Using the carrot

Purist advocates of the market system may criticise Uttar Pradesh Chief Minister Mayawati's proposal to offer tax and other incentives to new industrial and other units (including educational institutions, infrastructure projects and state-owned units that have been privatised) that agree to reserve jobs for the weaker sections "" 10 per cent for the Scheduled Castes, 10 per cent for Other Backward Castes and backward religious minorities, and 10 per cent for economically-weak upper castes. They will argue that such job reservations will reduce efficiency levels in industry, which is the reason why an industry association has rejected the policy, saying the only discrimination industry follows is between the competent and the incompetent! The other criticism is that the scheme will result in people getting fake caste and other certificates; and therefore that the scheme will be thoroughly abused and result in increased corruption. Both arguments have some validity. Several years ago, the Delhi government gave hospitals land at concessional prices in return for the promise that they would reserve a certain percentage of beds for the poor""at one point, several hospitals refused to "complete" their hospitals since the agreement said a certain proportion would have to be reserved for the poor once the hospital was "complete".

But a moment's thought should make it clear that the Mayawati scheme is not without merits. For one, most states offer concessions to new industrial units, and all that Ms Mayawati is doing is to link them to social obligations; hence, the extra outflow or revenue loss under her scheme is unlikely to be dramatically higher than it would have been otherwise. Second, it may not be difficult for new industrial units to fulfil the criterion since such units tend to hire SC/STs and OBCs on the shop floor even without special incentives for doing so. Data gathered from its members by the Confederation of Indian Industry showed that manufacturing units tend to hire people from the very social segments favoured by the government. Educational skills, which the socially disadvantaged groups often do not possess, are not as important a factor for shop floor jobs as they are in service industries or specialised sectors like information technology.

Of course, the latest move could create inequity between existing units that already hire persons from the chosen groups and those that choose to set up new units to do so. This is something the state needs to figure out, and the government has indicated that it is open to offering the concessions to existing units as well if they provide jobs to those that have the defined social profile. In other words, this is a political way of saying the government will lower levies across the board. And to the extent that it is voluntary, being a carrot rather than a stick, industry cannot oppose it because individual units always have the option of not seeking the benefits offered. Indeed, the move forces industry to put a value to the efficiency loss that reservations are supposed to cause. If the loss in efficiency is more than the value of the concessions offered, no unit will avail of the scheme. If not, it makes good business sense to avail of it. If Ms Mayawati can come up with a policing system which limits abuse of the scheme, this model of giving incentives to private firms to hire from the disadvantaged social groups is worth a try.