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Corporate Tax - A Tool For
Affirmative Action

By S Sharath

20 June, 2004

As I sit down to write this piece, I have in front of me, the statement from N.R.Nararyanamurthy, that doyen of free market economy in India, opposing the demand for reservation in private sector. I also happen to see, on a daily basis, the numerous articles filling up main stream media (read upper caste media) presenting umpteen reasons to oppose any reservation in private sector. All of these arguments harp on the need to preserve merit over any other consideration. The meritorious should not be punished for being so. Private institutions are profitable because they employ the meritorious only. This seemingly genuine argument, then effectively posits that all reservation is bad as it prefers unfit persons over meritorious ones. Thus reservation is the reason for all the issues, India faces today. Indian media and corporates also turn a blind eye towards affirmative actions supporting blacks, women and other minorities prevailing in the mecca of capitalism, United States.

For the caste dominated Indian media and the coporate hierarchy only merit matters. Corporates exist for profit and only merit feeds profit. State has no authority to encroach upon free economy. If that is the case, then merit needs a closer look.

Is it really merit that rules the Indian economy? A brief look at the corporate employee distribution, will reveal what merit means. 80% of the personnel in corporates, media and bureaucracy belong to an upper caste community comprising less than 2% of India's population. Is it because the people of this caste are highly meritorious? Or is it becasue they are collectively shutting out other communities from entering the scene? A sort of corporate ostracism? All evidence suggests the latter.

In the MNC this author works, you will never come across a dalit. A Muslim or a person from backward caste is a rarity. 'Mandal' is the most accursed word. NDA was the best thing to happen to this country. Merit means securing seats in the premium educational institutions of the country , securing a job in a firm already filled with people of your own caste who will select people from their own caste.Let all educational institutions be privatiesed, let them charge hefty amounts as fees, only that way can you assure placements for the 'meritorious'. And what about using the infrastructure of this country established with taxpayers money including that of the the 'unmeritorius' majority to mint profit? Oh, its only natural justice !

So merit is more often than not determined by birth! And that is only justice too ! Does the well being of 2% of the population means feel good for the entire country? In such a case do the state need to intervene?

Another interesting point is the genesis and maintenance of capitalism in India. Unlike the first world, where capitalism takes on the garb of liberalism, showing off a progressive face with democracy and affirmative action, the Indian capitalist see no need to hide his fascist face. He is a 'baniya' first and a capitalist second. The notions of welfare state and democracy mean nothing to him. Only thing that matters is profit. And when the state do not abet him in reaping profit ( which rarely happens), he raises the slogan of merit.

The UPA government in its common minimum program (CMP), did talk about reservation in private sector. But the subsequent statements have significantly diluted the stand. It seems that the government is afraid to raise another Mandal wave. Remember, BJP rose to power on the wave of anti-mandal agitations.The upper caste media, bureaucracy and corporates are sure to torpedo any effort to introduce an effective legislation.

Thus the issue lies in the very structure of Indian economy. In the Indian corporate sector where upper caste interests ride supreme, it seems almost impossible to implement an effective affirmative action program. The government, in spite of being comprised predominantly of backward sections of society, do not seem to have the will to teach the coporate section a lesson in social responsibility.

So the issue lies in the lack of corporate responsibility and the government's inability to nurture it. But does that mean that the government is totally helpless in pushing forward for an equitable representation of all sections of the society in the private sector? Not at all. I propose that the government should take a carrot and stick attitude towards the corporate. I'm sure that they would fall in line. The government has a very potential instrument in the form of corporate tax.

Private sector has been demanding reduction of corporate tax from the present 35% to 30% this year and 25% subsequently. The finance minister (who is a free market apostle) also may be inclined to do the same. But if the same can used to effectively educate and coerce private institutions to implement affirmative action, that is the best bet to realize the goal of equitable representation.

For example, see this corporate strategy which may induce corporates to do what is required.

1)Abolish all other tax exemptions.

2)Provide up to 5% tax reduction for corporates implementing affirmative action. A possible matrix may read thus:

- For each 10% addition of backward castes to total recruitment for the year, provide a tax relief of 1%. For dalits, each 10% must attract 2% tax relief. The same may be extended to women and other weak sections.

- Cap the tax relief at 5% corresponding to 50% addition of backward castes per year. This means a company recruiting at least half of its employees from backward sections will be eligible for full 5% tax

3)Monitor the program over a period of 5 years to ascertain the progress and introduce changes as necessary.

If profit is the main goal, then corporates should jump at this offer. If they are apprehensive that merit shall be tampered with, they are free to abandon the 5% tax cut. If they really believe merit is sparse in the 80% of Indian population, they are free to recruit from the rest 20%. But I don't think they will. The reason being merit is not so sparse among backward castes and the profit they can reap is far more than any other considerations.

For example, think of the case of Reliance Industries, which can save a massive 1000 crore rupees per year if they implement the scheme. An Infosys can save more than 100 core per year. Then it gives rise to the corporates pursuing merit amongst backward sections, potently implementing affirmative action on their own. I wonder if Mr. Narayana Murthy will sing the same tune after this is enacted!.

I don't believe this alone can solve all issues, but such a step will surely be in the right direction ensuring much required involvement of vast section of society in India's burgeoning private sector.