When AP put the cart before the horse

N Madhavan | Updated on August 16, 2019 Published on August 15, 2019

The State risks losing out on investments and remaining industrially backward due to its short-sighted ‘jobs for locals’ law

Populism typically rears its head after a financial crisis. Many blame the rise in right-wing populism across the world today to the 2008 financial crisis. India too, has seen this phenomenon with the latest and the most serious being the law passed by the Andhra Pradesh government to reserve 75 per cent of jobs in an enterprise to locals. The trigger for this politically rewarding but otherwise a debilitating move is an economy which is witnessing a ‘job-less’ growth, coupled with an agricultural sector that is in deep distress.

The sight of people from other States ‘taking away’ their jobs has caused heartburns among a section of the society that has felt left out. Some political parties such as the YSR Congress have chosen to capitalise on this feeling. What is worrying is that other States are also contemplating a similar law. The risk of a contagion is real.

Little benefit

The Andhra Pradesh Employment of Local Candidates in the Industries/Factories Act 2019 insists that every enterprise, new and existing, should reserve 75 per cent of jobs for locals. Existing industries have three years to comply with the law. If the businesses do not find qualified people for employment, they should train them in that time. For that purpose, the State will set up skill-development centres. Those not complying have been warned of penal action.

This law is bad for multiple reasons. To start with, it is unconstitutional. Article 19 of the Indian Constitution guarantees free movement. An Indian can work and live in any part of the country. It also ignores a Supreme Court order which caps reservation to a maximum of 50 per cent. That apart, the policy is not borne out by facts. The census data on migration paints a different picture. While the stock of inter-State migration between 2001 and 2011 has risen from 41 million to 54 million, as a share of the total population, it has remained at 4 per cent. In fact, in majority of India’s districts, inter-State workers account for less than 1 per cent of urban workers. Most migration, the data suggests, happens within a State. Thus, this law serves little purpose.

If media reports are to be believed, the genesis of this law started with South Korean carmaker Kia Motors’ investment in Andhra Pradesh. While acquiring 2.1 square kilometres of land for a manufacturing facility from local farmers, the earlier State government had promised employment. They had said that the manufacturing facility would create as many as 3,000 direct and 7,000 indirect jobs, which never materialised.

This angered them, especially when they saw people from Tamil Nadu, Maharashtra and elsewhere being employed in the factory. The YSR Congress captured this discontent and promised a State-wide law if voted to power.

Skilling workforce

If Kia Motors has indeed broken a commitment to employ locals in lieu of various incentives the State government has offered, action should be taken against the company. But passing a law that mandates employment of locals for all industries will be counter-productive. Instead, the new government should have looked at why the Korean carmaker chose to employ ‘outsiders’. Lack of qualified people appears to be the only answer. To compete in a highly competitive market such as India, you need to produce a world-class product and that cannot be done without quality workforce.

Narendra Modi, as Chief Minister of Gujarat, was in a similar situation when he invited Tata Motors and other carmakers to set up their manufacturing facilities in Sanand near Ahmedabad almost a decade ago. The State’s workforce had little expertise in automotive manufacturing. Players such as Tata Motors and Ford had to bring employees from outside the State to start the operations. Had the Gujarat government come out with a law mandating employment of locals, the State would not have become another automotive hub of the country.

It is quite understandable that the newly carved out State of AP will take some time to build the necessary infrastructure, skill its manpower and build the supply chain that a highly industrialised environment demands. But in the absence of these, such protectionist policies will only leave it industrially backward, as investors would prefer to invest elsewhere in the country. Its leadership position at the top of the ‘Ease of Doing Business’ ranking in the country is already at stake.

Investments at stake

Policymakers in AP are forgetting that there is intense competition among the States in India to attract investment. Every State is offering incentives these days and what is tipping the scale is quality of manpower. AP’s policymakers have a shining example in their own State – Sri City. This industrial township, spread over 100 square kilometres, has investments from over 180 companies from across 27 countries. The brands here include the likes of Cadbury, Pepsi, Isuzu, Alstom and Kelloggs. The question they should ask themselves is that would these investments have come if the township was not located just 55 kilometres off Chennai, with a bulk of the employees travelling from the city to work there.

At a time when the world is moving towards Industry 4.0, where technology plays a critical role, skilled manpower happens to be the key differentiator. Such retrograde policies will only leave the State industrially backward and widen the inequality when it comes to economic development.

A better approach for the AP government would be to identify focus sectors (based on the State’s inherent strengths) for investment, unveil attractive sector-specific policies with incentives that will be too good for investors to ignore and initiate a large-scale skilling programme in consultation with the industry to skill the workers for employment in these sectors. Only such progressive measures will ensure that investors will flock the State, employ the locals and catalyse its rapid economic development. As things stand now, none of these are likely to happen.

Published on August 15, 2019
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