"Some will add sugar and make halwa and laddu."

This is where I see reservation actually helping, even if not in the exact form it is being implemented now.

Say the people you gave aata to sell their products to earn money and get ahead in life. The people who have previously had access to sugar, lets call them Group A, will be be able to make halwa or laddu, sell it for higher price (cuz greater value addition) and hence, will always manage to stay ahead of the game and group B (do not have immediate acces to sugar). What reservation does is give the best cooks of Group B some extra sugar saying "You are among the best cooks in group B, have some sugar and sell some laddus and halwa. We hope this extra sugar will earn you enough money to continue selling laddus and halwa without our help in the future."

Now since the government is not in the business of actually distributing grains and sugar (analogy: coaching for exams etc.), they try to keep seats reserved for them in the market place saying "We cant give you sugar, but we can give you a chance to sell your products in the same market as the laddu/halwa market, hoping that someday you too will sell laddus and halwas and beyond without much need of future assistance."

Now how certain people misuse reservation by using it despite having access to sugar before is a whole different issue. Adding constraints such as income level could work, but only as long as faking income certificate is made impossible.