In charts: What is a decent minimum wage in India – and how a new law could change it

In January, a committee of experts appointed by the Labour Ministry recommended that the government set the national minimum wage at Rs 375 per day. This, they said, was the minimum amount required for a worker to meet their family expenditure, preserve their health, and keep them efficient at their jobs.

Seven months later, the government tabled the Code of Wages Bill in Parliament. The Bill stated that the Centre would set a national floor-level minimum wage –
the lowest level of remuneration that an employer can pay a worker by law, irrespective of the nature of the work or the skills of the worker. This would be fixed on the basis of the living conditions of workers and the geographical regions in which they reside and work. But the Bill did not mention a specific figure.

Labour activists have questioned why the government did not accept the Rs 375 benchmark recommendation of its own committee.

The controversy has put the spotlight on the question: how best to ensure workers have a decent standard of living while ensuring high levels of employment in the economy? As a paper by the International Labour Organisation notes, setting a minimum wage is a balancing act: if the wage is set too high and assuming it is enforced, it leads to fewer workers being hired. If it is too low, workers don’t earn enough to afford their basic necessities.

How has India fixed minimum wages so far?

India has been fixing minimum wages for workers since 1948 when it passed the Minimum Wages Act, but they are a cause of much confusion.

The government uses a roundabout method of setting minimum wages that includes defining nearly 2,000 different types of jobs, just for unskilled workers and 429 categories of employment, with a minimum daily wage for each type of job.

States set their own minimum wages for different jobs that sometimes differ significantly from the central minimum wages. There were several different numbers reported for minimum wages set by states for unskilled labourers.

A parliamentary answer given by Gangwar in December 2018 quoted minimum wages as low as Rs 55 in Puducherry, Rs 69 in Andhra Pradesh and Telangana, and Rs 100 in Gujarat.

However, this year’s Economic Survey, presented by the Finance Ministry, put the minimum wages for these states at Rs 206, Rs 312, Rs 327 and Rs 304 respectively, based on minimum wage notifications issued by the states between 2014 and 2019. State notifications, though, show for instance in Gujarat, minimum wages ranging from Rs 178 to Rs 333.

What is a floor wage?

Since the minimum wages fixed by states varied widely, in 1996, the Centre introduced a national floor wage. But it was not legally binding on states. The floor wage was initially Rs 35, but subsequent revisions brought it up to Rs 176 in 2017.

Presenting the Bill in Parliament, labour minister Santosh Gangwar hinted that the floor wage could be set at Rs 178. This led to outrage since this amounted to a rise of merely Rs 2 from the earlier floor wage of Rs 176 set in 2017.

The current minimum wages in most states are higher than the floor wage of Rs 178 mentioned by the labour minister and lower than the minimum wage of Rs 375 as recommended by the expert committee.

What changes under the new law?

In 2015, the Modi government decided to streamline 44 labour laws by clubbing them under four Codes. One of them – the Code on Wages – subsumes four laws on wages, including the Minimum Wages Act, 1948.

Now passed in Parliament, the Code on Wages Act, ensures a national floor wage that will have legislative protection.

Under the Minimum Wages Act, various types of employment in the organised and unorganised sectors were listed for which individual minimum wages were set, and these minimum wages had statutory protection. The new Code instead mandates that a floor wage be paid for all types of employment, thus bringing all employees, even those that weren’t earlier covered by the listed types of employment, within its ambit. This floor wage is to have statutory protection. If a minimum wage is already higher than the floor wage, it cannot be reduced.

The Code also subsumes the Equal Remuneration Act of 1976, and prohibits gender discrimination in matters related to wages and recruitment, for work of a similar nature.

What did the expert committee recommend?

In January this year, a committee of experts appointed by the Labour Ministry made their recommendations. They proposed setting the national minimum wage at Rs 375 per day. This number was arrived at on the basis of food and non-food expenditure from the consumer price index, adjusted for 2018 prices.

The recommendations assumed a 2400 calorie diet, while a 1992 Supreme Court judgment and the Indian Labour Conference of 1957 recommended setting the national minimum wage on the basis of a 2700 calorie diet. The committee recommended the lower calorie amount by citing changing literature on consumption patterns and the reduced drudgery of work.

The committee also recommended an alternative to the national minimum wage: splitting the country into five regions and having a different regional minimum wage for each, on the basis that the cost of living and availability of employment in these regions requires this variation.

How will the new floor wage be fixed?

The government did not incorporate the committee’s recommendations in the Code of Wages law. In Rajya Sabha, Gangwar said that the floor wage would be determined by a tripartite committee, comprising representatives of trade unions, employers organisations and state governments.

While some argue that fixing the floor wage higher than the current wage level would hurt workers by inducing retrenchments, trade unions have asked for the floor wage to be set higher than the Rs 375-benchmark recommended by the committee.

“Our demand is Rs 600 a day or Rs 18,000 per month salary, on par with 4th grade employees of the government,” said Chandan Kumar, labour activist and coordinator at the Central Minimum Wage Advisory Board, a statutory body that advises the government on matters regarding the fixing and revision of minimum wages.

Will the new law be easier to enforce?

The effectiveness of a minimum wage depends crucially upon, not just the wage itself, but also its enforcement, argues Vidhya Soundarajan, assistant professor at the Indian Institute of Management, Bangalore. Soundarajan studied the interactive effects of a minimum wage and its enforcement among construction industry workers in India in a paper published in 2014.

She found that at low levels of enforcement raising a minimum wage is ineffective, because employers can get away with paying lower wages without being caught. At higher levels of enforcement, the likelihood of employers paying up rises, before tailing off at a higher minimum wage. This means with better enforcement, it is possible to have a higher minimum wage, up to a point.

Enforcement of minimum wages has been weak in India, partly because of a large informal sector. In 2009-’10, it was estimated that only 66% of wage workers in India were covered by the minimum wage legislation.

The government has said that streamlining labour laws would help improve compliance. But it is not exactly clear how the new law would translate into more workers being paid the floor wage, or how that could be enforced.

This year’s Economic Survey outlined the “lighthouse effect” – essentially, by improving awareness among workers of the floor wage, the government can enhance their bargaining power with employers. But this lays the onus of enforcement upon the workers themselves rather than on the government.