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 Article Published in The Economic Times  25 September 2004

India Inc, Quota, Unquota

The announcement of a possible extension of reservation policy for the backward classes in the private sector has created a lot of disquiet among the corporates.

India hasn't exactly been a Mecca of economic freedom (it ranks 121 in the list of 154 countries in ‘mostly unfree’ category in the Heritage Index of Economic Freedom), but some industries and Indian entrepreneurs in the last couple of years did raise their ambitions of becoming global players to serve customers in different continents.

However, an additional burden of labour market regulations in an otherwise highly regulated Indian economy will not only raise the cost of doing business, but would saddle the industry with an inflexible practice that will have a far-reaching impact in the future. Therefore, the issue needs to be seriously debated, before any decision is finally arrived at.

In a globalised business environment, India cannot afford the luxury of reservations, when there are neighbours in the region, which offer better terms for setting up manufacturing units. We must remember that low-wage countries like Vietnam, Cambodia, and even Laos are getting in the ring, competing for the dollar. Then there is China, with an established ‘Himalayan’ stature for being the ultimate destination for investment.

In the age of downsizing, reservation policy per se may not even create jobs in the private sector for people of backward communities, as intended. In the post-liberalisation era, the private sector has already lost more than a million jobs.

Companies are reducing the headcount with gusto, to be globally competitive and thrive in an era of continuous tariff cuts and reducing international trade barriers. If forced to, they may circumvent the reservation policy by relying more on automation, giving a go by to jobs of workers.

Further, the existing reservation policy for scheduled castes and tribes (SCs/STs) is an untested model of achieving social equality, as it has never been subjected to an evaluation process in the last 50 years. Originally intended for 10 years by the constitution-makers, it has been routinely extended without any review process.

Social and political circumstances and the prevailing power structure in society were vastly different in the 1950s than what they are today. All the backward castes lumped together as SCs are no longer a homogeneous lot. Other than caste, there is backwardness based on region, educational status, and the numerical strength of a particular community, etc.

Certain backw-ard communities in Punjab and Delhi have taken advantage of new-age opportunities and become quite advanced, compared to folks in Bihar, Orissa or Assam. One particular community in the ST category of Rajasthan with political clout has typically captured disproportionate share of benefits at the cost of their poor brethren in other parts of the country.

Then there are huge regional differences. Backward communities in Punjab or West Bengal, where the social reform struck early, do not face the kind of discrimination as they do in caste-ridden states like Bihar, UP or Andhra.

If the list of candidates qualifying in the civil services examination for the last 10-20 years is scrutinised, a wealth of information can be obtained regarding comparative backwardness of different communities.

Therefore, it is an essential prerequisite that the existing scheme is evalua ted independently by an external agency in order to assess the impact and usefulness of reservations, keeping in mind the changed social, political and economic circumstances.

An untested and unevaluated policy instrument, which can otherwise do a great deal of damage to the entire industrial sector, should not mindlessly be extended to the private sector.

It is indeed surprising that the demand for reservations, be it for SCs or for other backward castes is invariably raised by people from Bihar. It is an irony of our society that numerically superior states, which are no longer in the forefront of development, set the agenda for the rest of the country.

Some of the progressive states may not like reservations in the private sector, but they may not muster courage to oppose it for fear of being perceived as anti-backward.

Reservation policy is an explosive issue and can create a fresh round of regionalism. Industrialised states like Maharashtra may not like that the reserved jobs for the backwards go migrants from other states.

Sooner or later, reservation for the ‘son of the soil’ would raise its head, even for units belonging to the central government. Then there may arise serious implementation issues.

It is not known whether the reservations will be enforced from the ‘worker to the CEO’ or whether it will be just confined to the worker’s category. In case it is for both, this could strike a bigger blow and drive away the foreign investors, who may otherwise be thinking of choosing India as an investment destination.

Will reservations also extend to the service sector, where economic growth has been the highest in the last decade? Will it encompass the IT and ITES sectors also? If so, sure it will be a doomed scenario, driving away the good work done in the last 15 years. Both Bush and Kerry will be celebrating and breathing easy, as US jobs lost through outsourcing to India has become a serious issue in US Presidential elections.

Lastly, reservations will boost the ‘Inspector Raj’ and create a few more departments in the government to monitor, enforce and supervise the policy, which may indirectly boost the employment opportunities, though, for the backward communities in the government sector.

Keeping in mind the totality of circumstances and the competitive global business landscape, it may be a good idea to postpone a decision on reservations in the private sector.

A good policy option is to let the private sector draw a voluntary code of conduct for providing employment to the disadvantaged sections of society as part of corporate social responsibility.

As is the case in the US, companies may be judged by their performance in employing people from the backward classes, minorities and women. Then watch them for a decade.


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