Thursday, September 23, 2004

yet another cross to bear

A new state law that seeks to extend the reservation of jobs for low-caste Indians from the public sector to private companies has business worried that the government is turning back the clock.

By Jason Overdorf
(This article appeared in the Far Eastern Economic Review in September 2004).

THIS SUMMER the Congress Party-led government of the Indian state of Maharashtra--home to Mumbai and many of India's largest companies--vowed to enact sweeping affirmative-action legislation that would force private corporations to reserve 52% of all jobs for low-caste Indians.

The move came in the run-up to state elections. But many business leaders nevertheless interpreted it as a sign that the Congress Party meant to make good on its promises to temper reforms designed to unfetter Indian industry with measures to ensure that business doesn't leave the poor behind. Notably, the Congress-led United Progressive Alliance federal government elected in May listed a call for a national dialogue on the expansion of affirmative action to the private sector in its mission statement.

Maharashtra's new law--the first of its kind--was passed in January, but the state government has yet to frame the rules for implementing it. The furore that resulted when the government promised to begin enforcing the law by July 30 (a deadline it failed to meet) arose partly because of the all-encompassing nature of the legislation. The law mandates quotas in "any government-aided institution: those that are recognized, licensed, supervised or controlled by government," which can be interpreted to mean that it applies to virtually all companies operating in the state. The first major companies to see the sword looming over them could be those whose government-land leases are about to expire.

"We've already been suffering under many constraints, like socialist economic planning and labour restrictions," says Rahul Bajaj, chairman of Bajaj Auto, the world's largest manufacturer of scooters and motorcycles and one of India's largest companies. "If we implement reservations, we'll have no way to become internationally competitive."

"An employment-quota system is only perpetuating the caste system in India," says Mukesh Ambani, chairman and managing director of Reliance Industries, one of India's largest corporations. "It is also perpetuating benefits for a 'creamy layer' amongst the backward and scheduled castes and tribes."

India first implemented an affirmative-action programme for members of what the constitution calls "the scheduled castes and scheduled tribes" in the 1950s. Essentially, the scheme reserved a percentage of jobs in government departments and government-owned companies for tribal peoples and castes once thought of as "untouchable," who'd long been victims of discrimination under the Hindu caste system.

Many say the constitution intended reservations as a temporary measure. But the rising political clout of low-caste Indians (who make up some 50% of the population) prevented the programme from being discontinued. Instead, it was expanded to include Indians from lower-middle positions in the caste hierarchy, now known as other backward castes, or OBCs. Now, as India dismantles its socialist-style economy and sells off more and more of its public-sector units--drastically shrinking the number of reserved jobs--calls to expand the scheme to include private-sector companies have become more strident.

Bajaj and other business leaders--though sympathetic--believe that discrimination is fading away and it is time for a relaxation of labour restrictions, not further constraints. "There are poor people," says Bajaj. "The scheduled castes and scheduled tribes are suffering. Nobody says nothing should be done about it. We must do something. But we can't correct one wrong with another wrong . . . Most of us do not have that prejudice [against low-caste Indians]." He adds, "Of Bajaj Auto's 10,500 employees today, 28% [are from scheduled castes and scheduled tribes]. Where is the discrimination?"

Likewise, Nandan Nilekani, chief executive of Infosys Technologies, India's billion-dollar software-services giant, said in a statement, "We compete with the best in the world and recruit people who are the best, without any consideration for age, gender or caste. We believe that to retain its competitive edge, the country has to invest in training and developing our talent for the global market place."

In a more candid television interview, Nilekani sympathized with plans to help create a more equal society. "There is no substitute for economic growth and globalization to remove people out of poverty," he said. "The point is, how do you make sure that the wealth creation is funnelled into social causes? Clearly we need to have affirmative action. We really need to give people an opportunity. But I think the focus has to be on education and making sure that we create high-quality education opportunities for everyone and then provide, obviously, the jobs that can absorb them. Reservation in a company, per se, may not be a great idea." Ambani agrees. "A more equal society in India can be created by an intense investment in education for empowerment and employability, combined with creating employment on an unprecedented scale," he says.

