Just a day after Karnataka’s draft bill mandating companies to allocate 50-70 per cent of jobs to locals came to light, the legislation has been officially put on hold. Industry figureheads such as Kiran Mazumdar Shaw, seasoned investor and ex-Infosys CFO Mohandas Pai, along with the IT BPM industry trade body nasscom vehemently criticised the bill, prompting its immediate suspension.
The introduction of the new legislation received a huge backlash within Karnataka’s tech sector, which has been a cornerstone of the state’s economy, contributing 25 per cent to its GDP and hosting a big chunk of India’s digital workforce.
With over 11,000 startups and 30 per cent of the country’s Global Capability Centres (GCCs), the tech sector plays a crucial role in Karnataka’s economic landscape. The principal apprehension among industry leaders is that the bill’s stringent provisions may exacerbate a shortage of skilled local talent, potentially compelling companies to contemplate relocation.
According to the draft bill (Karnataka State Employment of Local Industries Factories Establishment Act Bill, 2024), employers would be mandated to allocate 50 per cent of management positions and 70 per cent of non-management positions to candidates who are residents of Karnataka
“[..] members are seriously concerned about the provisions of this bill and urge the state government to withdraw the bill. 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,” said nasscom in its statement.
In Bengaluru, the state capital, the IT sector alone employs over 15 lakh individuals. About 50-67 per cent of this workforce, comprises non-Kannadigas
About 20 entrepreneurs from Bengaluru, surveyed by BW Businessworld, expressed profound shock and disappointment regarding the bill. They reflected that its introduction appeared lacked extensive industry consultation, focusing primarily on local vote bank considerations.
Coincidentally, the bill surfaced a day after Karnataka government unveiled a report on GCCs, which highlighted the skilled workforce of over 5,50,000 employed in these centres.
“Employers don’t bother about the origin of an individual candidate. They are only interested in their skills, capabilities and attitude towards the said job. Employers hire from across regions and institutions from pan Indian institutes and have attracted a large base of skilled workforce nationally,” Neeti Sharma, CEO, TeamLease Digital told BW Businessworld, elaborating on the choice of talent employed across companies.
“The broader business ecosystem will be affected significantly, as the current skilled workforce might be forced to relocate. This will escalate an already existing skill and talent gap as the local population may not be completely ready for the quick uptake. Such a mandate can cause shortage of skilled labour, leading to destabilising of the ecosystem” – Neeti Sharma, CEO, TeamLease Digital
During the Zinnov Confluence event last week, Jayesh Ranjan, Special Chief Secretary To Government, I&C And ITE&C Department, Govt. of Telangana, appeared to criticise Karnataka for retracting the “red carpet” it usually initially rolled out to attract companies and investments.
“The feedback we receive is that in some other states, the red carpet is rolled out with confidence, and this red carpet often shifts once they are confident about investment. In contrast, in Hyderabad the red carpet is always rolled out and kept like that,” he said.
Hyderabad has been growing in national stature and attracting billions of dollars in investments from tech conglomerates such as Amazon Web Services and Microsoft along with many GCCs. Earlier on Wednesday, Sanofi Healthcare revealed its plans to expand its Global Capacity Centre (GCC) in the state capital of Telangana, aiming to invest EUR 400 million in the next six years.
A BJP-led coalition government’s move in Haryana was invalidated by the Punjab and Haryana High Court in November 2023. This legislation mandated a 75 per cent reservation for locals in jobs with a monthly salary below Rs 30,000.
On Wednesday, Andhra Pradesh Minister Nara Lokesh tweeted a welcome message to nasscom, inviting the industry to the state.
“We understand your disappointment. We welcome you to expand or relocate your businesses to our IT, IT services, AI and data centre cluster at Vizag. We will offer you best-in-class facilities, uninterrupted power, infrastructure and the most suitable skilled talent for your IT enterprise with no restrictions from the Government,” he mentioned in his tweet.
Karnataka and Bengaluru have long held allure for the nation’s youngest and most talented individuals, primarily owing to the abundance of IT jobs and numerous engineering colleges. “Beyond these factors, the cosmopolitan nature of the region has played a pivotal role in attracting top-tier talent, setting it apart from competitors like Chennai and Hyderabad,” one of the entrepreneurs told BW Businessworld, on condition of anonymity fearing backlash.
“[..] regressing from this advantageous position could potentially incur a significant loss of business opportunities, especially as other states intensify their efforts to attract investment and growth. India, as a whole, continues on a huge growth trajectory, which means it’s imperative for states to adopt forward-looking policies that enhance competitiveness and capitalise on the nation’s developmental momentum,” she concluded.
BW Reporters
The author is Regional Editor (Technology & South) at BW Businessworld.
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