grades have little correlation with adult life achievement, or accomplishment, with postgraduate earnings (at least for the first three years), with actual learning, even with future employment in many fields. In the latter case, they are used mostly as a screening device rather than as an indicator of merit. The screen has expanded for the same reasons that professional sports have expanded their pools of playoff teams (think major league baseball "wild cards", or soccer teams that finish 3rd and 4th place in their national leagues qualifying for (and recently winning) the UEFA Champions League).
Grades are also in their present state because their original purposes are no longer valid (assuming that they ever were, which is in itself dubious). The need is no longer to extract the cream and exclude the rest; it is to figure out how to effectively educate as many learners as possible.