Is Affirmative Action Policy for Private Sector Necessary

What the paper says

Two Policy Directions India today is caught in the grip of a querulous debate over developing reservation policies for groups and communities suffering from economic exclusion associated with caste, gender and religious identities. In this regard, two policy directions have emerged: Economic Empowerment and Equal Opportunity (Newman & Thorat 2007). The policy of economic empowerment is essentially directed towards improving the ownership of assets like agricultural land, capital for business, entrepreneurial skills, and education. There is a reasonable degree of consensus over the legitimacy of this strategy. However, when it comes to providing equal opportunity through instruments like reservations, we see considerable disagreement among private sector leaders. The intense and inequalities associated with India's caste system has made explicit use of affirmative and positive action policy (or what is called reservation policy) in employment, education and other spheres in respect of discriminated groups such as Scheduled Castes (SC), Scheduled Tribes (ST), and Other Backward Castes (OBC). However, this policy is confined to a shrinking government sector and the vast private sector remained outside its purview (Thorat 2008). In other countries, the affirmative action policy has been in practice both for public and private sectors. With the liberalization induced narrowing down of public sector and unintended (backdoor) de-reservation, there is a growing demand for affirmative action policy in private sector as appeared in the election manifestos of political parties, e.g. Common Minimum Program of the UPA government. Views have been expressed both in favour and against reservation in the private sector. Employers' Associations have vocally opposed this move (Economic Times, 26 March 2004). We examine here the issues involved in the extension of affirmative action policy to the private sector in India. Some of the arguments and evidence of this paper is heavily derived from the collaborative project on Labour Market (2007) sponsored by Princeton University and Indian Institute of Dalit Studies and Thorat (2005). We have drawn mainly from theoretical and empirical literature to discuss the nature and consequences of caste based market discriminations on economic growth, inequalities and deprivation of discriminated groups. We provided empirical evidences on caste-based in the regular salaried urban labour market in public and private sectors. Finally, we discuss alternative remedies against used in different countries and draw lessons from international experience for affirmative action policy for private sector. Discrimination Defined Becker's (1971) theory of with testable behavioural implications based on a competitive labour market is often referred to as the neo-classical theory of discrimination. In his theory, the motivation for is based on a non-pecuniary variable generally designated as for discrimination against a group. Employers with taste for dis-crimination against blacks feel that the real burden is more than the money wage burden. The dissatisfaction felt by the presence of blacks in their firm is an additional burden. In the neo-classical theory not only the employers, but also the employees and consumers dis-criminate against a group. Discrimi-nation by employees is said to happen, when one group of employees, say males, refuse to work with another group, say females, even though females are as productive as males. In India, higher caste employers discriminate against Harijan workers. Discrimination by consumers occurs when they dislike goods and services produced by a group--may be scheduled caste, or blacks. Here the discriminatory behaviour is not based on any criteria like quality or price. Defending Becker's theory Arrow (1972, 1973) defined in terms of employer's perception or reality. …