Context: The Haryana government has recently passed legislation that mandates companies in Haryana to provide jobs to local Haryanvis first, before hiring people from outside the State.
- The cabinet of the government of Jharkhand approved similar legislation to reserve jobs for Jharkhand residents.
- Many States in India have embarked on this nativism adventure to protect the interests of the vast number of their jobless locals.
- High rate of unemployment: The unemployment rate in Haryana is the highest of all States in India, as per data from the Centre for Monitoring Indian Economy (CMIE).
- World history warns us that when such a vast majority of adults are jobless, it inevitably leads to social revolutions and political upheavals.
- Free market principle: Reservation of jobs for locals violates the liberal idea of a free economy.
Factors behind job creation
Creation of new jobs is not entirely in the control of State governments. It is a complex interplay of multitude of factors.
Performance of economy: Job creation is obviously an outcome of the performance of the larger economy.
- It needs 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.
Critical factors: Fiscal autonomy
- 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.
- In America, States compete against each other vigorously using tax concessions and land offers to bring new jobs to their States.
- The most critical factor in the choice of a location for a large business is what economists term as the ‘agglomeration effect’.
- It is the ecosystem of supply chain, talent, good living conditions and so on.
- A State with an already well-established network of suppliers, people, schools, etc. are at a greater advantage to attract even more businesses than the States that are left behind.
Limited powers of state: The 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.
- State governments also have the ability to provide land at affordable prices or for free to attract investments.
- The availability of skilled local labour is a function of many decades of social progress of the State.
- 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.
- This gap between the richer and poorer States in India is only widening rapidly due to the agglomeration impact of modern economic development paradigms.
Subnationalism: Subnationalism is the policy of asserting the interest of one's own state/region/province, as separate from the interest of the nation and the common interest of all other states/regions/provinces.
All the above discussed factors propagate nativistic sub-nationalism among the various States of India.
The economic playing fields for the various States should be levelled and much greater fiscal freedom be provided to the States. Then the states will be able to create jobs.