http://www.deeshaa.org/2006/05/07/indian-reservations/

This article does the best job of summing up the issue.

Atanu Dey describes the problem, discusses the solutions that have been applied, craps the solutions on various fronts, and most importantly comes up with a soultion himself!

For the lazy folks here are a few quotes

"Quotas, if they have any effect on the system, effectively replace qualified candidates with otherwise unqualified candidates. Unqualified candidates who enter the system are by definition unable to benefit from the opportunity to the extent that a qualified candidate would have done. The quota candidates are unable to compete within the system. Aside from the welfare loss in terms of wastage of real resources, the quota students suffer psychologically as they fall behind their colleagues who are better prepared for the academic rigors. They are looked down upon by those who “earned” their place in the school. (I say “earned” because it is strictly not so, as I will explain later.) This reinforces the perception—within both groups—that the group which enjoys the quota is intrinsically inferior. This is perhaps the most pernicious of all the unfortunate effects of a quota system in higher education."

"quotas in higher education for disadvantaged groups is morally repugnant policy. It penalizes certain people based on their group membership. Discrimination based on caste, creed, origin, color, etc, is morally wrong. So is reverse discrimination. The right thing to do is to remove discrimination, not impose it from up on high."

"The disadvantaged segments of the population are not disadvantaged only in their ability to gain admission to higher education, they are disadvantaged in all levels of education. The solution then is to help them with providing them opportunities in the lower levels first. Equality of opportunity at the lower levels (primary, secondary, and high school levels) is a necessary and sufficient condition for the disadvantaged segments to have a shot at competing with the others. Equality of opportunity is to be desired and can be engineered, but of course that does not guarantee equality of outcome. The policy makers need to understand the distinction between the equality of opportunity and the equality of outcome: the former is a necessity for social justice and can be obtained, while the latter is neither possible nor desirable."

Great read!

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