Shyamal Majumdar: No place for reservations

THE HUMAN FACTOR

A day after the prime minister endorsed the move to introduce a job quota in the private sector, Assocham President M K Sanghi gave some interesting figures.

Between 1994-2000, organised sector employment accounted for a mere 3.53 per cent of the total jobs created in the country. In effect, only 0.6 per cent of the jobs created each year were in the organised sector.

Listen to what the Federation of Indian Chambers of Commerce and Industry (Ficci) says. The organised private sector employs just around 10 million, and rigid labour laws have ensured that this figure has stagnated for years and years, with no incentive to hire.

In fact, for argument's sake, even if the entire organised private sector is reserved for the targeted social groups, the employment gains will be only modest.

"With reservations, we will introduce a further disincentive not to hire," Ficci President Y K Modi says.

In fact, Maharashtra had recently passed a law on private sector reservation but had to backtrack after industry captains led by Rahul Bajaj reportedly threatened to pull out of the state if it was enforced.

And the overwhelming argument is that SCs and STs have had government jobs reserved for them since Independence to be joined, over a period of time, by backward castes along with other backward castes and assorted religious minorities. The outcome of such action has only been perpetuation of vote-bank politics.

The pro-job quota lobby, however, gives two reasons for supporting the move. First, given the fact that the employment in the government and public sector has stagnated in the 1990s and has shown a decline in the past two years, it is the private sector that has to be the driver of future job growth. So reservation of jobs in the private sector for the underprivileged class is a must.

Second, the pro-reservation lobby gives the example of the US. Companies like General Motors and Wal-Mart recruit up to 25 per cent of their workers from among the minorities. By contrast, the backward caste comprise just about 4 per cent of India's total organised sector workforce.

The arguments are forceful, no doubt, but as studies done by India's leading industry chambers show, they tell only half the story. Ficci, for example, has come out with a detailed study, which shows that employment of minorities by US companies is strictly voluntary and is not mandated by the government.

Section 51 of the Internal Revenue Code provides for Work Opportunity Tax Credit for employers who hire members of targeted groups with high unemployment rates. But it's entirely up to the corporation themselves to see whether the incentives justify recruiting backward caste employees.

Instead of "mindless" reservation, industry argues that the emphasis should be on improving education standards, both at school and university levels, and inculcating skills through vocational training. According to the Ficci study, school dropout rates among the SCs and STs were as high as 76.63 per cent and 82.96 per cent, respectively.

Also, around 40 per cent of the reserved category of seats among SCs and 60 per cent among STs remain vacant. For graduates, technicians and apprentices in the overall vocational training category, the number of seats vacant was even higher at 81 and 95 per cent, respectively.

Apart from engaging the private sector in partnering with the government on this issue, a more sensible policy would be to promote entrepreneurship among the backward classes. Sanghi says reservation makes economic sense only when a chain of labour-intensive industrial units is set up.

The government should instead focus on creating a conducive atmosphere for entrepreneurs to provide job opportunities to backward classes in the rural and semi-urban sector.

In India, cheaper loans to the backward community entrepreneurs has met with limited success. Consider the findings of the Economic Census 1998, conducted by the Central Statistical Organisation.

According to the survey, the overall growth rate of enterprises owned by persons belonging to the scheduled category has dipped from 3.42 per cent in 1980-1990 to 0.40 per cent in 1990-1998.

"This shows that the government should concentrate more on improving the credit delivery systems instead of mindless reservation policies," says a chamber representative.

A leading HR consultant points to the recent trend among Indian companies to set up giant shopping malls in the rural areas and says employment of backward community workers is bound to increase "in the normal course" and the government need not come out with any policy in this regard.

What's the link? Take the example of the US. As consumer power shifts to minorities, companies know that making sure those customers feel comfortable "" enough to spend their dollars "" becomes more of a priority.

According to a study done by the University of Georgia, between 1990 and 2002, Hispanic buying power in North Carolina grew 912 per cent, faster than in any other state.

From 1990 to 2003, African-American buying power grew by 83 per cent to more than $ 24 billion. The growth in employment to these communities has matched the growth pace of their purchasing power.

As rural purchasing power grows in India, the same trend is likely to be witnessed in India. The government need not bother about introducing a quota system.