How will Haryana’s 75% job quota impact the SME sector?

Updated: March 05, 2021 2:05 PM

It is a populist measure driven by the desire to appease the local vote bank than create jobs, say experts

SME sector, job reservation Bill , Gurgaon-based SME Solo Group, Maruti-Suzuki, Industrial Training Institute , SME sector, Haryana's 75% job quota, ease of doing businessThe Haryana job reservation Bill recently got the Governor’s assent and the government is likely to be notified soon after which it will become a law. (IE Image)

By Sonal Khetarpal

In 2005, Gurgaon-based SME Solo Group, in partnership with Maruti Suzuki, decided to train graduates from nearby areas to create job-ready candidates and adopted Industrial Training Institute (ITI) Nuh in Mewat region of Haryana. While the firm had put its best foot forward, it realised the potential talent pool wasn’t interested. They wanted jobs either in malls or call centres. “We found the youth did not want to work in factories. Skill availability from the region was a big problem then, that’s the case even now,” says Sandeep Jain, MD of automotive parts manufacturer Solo Group.

Jain recalls this episode as he forewarns the writer of the adverse impact of the Haryana government’s new legislation to reserve 75% of all private sector jobs for locals. He says, “Employable youth in Gurgaon is nearly absent. It will be disastrous for existing industries who want to expand and employ more.”

The job reservation Bill recently got the Governor’s assent and the government is likely to be notified soon after which it will become a law. The Bill was passed by the Haryana Assembly in November last year.

Several entrepreneurs the writer spoke to said Rs 50,000 is a high threshold that covers pretty much the entire workforce of a SME right up to the middle management.

Another big fear amongst the community is unionisation. An entrepreneur who didn’t want to be named said, “Hiring too many local people in a small set up can be problematic. Locals usually have strong networks and reach up to the high and mighty which mid-sized manufacturers like us don’t have. 75% of locals is more than a majority and if they get together for any demand, fair or unfair, it would lead to closure of the plant.”

The Un-ease of doing business

The unambiguous consensus amongst firms is Haryana will lose its attractiveness for the industry. “Forced job quotas have a chilling effect on employment and prove counterproductive. It takes away the competitive advantage of the country. Industries will opt for capital intensive processes rather than employment intensive ones: a disastrous outcome for a country having millions of people unemployed,” says Anil Bhardwaj, Secretary General, Federation of Indian MSMEs (FISME). A likely outcome will be that industry will move to adjoining states such as Delhi or UP or Rajasthan.

Hiring non-Haryana people will also become stringent and expensive, says Animesh Saxena, President, FISME. SMEs usually don’t have proper HR or recruitment systems. For hiring blue collar workers, they put up a board outside their unit of the available vacancies. The candidates walk in, are tested and then recruited. Formal mechanism of listing jobs in recruitment portals or with consultants is not adhered to.

As per the notification, it will become mandatory for the industry to register the vacancy in the job portal of Haryana government. If the industry is not able to find suitable talent, they have to apply for permission from the District Magistrate for exemption which is complicated. The law states the designated officer will evaluate the attempts made by the firm to hire local candidates and may accept or reject the claim of the employer. The officer may also direct the firm to train the local candidates rather than hire from outside.

“Registrations, permissions, explanations will add several layers of compliances for the firms, impacting smaller firms severely. It will also increase corruption as inspectors might leverage the hiring of non-Haryana people as an excuse to harass the proprietors and entrepreneurs,” says Saxena.

A lot more processes will have to be added by firms. “Companies don’t usually capture the state of domicile of their employees so all that data will have to be compiled from scratch. Another challenge will be to verify a candidate’s domicile state and firms will have to add another process for its verification,” says Aditya Narayan Mishra, CEO, CIEL HR Services.

Wider impact

The repercussions of the legislation will not only be felt by industry but the country as a whole. “Other states such as Karnataka, Maharashtra have been contemplating such measures in the past. What is worrying is it will lead to a trickle effect with other states following suit,” says Atul Gupta, an employment lawyer and partner at law firm Trilegal.

He adds, “It is a populist measure driven by the desire to appease the local vote bank than create jobs. It will be challenged in court as unconstitutional because it can be argued that it takes away the fundamental right of people to practice any trade or profession in any part of the country based on their skill and qualification.”

The law will also create artificial boundaries between states and fragment the labour market, says Partha Chatterjee, Professor and Head of the Economics Department at Shiv Nadar University, Greater Noida. “It is contradictory to the reforms such as GST, One Nation One Ration Card that have been introduced to create free movement of goods and services across states.” Job reservations will add another wall restricting movement of talent and the industry.

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