PremiumIt is hard to miss the irony. A day after a law that aims to provide 75% reservation for local people from within the state in private sector jobs with salaries of up to ₹30,000 per month was operationalized in Haryana, a state that is home to the Indian units of Japanese auto giant, Suzuki, another state, which has branded itself as the Detroit of India, was raising its pitch to pursue Elon Musk to set up shop.
As Haryana looks inward, Tamil Nadu joins half a dozen other states as varied as Maharashtra, Punjab, Andhra Pradesh and West Bengal trying hard to woo Musk by promising that the state would ensure that “setting up office would be a breeze", while helping mitigate all challenges. The recourse to affirmative action by way in the private sector by a few states including Andhra Pradesh, Punjab and Karnataka can at best be seen as a political recognition or response to the worrying trend over the past few years of declining jobs in the formal sector and investments in manufacturing. The issue of quality jobs and incomes seems ripe for becoming an electoral issue. More states may resort to similarly populist, myopic policy responses that are also fraught with Constitutional challenges.
These trends are a consequence of the deep regional economic imbalances in the country much like rising inequality and the divergence between listed and unlisted firms over the last few years, and post-pandemic.
The reality is that over the last two decades, investments – both foreign and local – have flown to a handful of powerhouse states, such as Maharashtra, Gujarat, Karnataka, Tamil Nadu and perhaps also Telangana. That’s because of the quality of the skilled workforce in these states, infrastructure, governance, a good mix of manufacturing, services and farm in contributions to state GDP besides other economic and social indicators. Coupled with that is their ability to stay largely competitive in terms of being attractive to investors, irrespective of political regime changes, through higher capital and social spending. These inherent strengths clearly provide the cushion to ride out an economic storm and rebound faster.
This perhaps explains the growing economic divergence among states in India with the laggards mostly being states north and east of the Vindhyas. And affirmative actions such as the one by Haryana are bound to be self-defeating. For, mandatory quotas for jobs and powers for officials to slap penalties on companies for violations are sure to fob off competitive firms who will be wary of new inspector raj and the impact on productivity. It is poor timing too when the International Monetary Fund in its last economic outlook has flagged off the risk of employment growth lagging output or economic growth in emerging markets even as the recovery from the Covid shocks takes shape over the next few years. Importantly, it also poses the risk of negating the benefits of intra-state migration as seen in the demand for scores of workers from the North and East in many sectors, especially garments in some of the states in the South and West.
Fifty years ago, the Finance Commission – the arbiter of fiscal transfers between the Union and states while recognising the structural imbalances among states – had introduced the concept of special category states. But that hasn’t helped foster economic convergence. Rather, it will help if Haryana and many other laggard states invest more in education, health and skill development. The medium-term spin-offs from that could be an enhancement in the quality of public goods which they can provide. That should attract investors, create jobs and boost incomes. Not legal mandates.
