Friday, October 07, 2005

The sword of Damocles – Job Reservation in Private Sector

As the new Goddess of Indian Politics Mayawati, the BSP supreme (well not so new, she has been around for a while) exhorts to her cadre that they should start giving money to her instead to ‘invisible gods’; the specter of the Damoclesian sword of job reservations in private sector is reemerging. One can argue it never really disappeared. Anyone who has seen what was India’s politics during 1989-1992 at the height of Mandal drama; one would indeed worry about what a wrong turn Indian politics can take and how there is an ever present danger. When Indian economy is sizzling with over 8% growth rate, media may be all gaga about this glitter but may ignore the lurking dangers which can suddenly emerge as a threat.

The lurking danger of caste based reservation in private sector is obvious. Howsoever regressive this policy is – it is a potent vote getter or at least so is the prevalent wisdom of Indian politics. As a result, there is almost no chance of any political party of a substance which can oppose such a policy publicly. When one party raises a flag here, it becomes unstoppable populism played to the hilt in Indian democracy. At least that is what happened last time during the Mandal era and there is less hope that it could be any different in future. True, BJP and Congress did not take it to a full logical end then and same for Left parties. But neither those mainstream political parties could stop such an ill fated initiative. The myopic hold of reservation is still strong in India politics – one just has to look at newly introduced policy of 5% reservations for Muslims in Andhra Pradesh by a Congress CM. The way it is in India, Indian political parties and leaders are simply incapable of holding their grounds on this matter. Caste (and now religion too!) based job reservations is way too explosive issue; so much so that the unity of India can be the only other issue which can override in the public mindshare. Economy and broad based reformists agenda can go to wind just like that.

It is not that any political party cannot take a principled position against just retrogressive policy. But in absence of charismatic leaders and political organizations which have consistently articulated and steadfastly stuck such a policy posture over a period; we do not see any realistic possibility of such a political force emerging in India. BJP tried to withstand the Mandal hurricane by raising the sectarian and communal politics. It succeeded to a certain extent and landed up into the power. But events of last couple of years have shown the limits of such a strategy. Indian populace has seen throw such a divisive agenda. Narendra Modi may appear stable and well entrenched, but he is very likely to face the music in future. Hanging of boots by Advani takes away the main architect of this policy from Indian political stage. That debilitating leadership of Vajapayee - who winked to such a great extent that he effectively turned out to be as lethal and dishonest as open and blatant proponents of communalism - is also fortunately or unfortunately on the wane for good. So in a way, there are glimpses that Indian politics is trying to move beyond communalism. Next time around, BJP style communalism is unlikely to withstand the on slaughter of a new Mandal agenda.

Left did not come out with any flying colors in dealing with challenge of Mandal. One gets the feeling that Left parties may have that potential, but prolonged partnership with Lalu Yadav type politicians has had corroding effect on their ability to formulate truly clean and principled policy response to the bigotry of caste based reservations. Renewed efforts by Left to define a political force independent of BJP and Congress (so called Third Front) may not give any further space for Left to deal clearly with caste based job reservation politics. All in all the doubts about the abilities of existing mainstream political forces to reject caste based reservation policy are indeed valid and still applicable. Instead of pouring resources to make down trodden people of India more qualified for employment; all Indian political parties are inclined to either lower the qualification bar needed for employment or inclined to distort the competitive nature of educational and employment opportunities in modern global economy. Needless to say, those who disregard with impunity the market forces of globalization will pay the dear price by way for getting sidelined in today’s relentlessly competitive world. It is fool’s game to argue that Globalization does not touch village dwellers and farmers.

Liberal instincts of PM Dr. Singh and his Finance Minister may withhold to a certain extent the urge of the political class as a whole to adopt the policy of extending job reservations to private sector. But it is anyone’s guess whether this duo would continue this opposition when a push comes to shove. Will the Indian courts and in particular Supreme Court side with the individual’s right of conducting free enterprise without any undue interference from Government? Alas, that option also may not be something to depend upon. On many occasions Indian Supreme Court has yielded to the prevalent, so called progressive thinking canons. Further more activists rulings of recent years, though encouraging in many respect for common citizenry, may embolden the Supreme Court to side with the government compromising the strict interpretation of the Indian constitution. All this means, current rulers and legal institutions may not in the end offer any defenses when the downward spiral of caste based politics of job reservation in private sector kicks in.

If it happens so, a skewed job market will quickly develop where candidates of certain caste would command a premium despite possibly lower qualifications. Clearly that in itself will not result in making available gainful employment to the larger sections of lower castes or candidates from poor strata. All it will result is denying legitimate employment opportunities to qualified candidates from higher caste and high income strata. Potentially it might kick in renewed brain drain from India to global economic opportunity centers – the brain drain which has dramatically lowered in last few years due to gobs of high paying jobs created by India economy.

Granted that there is no true free market in the world – including America. Each and every free market economy has some distortions and quirks. But by and large the attempt of a polity should be reducing and removing these distortions rather than creating new ones. Job reservations on caste basis in private sector is a policy which will introduce a powerful distortion in Indian economy with devastating ramifications. Apart from distorting the labor market as a starter in first few years and the potential of increased brain drain; it will start sapping the ingenuity, creativity and vibrant entrepreneurship so essential for a thriving private sector. Just imagine a Silicon Valley VC is investing in an Indian startup and the VC has to hear that she has to take certain number of applicants just because they are from so and so caste. At the best of the times startups cannot take candidates who do not match exactly with the skill set required and here these startups will be pilled on with mismatched candidates. As far as history of Capitalism goes, businesses do not thrive in such constrained environment. A different variant but of same effect will take place with MNCs in India – return on investment will be lower as the ‘dead weight of less efficient’ workers get added on payrolls. Laying off employees in India is still hard for reasons of law and labor militancy. Employees from reserved quota pose even harder bench mark since the danger of lawsuits and sour public perceptions inevitably follow when a reserved category employee is fired. It is not just foreign capital funded startups and MNCs which will be affected; Indian companies will have to spend tremendous amount of management bandwidth in either getting qualified candidates from reserved categories or explore the new ‘legal ways and tricks’ in circumventing such draconian rules. Once the reservation train starts, it will not be restricted only to regular and management jobs. In the end how do we know BSP will not demand reservations on Company Board too? There is no limit and no going back.

Under WTO rulings and other international treaties, many countries (prominently USA) are pressuring India liberalize her labor market so that companies can hire and fire employees freely. Adding to such demands, these countries will have to start resisting wrong policies of job reservations on caste basis in private sector. If return on investments are going to get compromised due to such policies, any foreign capital investment fund will think twice before getting into any such restricted and highly skewed market. With reduced FDI and the consequent movement away from globalize market structure will make that much harder to sustain higher economic growth in India. Job reservations on caste basis in the end kills the true employment potential of Indian Economy.


Umesh Patil
San Jose, CA
October 07, 2005.

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