Context

• Recently, the Supreme Court observed that economic criterion cannot be the sole basis for identifying the ‘creamy layer’ of a backward class, and that other factors like social advancement, education, employment, too, matter. 
• The judgment came on a writ petition filed by a group from Haryana, challenging two notifications issued by the State government in 2016 and 2018, under the Haryana Backward Classes (Reservation in Services and Admission in Educational Institutions) Act, 2016.

What were the notifications?

• The 2016 notification identified as ‘creamy layer’ backward class members whose gross annual income exceeded ₹6 lakh. It said backward class sections whose families earn less than ₹3 lakh would get priority over their counterparts who earn more than ₹3 lakh but less than ₹6 lakh. 
• The Supreme Court struck down the notifications as a violation of the 2016 Act. It said Section 5 (2) of the Act required the State to consider social, economic and other factors together to identify and exclude backward class members as ‘creamy layer’.

Who belongs to the ‘creamy layer’?

• The ‘creamy layer’ concept was introduced in the Supreme Court’s Indra Sawhney judgment, delivered by a nine-judge Bench on November 16, 1992. 
• Though it upheld the government’s decision based on the Mandal Commission’s report to give 27% reservation to Other Backward Classes, the court found it necessary to identify sections of backward classes who were already “highly advanced socially as well as economically and educationally”.
• The court believed that these wealthy and advanced members form the ‘creamy layer’ among backward classes. The judgment directed the State governments to identify the ‘creamy layer’ and exclude them from the purview of reservation.
• However, certain States like Kerala did not promptly implement the judgment. This led to the Indra Sawhney-II case in 2000. In this, the court went to the extent of determining the ‘creamy layer’ among backward classes. 
• The judgment held that persons from backward classes who occupied posts in higher services such as IAS, IPS and All India Services had reached a higher level of social advancement and economic status, and therefore, were not entitled to be treated as backward. Such persons were to be treated as ‘creamy layer’ without any further inquiry. 
• Likewise, people with sufficient income who were in a position to provide employment to others should also be taken to have reached a higher social status and be treated as “outside the backward class”. 
• Other categories included persons with higher agricultural holdings or income from property. Thus, a reading of the Indra Sawhney judgments shows that social advancement, including education and employment, and not just wealth, was key to identifying the ‘creamy layer’.

Why is it difficult to draw the line?

• The identification of ‘creamy layer’ has been a thorny issue. The basic question here is how rich or advanced should a backward class section be to invite exclusion from reservation. 
• Justice Jeevan Reddy, in the Indra Sawhney judgment, wondered “how and where to draw the line” between the deserving and the creamy layer among backward classes. “The basis of exclusion should not merely be economic, unless, of course, the economic advancement is so high that it necessarily means social advancement,” he pointed out.
• Justice Reddy highlighted the pitfalls of identifying the creamy layer merely on economic basis. For example, a member of backward class, say a member of the carpenter caste, goes to the Middle East and works there as a carpenter. If you take his annual income in rupees, it would be fairly high from the Indian standard. Is he to be excluded from the Backward Class? Are his children in India to be deprived of quota benefits? Situation may, however, be different, if he rises so high economically as to become — say a factory owner himself. In such a situation, his social status also rises. He himself would be in a position to provide employment to others.
• A Constitution Bench of the Supreme Court in Jarnail Singh versus Lachhmi Narain Gupta (2008) noted the necessity of applying the creamy layer concept. The court said unless the creamy layer principle was applied those genuinely deserving reservation would not access it. The apex court held that the creamy layer principle was based on the fundamental right to equality.

Reference:

1. https://www.thehindu.com/news/national/explained-what-has-the-supreme-court-ruled-on-creamy-layer/article36105688.ece