In 2006 the Indian parliament passed legislation reserving an additional 27 percent of seats in all institutions of higher learning, funded by the central government, for the category of socially disadvantaged groups officially known as "Other Backward Classes." At a time when India is opening its economy to global competition, this initiative has re-ignited the debate on the efficacy of reservations and triggered fresh anxieties about the impact of this policy on India's economic growth. This paper looks closely at the offered justifications for this policy as well as the expressed concerns. While examining the implications of the policy, particularly the claim that higher education reservations will dilute the quality of human capital, the paper suggests that the policy may present long-term challenges not currently anticipated. The argument rests on the understanding that while educational institutions must be responsive to the concerns of marginalized groups, the policies for correcting prevailing exclusions must be just and fair. If they enshrine identity as a permanent economic asset or a source of ever-renewable privilege, these policies are likely to produce social conflict and disharmony. This element is ignored by the announced policy and is likely to weaken not just India's educational institutions but also its democracy - results that are likely to weaken India's prospects of becoming a global power and its goal of social equity.