Ashraf Engineer
July 27, 2024
EPISODE TRANSCRIPT
Hello and welcome to All Indians Matter. I am Ashraf Engineer.
Controversy erupted in Karnataka last week as the Siddaramaiah government was forced to put on hold a Bill mandating job reservations for locals in the private sector. There was a massive backlash from the industry to the Bill that would have reserved 50% of management positions, 75% of non-management positions and 100% of blue-collar Group C and D jobs for those domiciled in Karnataka. If companies did not adhere to the directives, the Bill specified penalties. Many governments have toyed with the idea of job reservations in the private sector for various reasons, not least to ensure that their electorates are appeased. However, are private-sector job reservations a good idea? What economic and social impacts would they have? And isn’t there a better way of ensuring employment for locals?
SIGNATURE TUNE
Several states have in the past introduced private-sector reservations in various forms with varying degrees of success. These include Haryana, Kerala, Maharashtra, Andhra Pradesh and Madhya Pradesh. These measures only underscore the deep-rooted unemployment and underemployment in India – the topic of last week’s episode. The unemployment rate of 9.2% in June is alarming and this alarm often manifests itself in the form of demands for job reservations.
Jobs are scarce and it’s no surprise that politicians will try to tap into the fear of losing jobs to so-called outsiders.
What’s worrying also is the state’s tendency to constantly interfere in economic matters. Like so many other freedoms guaranteed by the Constitution, economic freedom is readily trampled upon by the state. The Indian state interferes in pricing, hiring and firing… virtually every aspect of business.
Various states within the Union restrict economic activity by those from outside those states. There are restrictions on buying land, movement of goods, jobs and residence, and even driving a car bought in another state. This is in sharp contrast to, say, the European Union where a citizen of any member state can reside in any country, buy property, own a business and conduct any form of economic activity.
Indian states often compete to introduce protectionist policies, which is a sure path towards economic and social disintegration of the union.
Among the most exploited issues is migration, despite the fact that the biggest and fastest growing cities owe their success to migrants. The argument offered against it is that migrants take away locals’ jobs. This is a fallacy – migration leads to greater economic activity, which creates more jobs.
The anxiety around unemployment is real and founded on ground reality. The agriculture sector is under tremendous stress and young people don’t want to take up farming. But there are way fewer jobs being generated in the private and government sector than needed. India is adding an estimated 10 million entrants to the labour market every year and job creation is nowhere close to demand. The Central and state governments also feel, justifiably, that the private sector isn’t pulling its weight on affirmative action. There is lots of evidence highlighting the underrepresentation of lower castes and Muslims in the private sector.
Despite all this, private-sector job reservations are not the ideal solution. In fact, they would deter the corporate sector from investing in states that have such laws.
The wiser way would be to make the youth employable with investments in education and skill development. In many cases, it’s not the absence of jobs but a mismatch between skills and what employers need. Many industry leaders have said that the absence of an adequately skilled workforce can drive away industry. This gap is not going to be bridged by domicile-based reservations.
The private sector is crucial if India is to meet its development goals. So, chief ministers like Siddaramaiah are better off engaging with the private sector positively rather than burdening it with such rules.
Besides the economic arguments against such reservations there are serious legal hurdles to such an approach.
First, how do you balance the right to equality with affirmative action? Article 14 of the Constitution guarantees equality before the law, while Articles 15 and 16 prohibit discrimination based on place of birth. However, special provisions for the advancement of socially and educationally backward classes are allowed. The courts have often stepped in when domicile-based reservations are enforced to ensure against discrimination against non-domicile candidates.
Several Supreme Court judgments act as precedents on domicile-based reservations. In the Dr Pradeep Jain vs Union of India case in 1984, the Supreme Court ruled that while some preference could be given to domicile candidates, it should not be absolute and should not exclude non-domicile candidates altogether. In the Sunanda Reddy vs State of Andhra Pradesh judgment in 1995, the court struck down 100% reservation for domiciles in post-graduate medical courses. In government jobs, the Supreme Court has generally disapproved of strict domicile preferences. In the Kailash Chand Sharma vs State of Rajasthan ruling in 2002, the court invalidated a government order giving preferential treatment to local candidates in public employment, saying it violated Articles 14 and 16.
Also under scrutiny is whether such reservations hinder economic mobility. Courts have observed that they can lead to the economic and social disintegration of the Indian union.
Lastly, as per the Supreme Court ruling in the Indra Sawhney case in 1992, total reservations cannot exceed 50% of available posts. So, domicile reservations must fit within this limit alongside other categories.
On the economic front, such laws increase companies’ compliance costs because of the resources and time spent on verifying domiciles of candidates. They make recruitment cumbersome, which could delay projects and product delivery. The state in question may lose investment as businesses will be reluctant to invest in places where there are not enough skilled candidates.
Many businesses would respond by relocating back-office jobs to other states and thus report fewer vacancies in the state. This would be detrimental to employment in the state.
The penalties would force many businesses to move out of the state altogether. This would affect not just the growth of the business but also movement of labour.
The lack of employment would reduce overall consumer spending power, which is already suffering from the lack of jobs and the long-tail effect of the COVID-19 pandemic.
Siddaramaiah and other chief ministers should know that populism has a short-term payout and only for a select few. Affirmative action is meant to bring economically and educationally backward sections on par with the rest. Populist governments, however, use it to spin a false narrative.
What are the underlying causes driving the demand for reservation? The agriculture crisis, slower-than-needed growth, rising wealth inequality, inadequate social safety nets, unemployment and unequal access to quality education. Doling out pieces of a fast-shrinking pie won’t help. Instead of short-term fixes that have massive negative consequences, states should focus on these underlying issues.
Reduce compliance costs and raise ease of doing business. This will attract fresh investment that will create jobs on scale. Capital investments, such as those in infrastructure, will create jobs and attract more investment. Invest in skills in a major way to make the youth employable.
It’s only an increase in economic freedom that will lead to greater economic activity and the jobs each state and the country needs.
Thank you all for listening. Please visit allindiansmatter.in for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at editor@allindiansmatter.in. Catch you again soon.
