Local Reservation in Private sector

Local Reservation in Private sector

News: Recently, The Punjab and Haryana High Court quashed a law passed by the Haryana government in 2020 that provided 75% reservation in private jobs to residents of the state.

What was the law?
• The Bill passed by the Haryana Assembly in November 2020 reserved 75% of jobs in the private sector that offered a monthly salary of less than Rs 30,000 (originally Rs 50,000) for residents of Haryana.

Who challenged the law and on what grounds?
• The Faridabad Industries Association and other Haryana-based associations went to court, contending that Haryana wanted to create reservations in the private sector by introducing a policy of “sons of the soil”, which was an infringement of the constitutional rights of employers.

Why did the court invalidate the law?
• Violation of Article 16: The law violated constitutional rights by reserving 75% of private-sector jobs for Haryana residents, stating that a government cannot discriminate based on residence.
• Violation of Article 19: The court also criticized the law for imposing excessive control on private employers, creating an “Inspector Raj,” and impairing individuals’ rights under Article 19(1)(g) of the Constitution.
• The act is in violation of the federal structure framed by the Constitution of India, whereby the government cannot act contrary to public interest and cannot benefit one class.

What are the benefits of Local reservation in Private sector?
• Improving Productivity: Local employees are more likely to be familiar with the local language, culture, and business environment, which can help to improve their productivity and efficiency.
• Constitutional Validity: Article 16 of the Constitution of India doesn’t prohibit reservation based on domicile and residence. It seems constitutionally valid to provide first opportunities to the locals in local jobs.
• Reservation in local jobs promotes equality within society, focusing on low-strata jobs, is in sync with the Equal Protection of Law spirit as enshrined in Article 14 of the Indian Constitution.
• Raising Morale: The reservation can raise the morale of the local population as they get a fair chance to secure jobs in their own state.
• In the face of unemployment and slow job creation, local job reservation is seen as a suitable solution to address these challenges.
• Hiring local employees reduces relocation costs for companies, potentially lowering operational expenses.

What are the downsides of Local reservation?
• Reduced Job Creation: Industries might be deterred from setting up operations in states with such restrictions, leading to reduced job creation. For example, Haryana witnessed a 30% drop in investment in 2022 due to the local reservation law.
• Quality of Work: Jobs may be done by people who are less qualified than those who could have got the job in normal circumstances. This can result in poor and shoddy work.
• Economic Growth: Reservation slows down the economic growth rate of the country as it reduces the efficiency of actual talent and it undermines the importance of merit system.
• Local job reservation policies pose threats to unity in diversity, potentially creating tensions between local vs. non-local people.
• Legal issues: It is beyond the power of states to create domicile as a condition for employment as the constitution provides this provision for public employment and only parliament is empowered to make such laws under Article 16(3).

Important Judicial verdicts:
• Dr Pradeep Jain v Union of India, 1984 - Legislation for “sons of the soil” deemed unconstitutional
• 2019 UP-Subordinate Service Selection Commission Case - Allahabad HC struck down a UP recruitment notification which favored women who are “original residents” of Uttar Pradesh alone.

Way Forward
• What matters more is whether states are providing ample opportunities for skill training, affordable education and creating an inclusive environment which promotes competence and offers conducive environment for businesses to invest in the state.
• States must look away from short term gains and look towards long term solutions for unemployment, skilling and capacity building.