Editorial 1 : Drop this bill
Introduction: The Karnataka government has given its nod to a Bill that is highly problematic, one that does not measure up to the constitutional letter and spirit. The bill showed that ‘bad ideas’ never dies in India and keep up coming again and again.
What did the bill propose?
- The proposed law requires industries, factories and other establishments to appoint 50 per cent of local candidates in management categories and 75 per cent in non-management categories.
- The Karnataka State Employment of Local Candidates in the Industries, Factories and Other Establishments Bill, 2024, passed by the Cabinet on Monday, mandates that if qualified or suitable local candidates are not available, it will fall to the firms to take steps to train and engage local candidates within three years.
Karnataka is the latest case in the long list of states that have done proposed similar bills
- Karnataka is not the first state government in the country to go down this path.
- In the past, states like Andhra Pradesh (in 2019) and Haryana (in 2020) have brought similar laws.
- But such laws, wherever they are framed, discriminate among Indians.
- This is one of the main reasons why the Punjab and Haryana High Court struck down a similar law in November last year.
- The court said: “The concept of constitutional morality has been openly violated by introducing a secondary status to a set of citizens not belonging to the state of Haryana and curtailing their fundamental rights to earn their livelihood.”
Why do states bring reservation law in private sector?
- The political push for such laws is set in a fraught context: There is widespread unemployment related distress in the country.
- Since state governments are elected by locals, it seems reasonable for chief ministers to attempt to secure the interests of their voters.
How the reservation policy measures are misconceived?
1. Against the constitutional framework
- As the Punjab and Haryana pointed out, is of discrimination – the proposed law seeks to curb some citizens’ constitutionally protected freedom to move freely throughout the territory India and earn a livelihood.
2. Brings out the bad memories of ‘Inspector-quota raj’
- The second problem would be reintroduction of the dreaded inspector-raj, where a set of bureaucrats will be empowered to decide whether a firm should attract a penalty or be allowed to employ people from outside the state.
- Rent-seeking is a given in such a framework.
3. Impacts private sector’s capacity to attract talent and profitability
- The third, and often ignored aspect of such a law is the impact it will have on the private sector.
- By now it is clear that there are no way governments in India — both at the Centre and state — can create enough jobs for India’s youth.
- The solution lies in making it easy for the private sector to grow and create new jobs.
- Such a law will militate against such job creation.
- It will raise compliance costs for private firms while undermining their ability to attract the best talent and reducing their overall efficiency and profitability.
Conclusion: It is bad law, politics and economics. Such restrictive quotas could take a high toll on the dynamism of cities like Bengaluru, which essentially thrive because of the openness of their economy. Thankfully state government put the bill on hold. Civil society must push governments to not bring such measures in future.
Editorial 2 : Holding steady
Introduction: The global economy is expected to grow at a stable pace in the near term. Growth has been pegged at 3.2 per cent in 2024 and 3.3 per cent in 2025 as per the July update of the International Monetary Fund’s World Economic Outlook. This is in line with the Fund’s assessment in April.
IMF tweaked the growth perspectives of major economies
- Among developed economies, the IMF has raised its growth forecast for Spain and France, while paring down its earlier assessment of Japan.
- In the case of emerging markets and developing economies, the Fund has now lowered its expectations of growth prospects of the Middle East and Central Asia region as well as parts of Latin America, while sharply raising its expectations of the Chinese and Indian economy.
IMF’s prediction regarding Indian Economy
- The IMF now expects the Indian economy to grow at 7 per cent in 2024, up 0.2 percentage points from its earlier assessment.
- The more upbeat prognosis, in part, reflects “improved prospects for private consumption, particularly in rural areas”.
IMF’s prediction is in line with the assessment of other agencies
- On Wednesday, the Asian Development Bank reaffirmed its outlook for India, pegging growth at 7 per cent.
- ADB expects the agriculture sector to “rebound”, with the monsoon likely to be above-normal.
- On the other hand, the RBI has projected growth to be marginally higher at 7.2 per cent, while others like Crisil and ICRA have pegged it slightly lower at 6.8 per cent.
- These projections indicate that the underlying economic momentum remains healthy.
- The outlook for the next year also appears bright — the IMF has projected the economy to grow at 6.5 per cent, while the ADB expects growth at 7.2 per cent.
The IMF’s outlook for world’s economy
- The World Economic Outlook notes that across the world, progress on disinflation is slowing.
- The risks to inflation have risen, and this raises “the prospect of higher for even longer interest rates”.
- In June, the US Fed chose to maintain the status quo on rates as the committee members opted to wait for “favourable” data that indicates that inflation is moving sustainably towards its target.
- As per the Fed dot-plot, there is now the likelihood of only one rate cut this year, down from earlier expectations of three cuts.
- Across the Atlantic, while the European Central Bank cut rates in June, there are expectations of status quo in the July meeting, and for the Bank to wait for more macroeconomic data before taking further action.
- On the other hand, as the IMF also notes, central banks in emerging economies are being “cautious” on lowering rates due to the implications for their currencies.
- In the case of India, while two members of the monetary policy committee have voted to cut rates, a change in policy appears unlikely in the near term as uncertainty over the trajectory of inflation, food in particular, persists.
Conclusion: IMF’s outlook on India is showing an optimistic picture of Indian economy. Although the high interest rate is a cause of concern, but overall Indian macroeconomics look robust amid the global upheaval and chaos.