If India's employers are so committed to social reform, why is the opposition to affirmative action so strong? Just as in other countries with such policies, like the United States or Northern Ireland, there is a huge gap in opinions about how much discrimination exists, especially between the privileged and the disadvantaged. Many of the elite, like Bajaj, believe much of the prejudice has been eradicated.

But even successful "untouchables"--who now call themselves Dalits, or the oppressed--believe discrimination is still so prevalent that it defines every social interaction. While industrialists think the government should focus on uplifting the poor regardless of caste, low-caste leaders believe such a shift in emphasis would mean only that the lion's share of the benefits poor, low-caste Indians now enjoy would be transferred to poor members of the higher castes.

Anand Teltumbde, a Dalit who moved from state-run Bharat Petroleum to become managing director of Petronet India, a private-sector company, says this debate reveals a fundamental misconception about the reservation policy. Most people believe the policy is intended to uplift the poor, rather than to offer redress for 2,000 years of discrimination. "There is never an iota of reference to the intrinsic disability of Indian society to treat all people equally and justly," he says. "It is not the disability of the Dalits but the disability of Indian society that necessitates reservation."

When industry suggests that requiring companies to fill positions with Dalit personnel will erode efficiency, it implies that Dalits are by nature incompetent, he argues. "I would say the very tone and tenor of these reactions against reservations from the corporate leaders constitutes reason enough for reservation in the private sector."


Opinions differ as strongly about how effective reservations in the public sector have been in uplifting the targeted groups and what the costs have been to performance. Dalits, especially, believe that reservations are the only useful step India has taken to undo the damage done by the caste system. "It is the only effective action that the government has taken," says Udit Raj, president of the Indian Justice Party, a political organization that represents Dalits and minority groups. "Otherwise, I don't see anything, any progress."

Other high-caste Indians think government-sector reservations have been too effective in enriching low-caste Indians and disastrous to the performance of the government. "There are so many so-called backward castes. Take the Nadars [a South Indian caste]. They're filthy rich and yet they get preference over [higher-caste] Brahmins everywhere in Tamil Nadu. For all the things Brahmins did [to the lower castes] 100 years ago, you can't keep penalizing them," says K. Mahesh, chairman and managing director of Sundaram Brake Linings.

These differences of opinion can translate into vitriol--even violence. The last time India increased the scope of its reservation policies, when former Prime Minister V.P. Singh decided to extend job quotas to include not only the scheduled castes and tribes but also Indians from "other backward castes," fanatics burned themselves to death in protest and riots broke out across the nation, eventually leading to the collapse of Singh's government in 1990. To some, Singh's reforms made a mockery of the affirmative-action policy, entitling over 90% of the population in some states to reserved jobs.

"A lot of people feel there is this class of people that are being pampered . . .," says Narendra Jadhav, a Dalit who is principal adviser in the department of economic analysis and policy at the Reserve Bank of India, speaking for himself. "Most people do not recognize that in every single walk of life the extent of implementation of reservations has been extremely poor."

Dalit leaders allege that high-caste officials responsible for recruitment and promotions leave positions vacant rather than hire or promote those they view as inferior, then justify themselves to superiors by claiming they couldn't find suitable low-caste candidates.

Regardless of the merits of those claims, the numbers hardly suggest that reservations have turned the scheduled castes and tribes into a pampered new elite. Although they make up about a quarter of the population, the scheduled castes and tribes hold only 10% of the top group A positions, 13% of group B positions, 16% of group C positions and 21% of group D positions in central-government services. Meanwhile, 44% of the sweepers come from scheduled castes.

Perhaps the haphazard and incomplete enforcement of reservations in the public sector offers a clue to the likely fate of the Maharashtra law. In the end, it might only apply to companies in which the government holds a stake.