A DANGEROUS IDEA

Times of India, July 11, 2004

A lot of rubbish has been floating in the air ever since May 13, when our election results came out. Silly ideas, discredited years ago, have been revived and assiduously marketed by the left, creating the illusion that India's centre of gravity has shifted against the global market system.

The most dangerous of these is to extend reservations to the private sector. Let me illustrate with this thought game. Let's assume that this becomes a law. You are in the market for a new scooter, and just before visiting the Bajaj showroom a friend tells you that a quarter of Bajaj's workers were not hired on merit. Since you have a three year old daughter who is going ride at the back, you stop in your tracks. Since all Indian scooters suffer from the same defect, you are forced to buy an imported one. Soon Bajaj, Hero Honda, TVS and others will have to shut their Indian factories, start producing abroad (say in Thailand), and importing their scooters into India. Thus, Thai workers will gain from our reservations.

Not for a moment am I suggesting that a scooter made by a dalit is inferior. In fact, it is probably superior to one made by a brahmin (who has probably never worked with his hands). But you will suspect a Bajaj scooter if merit has been compromised in recruitment. Companies that employ nephews and nieces will always perform worse than those who hire the best. In our highly competitive global market, talented people are the scarcest of resources - ask any CEO, recruiting is his biggest challenge. If Infosys were to hire less than the best talent, it too will lose customers and market share.

A second problem is that jobs in the private sector are not for life, unlike the government. If a person doesn't perform she loses her job. So, if Bajaj were to hire on grounds other than merit, he will get into an endless cycle of hiring and firing people. Those fired will go to court, alleging discrimination. Thus, while Bajaj spends his energies on litigation, his foreign competitors will move ahead, improving products, distribution and customer satisfaction. Finally, our reservations have not benefited the poor. Studies show that they are monopolised by the creamy layer of the privileged among the backwards, giving the middle class backwards an unfair advantage. In fact, the politics of caste submerge the real problems of the poor.

This is not an academic discussion either. Maharashtra has already passed a law extending reservations to state-aided institutions (which some have interpreted to mean any company with a loan from a public sector bank). As a result, Rahul Bajaj has threatened to shift his factory from Pune. How can you advise anyone to invest in Maharashtra under the circumstances!

Although I am against reservations, I do think that there is a strong case for affirmative action. We should study the American model, where quotas are illegal, but institutions do attempt to achieve diversity. There are no short cuts in the end. The only way to genuinely lift the poor is through better schools and primary health centres. If our politicians had focused on education and health over the past 50 years, by now there would have been greater equality of opportunity, and we wouldn't need reservations. Instead, they chose to give subsidies and reservations, which didn't help the poor. Hence, India was ranked 134th out of 150 nations in the Human Development Index (2000). The worst indictment of Indian socialism is that in the end it did so little for the poor.