhya Pradesh, Andhra Pradesh and Jharkhand have tried introducing similar laws before. But many of these laws have either been struck down by the courts or haven’t been implemented yet.
You could look at Haryana’s law that reserved 75% of private sector jobs for locals. Last year, the Punjab & Haryana High Court quashed it, saying that the law created unfair discrimination among citizens and labelled it ‘unconstitutional.’ Despite that, the Haryana government challenged this in the Supreme Court, and the case is still pending.
These laws often run into trouble because of constitutional protections accorded to the people of India.
- Article 14 (Right to Equality) - The Act unfairly discriminates against non-locals.
- Article 19(1)(g) (Freedom to Practice Any Profession) - It restricts the right to work anywhere in India.
- Article 16(2) (Equality of Opportunity in Employment) - It imposes unreasonable restrictions based on residency.
Besides, there's an old Supreme Court ruling that suggests that total reservations shouldn’t exceed 50% of available jobs or posts. Sure, this ruling was about caste-based reservations, but it also sets a precedent for domicile-based reservations.
So, when you look at it constitutionally, there are quite a few issues with these kinds of ideas.
Then there's the economic perspective.
A local person who may not be the best fit for the job could be hired over a more qualified non-local. This can lead to a shortage of skilled workers in the state.
It also makes it tough for businesses. They have to follow state laws, and not complying could mean hefty fines and penalties. Plus, the cost of compliance goes up as businesses might need to consistently prove to the government that they're following the rules.
The biggest issue, though, is investment. Policies like this can scare away capital investment, making the state less attractive to investors and hurting its economic prospects in the long run.
The proof is in the pudding. In FY23, Haryana, once a hot spot for investments, especially in skill-driven sectors like automobiles, saw a sharp decline. Its share of new investment projects in the country dropped to a six-year low of 1%, down from almost 3% the year before. Total investment outlays in the state fell by 30% from nearly ₹56,000 crore in FY22. This decline pushed Haryana from the ninth-best state for new investment projects to the thirteenth rank in a rather short span of time. And this drop may have had a lot to do with the introduction of Haryana’s job reservation law, which was later quashed by the state’s High Court.
In Karnataka’s case, the real estate sector might take a hit. Over half of the mid and senior-level employees who come to Karnataka from other states invest in local property.
Plus, there's the construction labour market to consider. Real estate developers in Karnataka already face a shortage of construction workers, with about 80% coming from outside the state, mainly from places like Jharkhand, Odisha, and Bihar. And a reservation for locals could disrupt this crucial workforce.
So, instead of boosting the state’s economy, such a law might actually open a can of worms and do more harm than good.
And finally, you could look at migration trends to see if Karnataka really needs a law like this.
See, despite the constitutional issues, laws like these often emerge due to political pressures and might be drawn up hastily without a keen eye for details.
Take Maharashtra, for example. In 2008, the state government mandated that private companies receiving state incentives reserve 50% of supervisory jobs and 80% of non-supervisory jobs for locals. Even though data in 2019 showed that locals held 84% of supervisory jobs and 94% of non-supervisory jobs, the government still pushed for more local representation. This suggests that such laws might be more about political relevance than actual need.
Then you could look at the migration data. About 4% of India’s population lived outside their state of birth according to the 2011 census. Even if that's the latest available official figure, it's over a decade old. And more recent data from the Centre for Economic Data and Analysis (CEDA) in 2021 showed that Delhi had the highest percentage of interstate migrants at 65%, followed by Goa, Meghalaya, Arunachal Pradesh and Punjab. Karnataka was much lower at less than 10%. So, it's safe to say that interstate migrants aren’t taking away a large number of jobs from local residents in Karnataka at least.
So, if the government wants to bring in such a law, maybe what’s needed is some thorough data analysis to see if it is really necessary. Or maybe even look for better ways for the state to create jobs for locals without relying on reservation laws?
For instance, the state could incentivise the growth of local industries and train locals with the necessary skills. The government could even engage with industry representatives to understand the skills they need or employ think tanks to analyse future job trends. This could help the government adjust the education system to prepare locals for these jobs and could ensure they get jobs based on merit, not just because of a reservation.
But this is easier said than done. And we’ll only have to wait and see how the government navigates this.
Until then...
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