Higher reservation for OBCs, SCs and STs need not hinder progress and opportunities for others. India can still grow large and fast to accommodate all
Praveen Chakravarty
May 18, 2024
Fear mongering about slowing down of economic progress due to increased affirmative action is a lazy neo-classical economic trope.
If voted to power, the Congress party has vowed to pass a constitutional amendment to raise the 50 per cent cap on reservation for backward castes (OBC), Scheduled Castes (SC) and Scheduled Tribes (ST) in government positions and colleges. Understandably, there is some apprehension about this idea, primarily among the elites.
There are two main strands of opposition to this proposal — legal and economic. The legal argument is that reserving more than half the opportunities violates the Constitution in letter and spirit. The economic argument is that reserving positions for the oppressed castes will be a compromise on talent, skill and merit which will necessarily lead to poorer economic outcomes. Putting the legal argument aside for the purposes of this article, the economic opposition can be easily disproved with empirical evidence and examples.
“Natural experiments” are a robust research methodology that economists use to study the effects of policy changes in real life. The Canadian-American economist David Card won the Nobel Prize in 2021 for studying the impact on employment of raising minimum wages, by comparing two American neighbourhoods across the border from each other, with one in the state of New Jersey, where minimum wage had been raised, and the other in the state of Pennsylvania, where it had not. Such “natural experiments”, unlike controlled or lab experiments, are considered superior tools to study policy impacts on people and societies.
There is a “natural experiment” in India to study the economic impact of raising reservation beyond 50 per cent. Tamil Nadu (TN) is the one large state in India where reservation for OBCs, SCs and STs is 69 per cent, higher than the 50 per cent ceiling. Other large states such as Maharashtra, Odisha and Chhattisgarh have attempted to increase reservation beyond 50 per cent but have been restrained by the Supreme Court (SC).
TN raised its reservation quota to 69 per cent in 1990. In 1992, the SC imposed a 50 per cent ceiling on all identity-based reservation. To protect its 69 per cent reservation from the SC ruling, then TN Chief Minister J Jayalalithaa, with the support of then Prime Minister P V Narasimha Rao, received the assent of then President Shankar Dayal Sharma to ensure that TN’s reservation bill is placed under the Ninth Schedule, thereby excluding it from judicial review. Thus, TN became the lone large state to have greater than 50 per cent reservation in India.
How did three decades of greater reservation in Tamil Nadu impact its economic development and progress vis-à-vis other states? This “natural experiment” lends itself well to test the critics’ hypothesis that greater reservation sacrifices merit and efficiency which then adversely impacts private sector investment, economic growth and prosperity.
Let us compare TN with other large states that do not have greater reservation, such as Maharashtra, Karnataka, Gujarat, Bihar and Uttar Pradesh. Between 1993 and 2023, TN had the second highest growth in per capita GDP after Karnataka. On the simplistic headline measure of GDP, TN’s higher reservation for oppressed castes clearly does not seem to have hindered its ability to outperform other states with lower reservation.
One can drill down further to see if TN’s GDP growth is merely a function of overseas remittances like Kerala or driven by genuine economic activities of investment, production and employment. In the period from 1993 to 2023, the number of factories in TN doubled, the second highest increase after Gujarat, while the number of factories declined in Bihar. Investments by medium and small private sector enterprises in TN were the highest among this group of states in this period and production in TN was second highest after Maharashtra. TN has the highest number of total workers employed among all these states. TN not only employs the maximum number of workers but also pays them the most, with wages for non-agricultural labourers being nearly 70 per cent higher than in Maharashtra (data sourced from the Reserve Bank of India’s Annual Handbook of States). For all the bombast about India’s exponential growth in the global share of electronics and iPhones manufacturing, 40 per cent of the country’s electronics production comes from TN alone. Further, nearly half of India’s smartphone exports is from the one district of Kanchipuram in TN, where one-third of its population is Dalit.
Whichever way one analyses the data, it is clear that TN has trumped most other states in economic development, prosperity and also in the quality of growth. Evidently, going past the 50 per cent reservation ceiling for oppressed castes does not dilute merit and hinder economic development. Neither has it scared away investors, entrepreneurs or workers. If anything, it perhaps forces a certain inclusive nature of economic growth that most nations in the world aspire to.
Fear mongering about slowing down of economic progress due to increased affirmative action is a lazy neo-classical economic trope. The evidence, at least in the Indian context, clearly dismisses such fears. One could legitimately argue whether reservation by itself is a sufficient — or even the only — policy tool to achieve greater social justice. One could even justifiably debate whether “jitni abaadi, utna haq” (rights proportional to population) is an achievable goal. But to argue that greater reservation will impede economic progress is evidentially blind and ideologically biased.
In the context of ideas such as wealth and inheritance taxes, I have argued previously that India can grow the economic pie large and fast enough for everyone to partake and not be trapped in a “Pareto optimum” situation like the western developed nations where economic growth is tepid and one group of people cannot be better off without making another group worse off. Hence, such “tax the rich” ideas are ill-suited for India. Higher reservation for OBCs, SCs and STs need not hinder progress and opportunities for others. India can still grow large and fast to accommodate all.
The writer is Chairman, All India Professionals’ Congress and a key member of the Congress’ manifesto committee