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Caste Aside

by Arvind Subramanian, Peterson Institute for International Economics

Op-ed in the Wall Street Journal Asia
June 8, 2007

© Wall Street Journal Asia

Only in India are people clamoring to be called socially inferior. Last week, over 20 people died in protests in the state of Rajasthan when a group called the Gujjars demanded to be legally downgraded so they could benefit from job guarantees and handouts that flow from “reservation,” India's form of "affirmative action" for its lower castes. Last month, citizens in Uttar Pradesh, the country's largest state, went to the polls and delivered an overwhelming mandate to a party committed to expanding reservations for the Dalits—the caste formerly known as the “untouchables.” Both events bring into sharp focus a larger question: Is it guarantees or opportunities that offer the best way out of social and economic backwardness?

Historically, the government’s answer to this question was clear, if somewhat schizophrenic: Elites were given opportunities, while the poorer classes were given guarantees. The Constitution itself envisaged free universal and compulsory education for children up to 14 years. But in practice, policymakers since the 1950s emphasized higher education, which largely benefited urban elites who had excellent primary and secondary education. The relative neglect of basic education for the masses, meanwhile, deprived historically disadvantaged classes of similar opportunities for upward mobility. Instead, they were given guaranteed seats in colleges and public sector jobs. While these did have some benefits, by definition, only a small fraction benefited from the guarantees. This temporary, targeted fix, however, came to be regarded as a permanent solution. Guarantees have now become, insidiously, a substitute for creating opportunities.

Unlike the United States, where affirmative action came many decades after the nation’s creation, reservation was an integral part of India’s founding. And unlike in America, it is a large and blunt instrument of social engineering, taking the form of quotas. Thus, India’s founding fathers mandated that 22.5 percent of all public sector employment and enrollment in government-financed higher education institutions should be reserved for “lower” groups called the scheduled castes and scheduled tribes (SC/STs).

Instead of shrinking with time, these quotas have vastly increased. Today, at least 50 percent of all public sector jobs and educational seats are reserved for SC/STs, along with another category called “Other Backward Classes,” who were traditionally also discriminated against but occupied a slightly higher rung than the SC/STs in the old Indian caste hierarchy. In some states, like Tamil Nadu, the quota can approach 80 percent.

In politics, reservation used to be a dividing axis pitting the Congress Party, which broadly supported reservations, against its main national rival, the Bharatiya Janata Party, which historically opposed the policy. Over the last few years, however, in a remarkable shift, reservation has become a bipartisan issue, with politicians of all stripes embracing it as an imperative of electoral success. In this environment, reservation’s reach is being extended to elite educational bastions of merit such as the Indian Institutes of Management—which populates India’s most visible companies, such as Infosys and Wipro, as well as many prominent multinational firms. More strikingly, for the first time, there is talk of extending it to private sector employment, an objective that was articulated in the electoral manifesto of the current government.

Is India fated to affirmative action in perpetuity? Interestingly, the public and private realms are moving in opposite directions: While federal and state political actors are reinforcing guarantees over opportunities, consumer choices are clearly reflecting a preference for the latter. The trigger has been provided by the turnaround in India’s economic growth, which is now running around 9 percent annually.

Economic growth has increased the returns to education dramatically enough to set off a mad scramble to acquire education. Even the poorest rural households have internalized the imperative of acquiring education to survive in the new knowledge-based economy. But getting this education is, unfortunately, not always easy. In rural India, free public education is supposedly universally available but it is largely dysfunctional—teachers often don’t turn up to class, and when they do, they impart little of value to students. In a surprising new trend, even the poorest are willing to forego such free public education for costly but (slightly) better private education.

Yet it is a bitter choice when they must forego necessities to access a right accorded to them in the nation’s constitution. India is therefore ripe for a voucher system that would combine public financing with the private provision of basic education. Such a scheme could be tailored to individual state needs: One possible twist could be to graduate the value of the voucher, increasing it for the backward classes. The benefits of this would be twofold: It would appease the populist clamor for equal opportunities, and it might even be necessary to overcome any discrimination by private providers against enrolling children from backward castes.

Unlike many economic policies that involve trade-offs between equity and efficiency, vouchers can satisfy both objectives. Voucher programs, especially in their graduated variant, are particularly beneficial for the poor. And, by improving incentives and spreading opportunities, a voucher scheme would simply accelerate an ongoing market-driven trend toward the spread of basic education, helping to ease the supply constraints of the Indian educational system and adding to the pool of labor that is at the heart of the country’s growth turnaround.

Voucher schemes could also be politically appealing. Studies show that bad policy choices often stem from an attribution problem: Voters can more easily credit politicians for targeted favors such as reservations than for diffuse benefits, such as better economic policies. Ironically, with vouchers, like for other handouts, identifying the benefactor would be easy. The first voucher scheme, instituted in New Delhi for the academic year 2007–08, attracted 100,000 applicants for 400 vouchers.

A general concern with voucher schemes—their potentially negative impact on public education, as students flock to better, often private, competitors—would be less relevant than usual in India because public education, particularly in the poorest states like Uttar Pradesh and Bihar, is considered very difficult, if not impossible, to repair. That makes private provision a viable, even unavoidable, long-term alternative. For this reason, public teachers, with their close links with local politicians, will oppose vouchers, but the large and widespread benefits could help overcome this opposition.

Reservation may have been necessary to redress India’s historical inequities. But even its intended beneficiaries—the poorest—are becoming wise to its limitations. Voucher-based education cannot take reservation out of the popular political debate but, over time, it can be made less important, as the real opportunities created by better education reduce the illusory appeal of guarantees. A sign of that successful transition would be street protests aimed not at rejigging social classifications, but demanding that teachers actually show up in the classroom.