Industry in a bind over local job rules in Southern states

Hyderabad | Chennai | Bengaluru: Hiring plans of companies for their manufacturing plants located in three southern states are hit by proposed regulations that would require them to favour locals over migrants, multiple industry executives said.

The Sri City Special Economic Zone, along the Tamil Nadu-Andhra Pradesh border, and automotive clusters in Hosur on the TN-Karnataka border and Bidadi on the outskirts of Bengaluru employ labour across state lines, with people often crossing state boundaries to reach work.

Now, an upcoming law by Karnataka and the Andhra Pradesh government’s directive to hire more locals in the skilled worker category have thrown a spanner in the works of manufacturing facilities in places like these, they said.

“It is definitely a challenge. Companies didn’t have to take a serious look at the hiring mix. Now, they have to incorporate these into their schedules,” said a top executive aware of the operations at Foxconn, the manufacturer of Apple’s iPhones in India that operates a plant at Sri City.

The move by Andhra Pradesh, which requires factories to employ skilled locals within Sri City, is “troubling”, said an executive at an automotive parts maker. “Factories have banked on Tamils” to shore up talent in the industrial cluster, he added.

Foxconn, which began manufacturing from a leased building at Sri City in early 2015, now employs thousands. The Taiwanese contract manufacturer is also a supplier to Chinese brands including Xiaomi and is expanding facilities in Andhra Pradesh and Tamil Nadu.

To be sure, the requirement to hire locals is not new to AP. Previous governments, however, had limited this clause to unskilled and semi-skilled workers. Chief minister Jagan Mohan Reddy’s administration now is expanding that to include skilled workers, while also initiating a sweeping review of contracts, subsidies and incentives, rattling industry circles.

While parties like the BJP oppose Reddy’s decision, Andhra Pradesh’s special chief secretary for industry and commerce, Rajat Bhargava, pointed out that the local hiring mandate was not new or restricted to southern factories.

“Madhya Pradesh had it and now Maharashtra has made it 80%,” he said. Locals constituted 83% of Korean car maker Kia’s workforce in AP, he claimed.

Foxconn and Kia didn’t respond until press time Tuesday to emails seeking comment.

“The (AP) government is willing to make exceptions on specific cases where local hiring is not possible,” Bhargava told ET. And, “the government will spend an estimated ?1,600 crore in raising the skill standards of our people”.

In neighbouring Karnataka, which boasts of niche manufacturing clusters like in aerospace, a local hiring law is being mulled. “The need for a new law arose because the earlier notifications only required industries to consider Kannadigas on priority, it was not binding,” said education minister S Suresh Kumar, who held also the labour portfolio until portfolios were re-allocated on Monday. The state is not “influenced by the Andhra law”, he added.

Industry leaders said investors would be put off by such regulations.

Toyota Kirloskar Motors vice-chairman Shekhar Viswanathan said if states kept tinkering with labour laws and regulations ostensibly to generate more jobs for locals, they would end up alienating investors.

The local unit of Japan’s Toyota Motor employs more than 6,200 people at its 432-acre facility at the Bidadi industrial area, with an annual production capacity of over 3.10 lakh vehicles. The plant is supported by a ring of component makers.

“Many political leaders seem to think that merely because India offers a huge market, people will come and invest. This is not true. What investors look for is consistency in laws and regulations,” Viswanathan said.

In the interest of their respective states, governments “must resist the temptation to make drastic changes in policies that affect operations of an industry”, he said.

After announcing the move on local hiring, AP chief minister Reddy had cited the US’ push for creating local jobs to justify his directive. “Even in the US, the slogan is ‘jobs for locals’ and it is a worldwide phenomenon. What we are asking for is nothing new or unusual. Locals give land to industry and the least they expect is employment and they are justified,” he had said. The Andhra Pradesh BJP unit has opposed moves towards localisation. “States are not in a position to dictate terms and no industry will look at a state that dictates this kind of regressive terms on job reservations,” said state BJP president Kanna Lakshmi Narayana.

Karnataka, where Narayana’s party is in power, walks a tightrope in its attempt to reconcile local interests with the industry’s hiring methods. “Kannada organisations have represented to the government complaining that locals have been losing out on employment opportunities to outsiders. This is causing them heartburn. In this context, we have begun discussions with industries on how we can have a law to get locals their due in employment opportunities,” minister Suresh Kumar told ET.

In February last year, Congress-ruled Madhya Pradesh had made it compulsory for all state-supported industries to provide 70% employment to locals.

Business experts are of the view that local hiring obligations were not insurmountable problems but involved costs.

“Any restriction, if binding, on a company creates friction, and friction leads to costs and inefficiency, while companies are built for efficiency and returns to shareholders,” said CR Rajan, a former Murugappa Group top executive who now teaches at a B-school off Chennai.

“In this case, manufacturers can comply as they generally hire locally, but some declarations, default norms or penalties will involve costs,” he said.