Editorial Round-Up (26.12.16): Karnataka’s Employment Reservation Policy

Karnataka’s Dangerous New Reservation Policy

Issue:

* Karnataka government has released draft amendments to the Karnataka Industrial Employment (Standing Orders) Rules of 1961 that would implement 100% reservation for Kannadigas for blue-collar jobs in the private sector.

* This would extend to all companies receiving government concessions, except those in the infotech and biotech sectors. Those that don’t comply will be penalized by being denied the concessions.

Employment Scenario in Karnataka:

The Economic Survey Of Karnataka 2015-16, released earlier this year by the state government paints a healthy picture of Karnataka’s labour situation. By every major metric, the state is performing considerably better than the Indian average.

* Karnataka’s labour force participation rate is 57.8% compared to a national average of 55.6%.

* The unemployment rate combined across urban and rural populations is 1.7%, exactly half the national rate of 3.4%.

* A more granular look shows that among the various socioeconomic groups, some of the highest rates are found among the least educated at the bottom of the ladder—precisely the workers the policy is purporting to protect.

Potential Impact of the above Policy (If implemented)

* The unemployment that does exist will not be solved by the policy. Indeed, the reverse is more probable.

* The move would be a blow to industry confidence. This manner of ham-handed meddling, imposing unreasonable restrictions, makes operating in the state economically unviable.

* It also raises the question of similarly unreasonable constraints—whether related to labour or in another area entirely—the state government may choose to impose in future.

* Karnataka’s economy has grown on the back of tech-enabled industries that must compete globally; this uncertainty will not leave them feeling sanguine about future prospects. The exemption for the infotech and biotech sectors is a mere sop. It is slated to last for only five years, with no certainty of what the scenario could be beyond that. And there are plenty of other related tech industries that would be affected—e-tailers hoping to set up logistics hubs in the state, for instance, or manufacturers like Foxconn that are considering setting up plants to manufacture electronic items in Karnataka, among other states.

* The end result of industry loss of confidence and business moving elsewhere would, of course, be a decline in the economic well-being of the Kannadiga blue-collar workers the policy is supposed to protect.

* Economic Benefits of Labour Mobility will be lost: A large number of studies have provided empirical evidence of the economic benefits of labour mobility, both to the workers’ regions of origin and the region where they find employment—from keeping the labour market competitive and thus improving production efficiency, to higher education levels for the next generation via remittances, enabling them to move up the employment value chain.

Will the above policy stand legal scrutiny?

The Supreme Court has capped employment reservation at 50%—and only in the public sector at that. As the Uttar Pradesh government found out to its detriment when the Allahabad high court ruled its 2007 reservation initiative unconstitutional in 2011—a judgement upheld by the Supreme Court.

Way Ahead:

* The Karnataka government is repeating the mistake governments in other countries have made—and in previous years, nativist politicians in states like Maharashtra. Blocking migrant labour will broaden access to employment only in the short term.

* The sustainable method of doing so, conversely, is by enabling the native population on multiple fronts—education, health, social safety net. Karnataka has done better on this front than most other states. It is a pity it is attempting to change course now.