How Haryana’s job reservation law could trigger the logistics and warehousing sector

Haryana warehouse

The Haryana government’s law reserving 75% of private sector jobs with monthly pay of up to INR 50,000 for people of the state is now leading to concerns on how it will impact Gurugram’s logistics and warehousing sector and speed up the trend of companies shifting to Noida and elsewhere due to high costs, industry experts said.

The immediate concerns are with regards to the rise in labour costs due to lesser availability of labour, as a majority of the labour force is comprised of people belonging to other states.

According to real estate developers and international property consultants, the law will affect both office space and residential property in the Gurgaon market, which had started showing signs of recovery after being hit by the Covid-19 pandemic.

Noida had taken over Gurgaon in terms of share of office space leasing in the National Capital Region in the past few months and is set to gain further following the move by the Haryana government.

Impact on ease of doing business

There are mounting fears that the reservation for domicile workers will impair ease of doing business in India and also affect investments flowing into sectors like IT, apart from affecting residential and commercial sector real estate growth in many cities of India.

Anuranjan Mohnot, Managing Director of Lumos Alternate Investment Advisors shared, “Though the judiciary will finally decide on the constitutionality of such legislation, such proposals may seriously dent ease of doing business in India. It can impact foreign direct investments in sectors like IT and also the government’s own policies of ‘one nation, one market’ get questioned”.

Impact on warehousing

There are apprehensions that the new policy will lead to a direct impact in warehousing.

Vikash Khatri, Founder, Aviral Consulting believes that the law will have an adverse effect on the logistics and warehousing segment.

“It will have a bad impact on the logistics and the supply chain. But most importantly, it will not pass the litmus test of the Supreme Court”, Khatri stated.

“It is not a good law whether in terms of India’s structure, political map or constitutional right. It will have a devastating effect on the industry, whether IT or logistics”, Khatri surmised.

“Companies have already started talking about moving to Noida as forcibly hiring locals will impact the business. Once companies start moving, office space leasing will be directly impacted. It will also impact warehousing, which is largely based out of Gurgaon and nearby areas of Haryana,” said an international property consultant, requesting anonymity.

A “regressive straightjacket”

The Federation of Indian Chambers of Commerce and Industry (FICCI) has termed the new reservation bill as a “regressive straightjacket” that will force the industry to look beyond the state.

Speaking for FICCI, its President Uday Shankar said, “The Haryana government’s move will spell disaster for the industrial development and private investment in the state.”

He also that investors and entrepreneurs need to source the best human resource available in the country to be competitive and successful. “FICCI also believes that this move is against the spirit of the constitution the gives the citizens of India the freedom to work anywhere in the country.”
The Haryana State Employment of Local Candidates Act, 2020, applies to private companies, societies, trusts and partnership firms.

New supply of office space and competitive rents are driving occupier demand in Noida. On an annual basis, office space consumption in Noida remained largely at par with 2019 levels.

According to a report by Knight Frank, Noida recorded gross office leasing of 1.1 million sq. ft. in the first half of 2020.

Will the policy bring down unemployment?

The new law has been deemed to cure the state’s rising problem of unemployment but it has created an even bigger hole for the country. If labour, both skilled and unskilled, is not free to roam around in the country, then it will impact India’s ability to grow and reduce poverty.

As a country, India already has a low level of internal migration and it is in need of policies that will boost inter-state migration to address the resource mismatch.

In a bid to reduce the state’s employment rate, the new policy will instead lead to bigger issues. Businesses will lose out on current profitability and future growth, many existing employees will likely lose jobs, thereby leading to a drop in economic activity and also leading to dip in tax revenues.

Rise in labour charges and dip in Labour Productivity

Khatri underlined that the immediate consequence will be a rise in labour costs and a dip in productivity levels.

“Only 20-25% of the labour force is comprised of the local people of Haryana. If this gets implemented, labour availability will decrease and it will lead to a rise in labour charges.”

“Due to unavailability of labour, we will witness a plunge in productivity levels”, Khatri highlighted.

A political gimmick for votes?

Mr Khatri shares how the law is only a political gimmick that will cater to a certain vote bank.

The bill has been passed in the interest of a particular section; to appease a certain vote bank. On a broader landscape, it is not a constructive law for the growth oriented geographies. If similar laws sail through in multiple states, it will have a significant impact on the national employment Market, migration trends and availability of right workforce.

~ Vikash Khatri, Founder, Aviral Consulting

Workforce majority comes from Delhi, UP, Rajasthan.

He also underlines that this will lead to the issues of more unions and strikes/protests rising, and draws a parallel with the state of Maharashtra.

“Not much changes on the hiring side”

On the other side, Naveen Rawat, Director & Co-Founder – Holisol Logistics Pvt. Ltd. feels that the law will not have any effect on the hiring side.

“Gurgaon and surrounding areas are a big Warehousing Hub in the NCR region and employ a lot of skilled workforces. The majority of the people deployed at these facilities currently are being hired locally from adjoining villages & localities. So practically speaking, the recent directive would not change much on the hiring side”.

~Naveen Rawat, Director & Co-Founder – Holisol Logistics Pvt. Ltd

On the other side, the compliance burden on the employers would increase and there are apprehensions related to a negative impact on the “ease of doing business.”

The industry has expressed doubts & apprehensions about the need, viability & Impact on the investment & business environment in the state. Some rethink & more clarifications on the detailed implementation of the said directive are expected from the Haryana Government.

Sandeep Chadha, Managing Director at Pragati Warehouster believes that the local workforce policy will not trigger much of an impact in the logistics and warehousing side, since local norms have always preferred employment of locals, which the stakeholders have had to follow.

“As per the local norms, for change of land dues or to develop a warehousing park, there is a condition that you have to employ 75% of the workforce from the state itself. We have always been following these norms and also, majority of the workforce associated with logistics or warehousing parks are anyway locals. It is already understood that when you’re developing a warehousing park, 75% of the employment will be given to the local people.”

He shares that even before this policy came in force, there was always a preference for employing the local workforce.

“The government was already initiating it[the policy] in its own means: while awarding licenses or awarding change in land dues, there was always a condition to people who are developing warehouses that they employ locals from the state.”

~Sandeep Chadha, Managing Director at Pragati Warehouster

While offering his views on the impact on the workforce, Mr Chadha states that the logistics side will not bear much of an impact like the IT sector.

“When it comes to the IT-related workforce, I definitely see an impact, since majority of the employed people are from other places (Mumbai, Delhi, Bangalore etc) but as far as logistics is concerned, since majority of the employment is from the state, I don’t see much of a difference.

The law was passed in November 2020 even though it got the Governor’s nod only last week.

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