2020 was a tough year for DLF Cyber City in Gurugram. Established in 1998, it is part of the 28 Special Economic Zones present in the city of Gurugram and houses the top global firms. In 2013, the complex had the addition of Cyber Hub, a place housing over 50 restaurants. COVID-19 pandemic forced companies to shift to WFH, hitting the restaurant business. It forced 35 restaurant businesses to shut in Gurugram, many of them in Cyber Hub. The office spaces in Cyber City remained shut, leading to Gurugram being shifted to second place in office leasing (H1 2020) for the first time in 7 years. The income of the builder of Cyber City—DLF—reduced by 65% in the first quarter of the FY21. You might ask—Isn’t the situation temporary given that there's a new vaccine on the horizon?. True, most of the businesses will shift to office work, although some IT companies may shift to WFH permanently. Cyber City and other SEZs in Gurgaon may recover from COVID-19, but it may be difficult to bounce back from what happened on November 5, 2020.
The Story of the bill
Haryana assembly election results in 2019 gave a fractured mandate, BJP being the largest party but not having enough seats to form a government on its own. It allied with JJP, an offshoot of the INLD, the party of the former chief ministers of Haryana—Devi Lal and Om Prakash Chautala. One of the key promises of the JJP was giving Haryana residents 75 percent in private-sector jobs in the state.
The bill was earlier promulgated as an ordinance but was not approved by the Governor who forwarded it to the president for his consideration. The government took the matter into its hand by passing the bill in the winter session.
The key provisions
The bill—Haryana State Employment of Local Candidates Act, 2020—gives a reservation of 75 % of all jobs that have a gross monthly salary of less than 50,000 in the private sector to local candidates. The private sector includes “all companies, societies, trusts, limited liability partnership firms, partnership firms, any person employing 10 or more persons, and any entity notified by the government.” The employers have to register all employees having salaries less than 50,000 on the government portal. The reservation may be exempted if the employer can prove that the adequate no. of skilled local candidates is not available for a particular job. There are fines in place in case of violation of various provisions of the bill.
Problems with the bill
Reservation is a contentious topic. There can be an argument made that reservation should not be restricted based on geographical locations within the state. But this is the least of the bill’s problems. Sure, one might say that there are reservations put in place in government jobs and government colleges, so why not advance that to the private sector? The answer is simple and intuitive—incentives.
A government firm is paid up for by the government, regardless of its performance ( case in point Air India, BSNL & MTNL) whereas a private sector can only flourish when it advances its productivity. And for enhancing its productivity, it's key that it hires the best people deemed fit for the job. Failure to do so can cause two scenarios. First, the business shuts up because it is no longer profitable. Second, the business moves away to a place that has fewer restrictions. With Haryana, the latter might be more plausible as the law applies to a single state and there are opportunities to move to neighboring states such as Noida. Industries have already asked the central government to reconsider the bill.
The problem with the bill is not limited to the reservation aspect of it. The bill provides power to a “designated officer” to test whether an exemption may be given to the employer. The exemption officer can even direct the company to “train local candidates to achieve the desired skill, qualification or proficiency”. Besides the registration of employees on the portal, the employer is required to furnish a quarterly report of the candidates hired during the quarter which would be examined by the “authorized officer”. The designated officer may enter the premises for investigation with just 1 day's notice. There are fines for not registering the employees, not maintaining the 75% quota, for disobeying the order of the “Designated officer” regarding the exemptions & furnishing fake documents. The fines range from 10,000 to 5 lakhs and there are per day fines for violations that are as high as Rs.1000/day. The “director, manager, secretary, trustee or other officer of the society or trust, such director, manager, secretary, trustee or other officer” can also be deemed guilty if it is proven that the offense has been committed with the consent of these officeholders.
The bill is a throwback to the hay days of “License Raj”. The handing over of such extreme powers to a “Designated Officer” is only going to increase corruption and red-tapism apart from the increased costs of doing business. India’s rank has improved in the ease of doing business rankings over the past 5 years, but this is a major step in the wrong direction.
Unemployment in Haryana
According to CMIE’s data, Haryana had the highest unemployment in the country at the end of December 2020. This may seem like a shock at first, but we need to combine it with the fact that Haryana has a relatively good labor force participation rate.
This could mean that there is a mismatch between the skills of the labor force. According to CMIE’s Mahesh Vyas “Unlike other states, in Haryana, scores of people not completing graduation are out seeking jobs. They are semi-skilled and have limited job avenues. And unemployment among them has been the highest”. Also, there has been a decline in the jobs present in the automobile industry, which has a good chunk of the jobs in Haryana. To solve the acute unemployment problem, the government should try to reward businesses and skill their population. Instead, the government has taken the opposite step. The move may work for the government politically but it is likely to backfire if it is implemented as industries would be forced to move out of the state, further aggravating the problem.
Is there hope at the end of the tunnel?
Andhra Pradesh was the first state to pass the law giving 75 & reservation to its locals in private firms back in November 2019. The act mentions “Industry/Factory/Joint Venture and project taken up even under PPP mode shall appoint/engage not less than seventy-five percent (75%) of the employment with local candidates”. Though the rules for this act are a bit vague it was challenged in the high court and the judge said that the quota may be unconstitutional as it violates Article 16 of the constitution. The supporters of the bill argue that the article is limited to public institutions, whereas the law applies to private firms. It remains to be seen what the courts hold for the bill.