[India] Why Establishing A Minimum Wage Is Essential

India’s president gave his assent to the Code on Wages, 2019, on August 8 this year. The Code is now law, The Hindu reports on its significance, the impact on the economy and the path forward.

The Code replaces four laws: the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976 and aims to regulate wages and bonuses for all workers employed by any industry, trade, business or manufacturer. On November 1, the Ministry of Labour and Employment published the draft rules for implementing the provisions. Until December 1 stakeholders have the opportunity to comment.

The States and Central government will have to set and enforce the minimum wages for different categories of workers - unskilled, semi-skilled, skilled and highly skilled - after The Centre has notified the rules and mechanisms to fix a base wage. 

The code is significant because minimum wages are accepted globally as an essential tool to combat poverty and ensure economic vibrancy. Following the 2008 global financial crisis and purchasing powers reducing, the International Labour Conference’s Global Jobs Pact of 2009 identified “the regular adjustment of wages, in consultation with the social partners” as a way to reduce inequality, increase demand and contribute to economic stability.

The Code states that the aim in setting a floor wage is to ensure “minimum living standards” for workers and the draft rules reportedly include criteria from a landmark judgment of the Supreme Court in 1992 as well as recommendations of the 15th Indian Labour Conference. 

The recommendations include specifying the net calorific needs for a working-class family - defined as the earning worker, spouse and two children or the equivalent of three adult consumption units - set at 2,700 calories per day per consumption unit, their annual clothing requirements at 66 metres per family, house rent expenses assumed at 10 per cent of food and clothing expenditure, as well as expenses on children’s education, medical needs, recreation and contingencies.

The rules cover almost the majority of wage-related norms: the number of working hours forming a normal working day (set at 9 hours), the time interval to revise dearness allowance, night shifts and overtime and criteria for making deductions. A separate chapter of the draft rules deals with the payment of bonuses, another establishes guidelines for the formation of the Central Advisory Board and its functions.

Impact on the economy

Much depends on the final floor wage or wages (different floor wages may be set for different geographical areas) that the Centre chooses to set based on its consultations with the Board and any State governments it consults. Although a national minimum wage of ?176 per day was recommended in 2017, an expert committee in February this year recommended to the Labour Ministry that a “need-based national minimum wage for India” ought to be fixed at ?375 per day (?9,750 per month). 

The committee also suggested a city compensatory allowance paying urban workers an average of up to ?55 per day. In 2015, the Seventh Central Pay Commission recommended the minimum pay for government employees should be set at ?18,000 per month. Last month, the Delhi government set a ?14,842 per month minimum wage for unskilled workers after the Supreme Court ruled in favour of the local government, setting aside objections raised by many employers’ associations.

The Finance Ministry’s Economic Survey - released in July - featured a chapter called ‘Redesigning a Minimum Wage System in India for Inclusive Growth’. This emphasised how important establishing an effective minimum wage system was. According to the survey, the impact of a statutory national minimum wage would include help in lifting wage levels and reducing wage inequality, thus furthering inclusive growth. 

Going forward

Reservations with many aspects of the Code have been expressed by trade unions, including the RSS-affiliated Bharatiya Mazdoor Sangh (BMS) and the All India Trade Union Congress (AITUC), they plan to give detailed feedback. The 9-hour working day definition, a lack of clarity in the rules on upgrading workers’ skill categories and the lack of representation for trade unions in the wage fixation committee are among the points of contention. 

Ultimately, the Code’s success will be determined by how fair the minimum wage, once set and implemented, is for the millions of workers in unorganised sectors of the economy it is due to impact.

Source: The Hindu