The private sector in India has started occupying the commanding heights of the economy, which were once the preserve of the public sector. It has, however, not shown equal alacrity in assuming responsibility for the social agenda that was imposed on the public sector. Among the unattended agenda items causing the greatest concern is the generation of employment for the disadvantaged members of our society — specifically those belonging to scheduled castes and scheduled tribes (SCs/STs). The private sector cavalry brigade has its eyes focused intently on the horizon, which promises economic super-power status to unbridled enterprise. While the private sector necessarily has to take care of the mounts that are speeding it to success, there is no obvious self-interest for it to ensure that the vast number of sparrows (to borrow Galbraith’s analogy), who are yet to benefit from the economic miracle, are adequately fed. As Cock Robin found out, of course, neglected sparrows can be injurious to health.
Unsurprisingly for a democracy, the matter of SC/ST employment will keep getting attention in waves — the crests of which coincide with elections. In recent days, there have been increasingly strident demands to provide job reservations for SCs/STs in the private sector. The problem is indeed genuine and long-standing — reservation as a solution is, however, both ill-conceived and short-sighted.
There are several reasons job reservation quotas in the private sector will be counter-productive:
- The benefits delivered by mandatory reservation so far have been meagre.
- If reservation is applied at each level of an organisation and unfulfilled quotas are carried forward, it will make the management of people in a dynamic, internationally competing business an impossible nightmare.
- Mandatory reservation will bring back the worst of the “licence raj” with its attendant problems of reporting, bureaucratic exploitation, corruption and subterfuge. It will prove that 40 years of failure in trying to grow a directed economy has taught us nothing about the springs of economic behaviour.
This really brings us to the central problem with the approaches that have been attempted so far and points us in the direction of a workable solution: people cannot be forced to contribute to the economic welfare of the rest — they have to be incentivised to do so.
For almost two decades now the private sector has been proudly wearing its coat of autonomy from government interference in the minutiae of management. Blustering threats to tear it off, by mandating SC/ST recruitment, will elicit ever-stronger resistance. As in Aesop’s fable of the wind and the sun, there is a gentler but surer way to make the private sector act affirmatively. The only sunshine needed to make private enterprise take off the coat of refusal is the one that warms the bottom line through a set of well-designed fiscal incentives.
An effective incentive scheme should reward corporations not just for the SC/STs they have recruited already but the increase they effect from year to year. It should also encourage them to progress SC/STs to higher levels within the organisation.
One way of doing this would be to allow a base weighted deduction (from the business income figure used for computing corporate income tax) of, say, 125 per cent of the total expenditure incurred on SC/ST employees. The actual weighted deduction could be permitted to vary around this base (ranging, say, from 100 to 150 per cent) depending on the annual change in the proportion of employee (and employability-building) expenditure accounted for by SC/STs. Assuming a linkage of 1 percentage point change in SC/ST expenditure share causing a 10 percentage point change in the weighted deduction, let us look at a specific example:
Total employee/employability-building expenditure in year 1 = Rs 100 crore of which Rs 20 crore (20 per cent) is incurred on SC/STs.
The base weighted deduction (which would also be actual weighted deduction for year 1) would be 125 per cent of the SC/ST wage bill of Rs 20 crore, i.e. Rs 25 crore.
In year 2, assume the total employee expenditure becomes Rs 125 crore while the SC/ST share of it rises to Rs 27.5 crore, i.e. 22 per cent. The 2 percentage point gain in share of employee expenditure would boost the actual weighted deduction for year 2 by 20 percentage points to 145 per cent, amounting to a deduction of Rs 39.87 crore.
Contra-wise, if the SC/ST expenditure were to grow less than proportionately, to Rs 23.75 crore (19 per cent share) in year 2, the 1 percentage point drop in share of employee expenditure would bring the actual weighted deduction for the year to 115 per cent or Rs 27.31 crore.
In year 3, retaining the share at 22 per cent would deliver the base 125 per cent weighted deduction, with additional share required to push the deduction higher.
The scheme would cease operation once a certain ceiling level of SC/ST employee expenditure share for the private sector as a whole is reached. While the finally determined weight percentages can be different from the example given above, the plan will be seen as “win-win” because it rewards organisations that take affirmative action but does not take away any existing benefit from those that don’t.
Tax incentives led to companies queuing up to set up units in backward regions. The fiscal incentive for SC/ST employment proposed here will, similarly, unleash a burst of innovative solutions from private enterprise to the seemingly intractable problems that have stymied progress so far.
The writer is CEO of Banner Global Consulting visty.banaji@bannerconsulting.in
