The Andhra Pradesh Assembly recently passed legislation that reserves 75% of industrial jobs in the state for locals.
What is the decision?
The Bill aims to provide for 75% job reservation for locals in industrial units, factories, joint ventures, and projects set up under the public-private partnership model.
Companies will be given 3 years to comply with this law.
Only certain factories in sectors such as pharmaceuticals and petroleum will be exempt and that too only on a case-by-case basis.
The state government has also argued that a shortage of skilled labour could not be an excuse for not hiring locals.
In other words, if skilled personnel are not available, the industrial units cannot ‘import’ labourers from elsewhere.
Instead, the burden of imparting the requisite skills to, and of employing, locals will fall on the units.
This passes on the responsibility to build a skilled workforce from the government to the private sector.
The move is a new development in a long-running conflict in many other states too that witness substantial migration. E.g. Maharashtra
It comes in response to a perceived need to “protect” industrial jobs for so-called ‘sons of the soil’.
What are the likely consequences?
Doing business - Politicians who operate in states are often tempted to keep their promises of jobs by forcing private companies to hire locally.
But the consequences of such legislation are unlikely to satisfy job-seekers.
This is because companies will now think twice about locating in Andhra Pradesh.
In fact, companies in the state will see their labour costs rise and the pool of hireable labour shrink.
Consequently, they would, in many cases, choose to leave for a more satisfactory business climate - another state or country.
Notably, Andhra Pradesh has long had a reputation for being business-friendly, but this legislation will dampen that sentiment considerably.
Other states - It is highly likely that other states with large pools of migrant labour imitate this legislation. E.g. Maharashtra, Karnataka
[Indeed, a less expansive variation exists in the industrial policy of Madhya Pradesh.
It requires that 70% of jobs in any factory set up with financial or other assistance from the government be reserved for locals.]
Restrictions on labour mobility go against the principle in growth theory that unskilled labour must move to the cities, where it can then feed into the modern economy.
In India, with its regional disparities, this process will naturally have to work among states and not merely within them.
Large countries such as China have done better, partly because of this internal migration effect.
Clearly, the restrictions might severely hamper Indian growth prospects.
Capital flight (when assets or money rapidly flow out of a country) will become a reality.
Employment - The Indian employment landscape is in a shifting phase at this juncture.
Notably, India is among the top 4 economies (along with China, Japan and the US) where some 1.1 billion jobs are on the line.
Given this, the local reservation is less likely to be a tool for job creation and growth, and more likely to result in stagnation and urban distress.
Given these, it is wise to reconsider the legislation.
