The government, however, made it clear that there will be no review of quota.
The BJP's sweeping victory in the assembly elections in Uttar Pradesh had been powered in part by support from a section of OBCs. The party has recently fulfilled its promise of upgrading the Backward Classes Commission from a statutory to a constitutional body, which gives it powers equal to a court to summon people and inquire into incidents of violence and discrimination against backward classes.
Today, the government said OBCs who are earning upto Rs 8 lakh a year -- compared to the earlier Rs 6 lakh -- will not be considered "creamy layer" and they will be eligible for reservation benefits.
After a cabinet meeting on the issue, Union finance minister Arun Jaitley also said there will be sub-categorisation within the OBC list "for the purposes of central government employment". The commission that will be created will examine "the extent of inequitable distribution" reservation benefits.
"With this, those in the broad category of OBCs who were till now devoid of benefits of reservation will get the benefits. There will be more equitable distribution," the minister added.
The existing system of reservation, forged by the Mandal Commission in 1979, has been getting flak from a section of OBCs who say only some of the dominant, politically powerful groups have been cornering the benefits.
Lately, various states have demanded that OBC groups that have been neglected, be given the status of Scheduled Tribes. Even politically powerful groups including the Patidars and Marathas have been demanding that they be included in the OBC list.
Mr Jaitley today said the National Commission for Backward Classes had given its recommendation regarding the sub-categorisation issue in 2011. Two years later, a Parliamentary Standing Committee had given a similar recommendation. "After inter-ministerial consultations, it was accepted," he said.
A Group of Ministers have also recommended that the creamy layer be extended beyond the children of gazetted officers of the central government to children of Public Sector Utilities and university officials and teachers.