The article examines the factors contributing to the States pursuing domicile based employment policies.

What is driving states to provide reservation to locals in private jobs

• The Haryana government has recently passed legislation that mandates companies in Haryana to provide jobs to local Haryanvis first.
• The unemployment rate in Haryana is the highest of all States in India, as per data from the Centre for Monitoring Indian Economy, or CMIE.
• The cabinet of the government of Jharkhand approved similar legislation to reserve jobs for Jharkhand residents.
• The Dravida Munnetra Kazhagam (DMK) in Tamil Nadu announced a similar proposal in its manifesto for the upcoming Assembly elections.
• Such moves have attracted criticism from economists and commentators
• Creating more jobs, not on reserving the few available ones’ is the popular refrain.
• Creation of new jobs is not entirely in the control of State governments. It is a complex interplay of multitude of factors.

Factors playing role in job creation

• Job creation is obviously an outcome of the performance of the larger economy.
• Chief Minister of a State in India has limited control over the management of the larger economy and thereby, attract new investors and businesses who can create jobs.
• Businesses need abundant high quality skilled and unskilled labour, land at affordable prices, uninterrupted supply of electricity, water and other such ‘ease of business’ facilities for its expansion.
• State governments in India can theoretically compete with each on these parameters.
• Further, any tax advantages that a particular State can provide vis-à-vis others will increase its attractiveness.
• But, realistically in India, in very few of these parameters can a poorer State compete against a richer State.

Issues faced by the States

• The availability of skilled local labour is a function of many decades of social progress of the State and cannot be retooled immediately.
• After the introduction of the Goods and Services Tax (GST), State governments in India have lost their fiscal autonomy and have no powers to provide any tax concessions to businesses.
• Beyond all these, the most critical factor in the choice of a location for a large business is what economists term as the ‘agglomeration effect’
• Agglomeration effect is the ecosystem of supply chain, talent, good living conditions and so on attracting the other businesses.
• So, a State with an already well-established network of suppliers, people, schools, etc. are at a greater advantage to attract even more businesses.
• It is due to this agglomeration effect that the three richest large States (Maharashtra, Tamil Nadu and Karnataka) are three times richer than the three poorest large States (Bihar, Uttar Pradesh and Madhya Pradesh), in per-capita income, compared to 1.4 times in 1970.
• In the absence of a level playing field and with no fiscal autonomy, it is enormously difficult for developing States in India to attract new investments and create new jobs.

Consider the question “Examine the factors contributing to the nativist tendencies in the employment within the States. Suggest the measures to deal with the issue.”

Conclusion

Until the economic playing fields for the various States are levelled and much greater fiscal freedom provided to the States, “don’t protect but create jobs” will only remain a topic of a hollow lecture and moral sermons.

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