Reservation for locals in private sector will erode Haryana’s attractiveness for investment, hurt its economic interests

Governments need to be more mindful of the signals they send to investors, especially as they seek to emerge from the economic slump induced by the pandemic.

The Haryana government notified a law last week providing 75 per cent reservation for locals in private sector jobs offering a monthly salary of less than Rs 30,000, with effect from January 15 next year. While the intent behind the law is to provide gainful employment to the youth of the state, this is the wrong way to go about it. Such laws run counter to the right to equality and free movement, and to practise any occupation, and could end up eroding the state’s attractiveness as an investment destination, hurting its economic interests in the long run. Companies need to be able to hire the best resources available to them from across the country. Such restrictions, hardly in keeping with the stated policy of improving the ease of doing business in India, will only lead them to reconsider their investments in the state, forcing them to look at other alternatives. The policy thrust should be towards easing restrictive labour laws, not creating further hurdles for business.

Disquietingly, political parties in Haryana are not the only ones to have voiced their preference for such domicile-based policies. Similar proposals have been framed in other states as well — Karnataka and Maharashtra are toying with ideas along similar lines. At their core, these proposals also signal an acknowledgement in the political class that not enough remunerative jobs are being created in the economy for the unskilled and semi-skilled labour force — thus the need to pacify the electorate through such interventions. In the absence of a labour-intensive manufacturing sector, with the public sector shrinking in size, such demands are only likely to gain traction. But if each state responds in similar fashion, it threatens to negate the benefits stemming from the free and unrestricted movement of the labour force. Migration, after all, not only provides a steady pool for labour, and leads to higher value addition, but also helps in the economic development of the less developed regions through remittances.

Considering that a long-standing complaint of industry has been the paucity of an appropriately skilled labour force, the focus should be, instead, on facilitating investment, especially in labour-intensive sectors, and upskilling the labour force. Governments need to be more mindful of the signals they send to investors, especially as they seek to emerge from the economic slump induced by the pandemic.

This column first appeared in the print edition on November 11, 2021 under the title ‘Raising barriers’.

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