— Photo: PTI

Asian Development Bank Chief Economist Ifzal Ali (right) with economist Rana Hasan during the launch of the book `Labour Market in Asia' in New Delhi on Thursday.

NEW DELHI: The Asian Development Bank on Thursday warned that the move in India towards reservation of jobs in the private sector would prove counterproductive as it may lead to a flight of skilled labour and capital from the country.

Interacting with newspersons on the sidelines of a book release function here, ADB Chief Economist Ifzal Ali said: "After so long, India has become a global player. Now why should we go back? Reservation would prove counterproductive... The present high growth could swing back if it is not inclusive, as a political and social backlash would result in foreign capital leaving the shores of the country, with even domestic capital withdrawing."

Dr. Ali said: "The changed economic system in the era of globalisation demands that Indian companies must be one step ahead of their competitors and cope up with the forces unleashed by competition... We are living in a different world, our policies are circumscribed by what others do."

Dr. Ali went on to argue that if companies do not stay ahead of competition, skilled labour would move out. ``We have seen this happening in the Philippines, where the middle class left the country,'' he said. In India's case, skilled labour moves swiftly between companies and from one region to the other, he said.

Compulsory job reservation in the private sector, Dr. Ali felt, would not be in keeping with India's attempt to be part of the global economy. For this, Indian firms have undergone a restructuring process, reducing costs and improving productivity and thus turning more efficient. ``Attempts to impose reservation from outside would go against this spirit, forcing foreign firms to set up shop outside India and also a withdrawal of the production process by indigenous enterprises,'' he said.

On the issue of reservation for Other Backward Castes in professional institutions such as IITs and IIMs, Dr. Ali said such a quota system would fail to broadbase employment as these institutes cover only a handful of people. Such talks are "red herring," when the issue, in fact, should have been to devise ways of raising productivity and increasing employment.

GDP growth may be scaled down

ADB has declared that it would have to scale down India's economic growth projections if international crude oil prices continue to rule at $70 a barrel.

``We will have to revise our projections downwards," Dr. Ali said, as surging oil prices were a matter of concern for India.

Economic growth

India's economic growth projection for this fiscal was based on oil prices at $62 a barrel, and a $10 rise in prices, as per an ADB study, would mean a 1.2 per cent reduction in its GDP growth, he said.

ADB had projected an overall growth of 7.6 per cent this fiscal and 7.8 per cent in 2007, slightly below the medium term rate of growth.

On full float of the rupee, Dr. Ali said the Reserve Bank's decision to appoint a committee was a step in the right direction.

``Unless rupee is made fully convertible, how is the country going to realise its dream of making Mumbai the financial capital of the region," he asked.

Full convertibility of the rupee, Dr. Ali maintained, could be a reality if the fiscal deficit of the Centre and the States is reduced to half.

``If that happens, India can steal a march over China," he said.

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