India has a new code to simplify law on minimum wages – but it doesn’t give workers any real benefit

Over the past year, the government has taken steps to consolidate India’s complicated patchwork of labour laws into four codes. The Code on Wages, 2019, which received presidential assent on August 8, is the first of the codes to come into effect. This Wages Code has been enacted with the express objective of simplifying the Indian law on minimum wages and proposes to bring all workers in both the organised and unorganised sectors within its purview.

The government has also proposed a Draft Labour Code on Social Security, with the express intention of providing “a legislative back-up and an Administrative Structure for a right based, Universal Basic Social Security to the entire workforce in the country”.

It is difficult to understate the importance of this development. The majority of Indian workers are in the unorganised sector and it is crucial to bring these workers within the protection of a formal social security net. The present system of contributory pension schemes for workers in the informal sector is grossly inadequate to meet the needs of an aging population. India urgently needs a comprehensive social security legislation.

But to what extent will the consolidated labour codes help the Indian worker?

Decent standard of work

First, we must consider what a minimum wage must do. Article 23 of the Indian Constitution relates to the fundamental right against forced labour and directs the state to promote a decent standard of work.

In 1948, Parliament enacted the Minimum Wages Act and the Fair Wages Committee the next year first recognised that a minimum wage should not only be enough for “bare sustenance,” but must also provide for “a measure of frugal comfort… requirements of essential social needs, and a measure of insurance against the more important misfortunes including old age”.

In 1957, the 15th Indian Labour Conference resolved that the minimum wage must comprise four heads: food, clothing, shelter and other essentials for three persons (or consumption units) in the household.

Meanwhile, the Supreme Court in 1982 held that paying workers less than the minimum wage amounts to forced labour and reiterated that the Constitution recognises the right to a living wage. This includes not only enough to purchase bare necessities, but “frugal comforts” such as “children’s education, medical requirement, minimum recreation including festivals/ceremonies and provision for old age, marriages etc”.

Right to sustenance

The implication of this, as pointed out by the Second National Labour Reforms Commission in 2002, is that the minimum wage need not have any correlation to the type of work being performed. It is to be computed only on the basic needs of workers in each region.

In fact, the Parliamentary Standing Committee even recommended that a “right to sustenance” be made part of the Wages Code. The Wages Code, however, does not refer to consumption at all. Instead, it provides that the minimum wage is to be fixed with reference to the “the skill of workers required for working under the categories of unskilled, skilled, semi-skilled and highly-skilled or geographical area or both,” and may consider the “arduousness of work” performed.

It provides no guidelines to account for minimum consumption by households, despite the Supreme Court’s statements. In other words, workers could be left no better off than they are today.

Earlier this year, the Ministry of Labour Expert Committee recommended a national minimum wage of Rs 375 per day, to allow for expenditure on a balanced diet, shelter, clothing and other essentials, based on the minimum per capita consumption expenditure per household. Nevertheless, the Central government fixed the guideline “national floor-level minimum wage” at Rs 178 per day shortly after.

Besides, it must be noted that the floor-level minimum wage is purely indicative. States may continue to fix minimum wages below this figure. In fact, the Periodic Labour Force Survey, 2017-’18 reports that the average daily wage among some classes of workers in rural India continues to fall below this level.

Many are excluded

Moreover, the Wages Gode only applies to establishments with more than 20 workers. This limit automatically excludes large numbers of informally employed workers, including commission or piece-rate workers, or those who work in the gig economy. In fact, the Wages Code contains a very narrow definition of employees as persons employed for wages under a contract of employment.

Unlike even the Minimum Wages Act, it makes no provision for out-workers, who are contracted to work at home. Such workers may find themselves earning far below the amount required to satisfy their basic needs, but yet required to make contributions to social security or face criminal consequences for their failure to do so. In other words, the Wages Code may well not apply to those most in need of protection.

Employers may also now have a perverse incentive to employ workers under informal arrangements or through intermediaries to avoid the application of the Code.

These provisions of the Wages Code 2019 must be seen in light of the 2019 Draft Labour Code on Social Security. The 2018 Draft brought workers in the unorganised sector at par with those in the organised sector in terms of social security. The 2019 Draft code on social security, however, takes a step back, and confines formal social security arrangements to those in the formal sector. Instead, it empowers the government to frame a separate set of social security schemes for those in the unorganised sector.

The effect is that workers in the unorganized sector are left in exactly the same position as they were prior to the passage of the Wages Code. The Wages Code, therefore, fails to provide any real benefits to Indian workers.

Anupama Kumar works at the Social Protection Initiative at Dvara Research.