PRIME MINISTER COUP IN POLITICAL BATTLE ON

C O N F I D E N T I A L SECTION 01 OF 03 NEW DELHI 006886

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E.O. 12958: DECL: 10/05/2016
TAGS: OTRA PGOV PHUM PREL ECON PINR SOCI IN
SUBJECT: PRIME MINISTER COUP IN POLITICAL BATTLE ON
EDUCATION QUOTAS


Classified By: PolCouns Ted Osius for reasons 1.4 (B,D)

(C) 1. SUMMARY: Legislation introduced by the United
Progressive Alliance (UPA) Government in August, seeks
to reserve 27 per cent of seats for Other Backward Classes
(OBCs) in federally aided higher educational institutions,
including the prestigious Indian Institutes of Technology
(IIT) and Management(IIM). Most political observers view the
bill as a pet project of Human Resource Development Minister
Arjun Singh, who hopes to use it as a stepping stone to
becoming Prime Minister. The UPA is divided on how to
implement the reservations, and they have sparked an intense
public reaction, with students staging angry protests around
the country. The bill has not been considered by the full
House, as Prime Minister Manmohan Singh has referred the
legislation to a standing committee, where it could be
hung-up indefinitely. Singh hopes his move will deflect
Arjun Singh's challenge to his leadership and prevent further
action. END SUMMARY

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The Legislation
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(U) 2. On August 25, the UPA Government introduced a bill in
Parliament to change admission guidelines for federally aided
higher educational institutions. The legislation seeks to
reserve 27 percent of seats in all such
institutions for persons belonging to Other Backward Castes.
These castes fall between the dalits and the upper
castes, and dominate many parts of the country, including the
electorally important states of Uttar Pradesh (UP) and Bihar.
The Bill seeks to introduce the new reservations in phases
over a 3 year period by increasing the number of available
seats.

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The Political Trappings I --Arjun Singh's Political Ambitions
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(C) 3. The quotas are the brainchild of Human Resource
Development (HRD) Minister Arjun Singh, who hopes to use
this issue to further his political ambitions. The March
introduction of quotas, spurred nation-wide protests by
students, which were only defused after the Supreme Court and
the Prime Minister intervened. To calm the angry students,
the PM exempted private and state funded institutions from
the bill and appointed a Committee to look at the
reservations issue in all educational institutions. Its
final report is due quite soon. Although the Prime Minister
wanted the Bill to be introduced only after the Committee
report, political compulsions and pressure from UPA
constituents and the Left parties, forced him to relent.

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The Political Trappings II -- The Upcoming Elections in Uttar
Pradesh
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(U) 4. The UPA moved on the reservation issue in an attempt
to appease the OBCs in the run-up to the crucial UP elections
expected in February 2007. OBCs form a crucial vote bank in
the state. The Congress party is determined to improve its
position in UP and wants to use quotas to woo OBC's away from
the ruling Samajwadi Party (SP). Despite the political

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rationale, the move faced significant opposition within the
cabinet. Some UPA Ministers wanted the quotas rolled out in
one go, while PM Singh and Finance Minister Chidambaram
preferred a staggered approach that would soften the
measure's huge financial impact. There was also intense
debate within the UPA on whether to extend reservations to
economically well placed OBCs or restrict them to the poor.
The government finally decided to let parliament decide the
issue.

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Aggravating Public Unrest-India's Lack of High Quality
Educational Opportunities
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(U) 5. The quota debate concerns not only equal access to
educational opportunities and leveling the playing field, but
educational challenges writ large. India's talented students
must contend with a lack of competitive, high quality
education. India's best schools are its Institutes of
Technology and Management, where 22 percent of all seats are
currently reserved for dalits and tribals. If the GOI fails
to fund new seats, it will limit access to the best education
and training in India. In a population of over 1 billion,
only 5,200 graduate from India's IIT's and IIM's. The many
bright, hard working students who cannot land a spot in one
of these schools or go abroad for school, are left behind.
This is fueling the students' angry protests.

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Cost Estimates Vary and Will Depend on Actual Admission Levels
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(U) 6. The government committee tasked with developing a
plan for implementing OBC reservations has suggested that
it will cost roughly $4.3 billion over three years, as it
would require expensive upgrades to laboratories and other
facilities. The GOI has estimated that it could cost $2.1
billion to create new seats for the expected influx of OBCs.
Even at the lower level of $2 billion, such a price tag would
be hard for the GOI to finance. It would require nearly 13
percent of the current annual education budget and could, if
expenditures are not reduced elsewhere, add to the fiscal
deficit*at a time when legislation requires deficit
reduction. Regardless of which estimate is more realistic,
the real test is how many OBCs are actually admitted under
the plan. Reservations for the dalits and tribals remain
significantly underutilized, because they find it hard to
meet even lowered admission criteria.

(U) 7. At the same time, concerns about the impact of the
quotas could divert economically-advantaged students to
private schools, which are left outside the legislation's
purview. This could spur further investment in private
schools, which could then provide educated manpower to
India,s growing knowledge economy. However, should the GOI
decide to extend the quotas to private institutions*as
sought by Arjun Singh and others, it could quash potential
investment in private education. Such a move could also put
a damper on GOI plans to capture a share of the $30 billion
global trade in education by opening the sector to foreign
direct investment (FDI).

(U) 8. Some argue that potential U.S. investment in the
Indian education sector could be limited in any case, as

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their foremost focus is India's large scale consumption and
production markets. If such a prognosis is correct, investors
are unlikely to be overly concerned by the current
legislation. Furthermore, the potential benefit for
investors represented by an educated labor pool is years down
the road and therefore not a high priority. The proposed
legislation would also require the GOI to create additional
seats for eligible OBC candidates, rather than reduce access
to other potentially better-qualified students. If
implemented as envisioned, the legislation would
theoretically not diminish the numbers of qualified
graduates. Finally, the fiscal constraints to wholesale
implementation of the program make the reservations, future
too uncertain for most investors to worry about at this
point.

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Impact on Potential US Educational Institutions Coming to
India
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(C) 8. Currently, the legislation would apply to all public
educational institutions and does not apply to non-Indian
educational institutions. However, Arjun Singh has stated
that foreign universities should be held to the law of the
land and be subject to the quota requirements. If his
proposal is adopted, it would add a cumbersome requirement
that could dissuade US educational institutions from coming
to India.

(C) 9. COMMENT: The quota debate has always been highly
contentious, as students across the country fear that the
introduction of fresh quotas will undermine academic
excellence. Already, the Indian Constitution provides for
reservation of 23 percent seats in all government funded
educational institutions for Scheduled Castes (Dalits) and
Tribes. While many higher technical institutions are largely
dominated by the upper castes, reservations may not
necessarily correct the imbalance. Typically, economically
well off persons within the reserved communities have
benefited from reservations and the current proposal would
likely benefit the wealthy OBC's. Many activists and
political analysts argue that caste should be abandoned as a
criteria for reservations and that economic criteria should
be the only consideration.


10. (SBU) There are several factors which could prevent the
OBC quotas from ever being implemented. The possible cost of
further reservations is staggering, and could reach as much
as $4 billion dollars. The Bill could be buried indefinitely
in the standing committee. Though this bill was brought up
at the behest of Arjun Singh, the Prime
Minister is adamantly opposed and has come out on top. His
handling of this issue demonstrated his political strength,
leaving Arjun Singh back at the drawing board. Despite the
poor chances for the legislations, political considerations
have compelled most parties to support the new reservations,
and, in the end, political expediency could yet again win out
over common sense. END COMMENT
MULFORD