On July 16, the Karnataka cabinet cleared a bill that reserved a big chunk of jobs in the private sector for locals. While the state government aimed to highlight its commitment to create jobs for locals, the bill faced a volley of criticism from industry bodies and stakeholders, who called for a rollback of the new mandates.
The row prompted Chief Minister Siddaramiah to delete a previous tweet touting the announcement and put the bill on hold following backlash from multiple stakeholders.
Eventually, the CM said that the draft reservation bill was still in the “preparation stage” and comprehensive discussion would be held during the next cabinet meeting before making a final decision. But, why did the proposed laws come under fire?
Called Karnataka State Employment of Local Candidates in the Industries, Factories and Other Establishments Bill, 2024, the proposed rules sought to reserve 50% jobs at the management level and 70% at the non-management level in the state for Kannadigas.
While state industries minister M B Patil reportedly said that the proposed policy would ensure that “the interests of Kannadigas are protected, alongside those of industries”, IT minister Priyank Kharge reportedly said that the bill was envisaged to ensure more jobs for locals.
However, this rationale did not go down well with India Inc. Prominent business faces like TV Mohandas Pai and Kiran Mazumdar-Shaw came out all guns blazing against the proposed mandates.
Pai, partner at Arin Capital and former CFO of Infosys, called the bill “regressive, unnecessary, draconian, unconstitutional, (and) illegal”.
Meanwhile, Biocon chairperson Mazumdar-Shaw said that the bill could hurt the state’s leading position as a tech hub. “As a tech hub, we need skilled talent and while the aim is to provide jobs for locals, we must not affect our leading position in technology by this move,” she said in a post on X.
Industry body National Association of Software and Services Companies (NASSCOM) also issued a lengthy criticism of the proposed policy. Expressing disappointment and deep concern regarding the bill, the industry body opined that restrictions could drive startups and IT companies out of the state.
“The bill’s provisions threaten to reverse this progress, drive away companies, and stifle startups, especially when more global firms (GCCs) are looking to invest in the state. At the same time, the restrictions could force companies to relocate as local skilled talent becomes scarce,” NASSCOM added.
That said, while IT giants may have the capital and resources to shift to the neighbouring states, the same may not be true for smaller players that are based out of India’s Silicon Valley, Bengaluru.
What’s In Store For Startups?
Bengaluru, India’s startup hub and one of the more prominent business destinations in the country, is home to the biggest startups like Swiggy, Ola, PhonePe, and Groww.
Interestingly, a large chunk of startup founders don’t hail from Karnataka. For instance, Ola founder Bhavish Aggarwal was born and brought up in Ludhiana, Punjab.
PhonePe cofounder and CEO Sameer Nigam was the most prominent face from the startup ecosystem to criticise the bill. In a tweet, Nigam said that despite him creating employment opportunities for more than 25,000 people, the bill could bar his children from employment in Karnataka.
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Speaking with Inc42, Bengaluru-based GenAI startup OnFinance’s founder Anuj Srivastava said that 50% of the startup’s workforce has a non-Kannadiga background.
He said that the bill, if enacted, will create a major “people” problem for OnFinance as a lot of capable engineers, who hail from premier universities, come from different geographies.
“If enacted, this bill will bring about a major challenge not only for OnFinance but also the entire startup ecosystem of the state. In entrepreneurial circles, there are heavy discussions ongoing around the talent challenge that the bill will bring about. For us, we are thinking of moving our domicile or setting up a subsidiary in a different region, possibly Mumbai,” Srivastava said.
This skill discrepancy in the startup workforce was also highlighted by Benguluru-headquartered My Sivi’s cofounder Shivam Gupta, a native of UP’s Prayagraj. He said only a small percentage of the startup’s workforce hails from Karnataka.
However, virtual reality (VR) and augmented reality (AR) startup AutoVRse sees an opportunity in this situation.
The startup’s enterprise director Anuj Gupta believes that the bill would require the startup to make a pivot in their talent acquisition strategies. By building a more local workforce, the startup believes it could attain long-term stability and growth.
“However, it is crucial that this transition be supported by robust training and development programmes to equip local candidates with the necessary skills to thrive in a competitive market,” Gupta added.
Will The Bill Pass The Legal Test?
Karnataka isn’t the first state to mandate local hiring by the private sector. In 2021, the Haryana government introduced the Haryana State Employment of Local Candidates Bill, 2020, which mandated reserving 75% of jobs for local employees where gross monthly salaries were below INR 30,000.
The bill faced criticism, and later the Punjab and Haryana High Court quashed it in November 2023. In its order, the HC said it was beyond the purview of the state legislature to restrict private employers from recruiting from the open market and deemed the mandates unconstitutional.
Law experts Inc42 spoke with also expressed concerns over policies mandating companies to hire primarily from the local talent pool. Harmeet Grover, advocate and founder at law firm Aayati Legal, said that prior examples have made it clear that “sons of the soil” policies in the private sector are ultra vires and against the principles of constitutional morality.
“The bill imposes restrictions on the private sector’s ability to carry out their business freely by dictating their hiring practices. The weight of legal precedents suggests that the bill, once enacted, will be subjected to legal challenges and potential overturning,” Grover added.
The Path Ahead For The Country’s Tech Capital
In India’s dynamic startup ecosystem, Bengaluru has long reigned as the city, which has received the highest investor interest. In the first half of the ongoing calendar year, 134 funding deals materialised in the city, higher than Delhi’s 114 and Mumbai’s 91.
One of the reasons behind Bengaluru becoming the startup capital of the country has been the availability of talent from across the country. With the proposed Bill putting a question mark on it, the possibility of startups looking for alternate homes cannot be denied.
However, venture capital firm Prime Venture Partners’ partner Sanjay Swamy believes that the state government will continue to take steps to promote the local startup ecosystem.
“I’m pretty confident the state government has every intention to make Karnataka, in general, and Bengaluru, in particular, very attractive destinations for investment and development. I’m guessing the government has certain sectors in mind where there is ample local talent available,” Swamy added.
Meanwhile, piggybacking on the opportunity, ministers from Andhra Pradesh and Kerala called on IT giants and businesses to invest in their states.
Addressing NASSCOM’s concerns over the Bill, Andhra Pradesh IT Minister Nara Lokesh welcomed businesses to relocate to the state’s IT cluster at Vizag. Similarly, Kerala’s industries minister P Rajeev said it was time for companies to invest in his state.
While the Karnataka government has put the proposed quota policy on hold temporarily, it remains to be seen what it decides in the coming days and how it will impact India’s Silicon Valley.
