Minimum Wage Legislation in India: Analysis, Issues and Solutions By Jayanth Potharaju from Jindal Global Law School
Adam Smith, the founder of the free trade theory (which most neo – liberal countries, including India follow to some extent) said that supply and demand is what determines wages in the marketplace. This article aims to provide an analytical perspective on the issues faced by the contemporary Indian State in formulating and implementing minimum wage legislations.
There were three types of wages identified in 1948 by the Triparite Committee on Fair Wages: living wage, fair wage and minimum wage.[i] The first minimum wage legislation in India was the Minimum Wages Act which was adopted on March 15, 1948. A key feature of the Act is that it requires the government to revise minimum wage rates every five years thereby providing a wage that is suited to the current times. Further, keeping in mind inflation, the concept of Variable Dearness Allowance (which takes into account location – based cost of living) has also been linked to minimum wages thus, keeping a dynamic flow of income for the employees over time. Other minimum wage legislations in India include Payment of Wages Act, 1936, Payment of Bonus Act, 1965, and Equal Remuneration Act, 1976.[ii]
The primary issue with minimum wages laws in India is that they lack consistency. The reason for this is that the Central Government has empowered the States to fix minimum wages. For example, the current National Floor Level Minimum Wage is Rs.4800, but the official minimum wage for agriculture in Puducherry in 2013 was a measly Rs.1650 a month.[iii] Also, more recently in July 2017, it was reported that the average minimum wage of male and female workers in New Delhi which was Rs.6000 and Rs.5000 respectively in the organized and unorganized sectors is only half the legislated minimum wage level.[iv] This lack in uniformity or even basic consistency with the Act makes one wonder if the legislation is in fact adhered to or is taken into account while formulating minimum wage laws.
India is currently the lowest wage paying country in the Asia Pacific region.[v] Logically, does it flow that we must increase minimum wages in order to keep up with the rest of the world? That’s what the Modi Government thought in 2016 when they decided to give a drastic 42% increase in the minimum wage for unskilled non-agricultural laborers.[vi] The Delhi Government quickly followed suit by introducing a nearly 50% hike for unskilled, semi – skilled and skilled laborers.[vii] But are these economically wise moves or purely done for political appeasement? Critics would point towards the latter for multiple reasons. Firstly, as 70 to 93 percent of India’s workforce is in the informal sector, it is argued that the government must focus on those in the informal economy who are not going to even be affected by such legislations.[viii] Thus, that portion of the workforce in the informal sector has no legal safeguards. Secondly, due to the lack of consistency in wage rates; it is highly likely that the industries would move to another state where the wage rates are much lower. For example, Rajasthan and Haryana have 151% and 82% lower wage rates respectively.[ix] Thirdly, as noted in the previous paragraph, governments might not even abide by the minimum wage law making this no more than a case of a kettle and the teapot. Finally, an argument that is slightly futuristic in nature but is extremely valid is that an increase in minimum wage rates may lead to increased use of automation by industries thus, completely negating the use of human labor.
There are important steps being taken to address these criticisms by the current government though. A new code being tabled by the government for the monsoon session of the House would combine the four minimum wage legislations (listed in the second paragraph) into a single one.[x] This uniformity in legislation will make sure that the Centre can fix a national minimum wage. Further, the revision period would be brought down to 2 years instead of the current 5 years (except where DA is a part of the minimum wage). This is a much - needed legislation which will set the foundation for the uniformity in wage structure that many critics have asked for. We can only hope, though, that the bill makes it past the rigors of democracy and sees the light of day in its original form.
In conclusion, although the first minimum wage legislation was tabled soon after independence, the State has succeeded only in a minimal manner in enforcing said legislation on the ground level. With the introduction of the new code though, it does seem like the Indian State has recognized the problems plaguing minimum wage rates and is taking good steps to solve them.
[i] LOONWIJZER www.loonwijzer.nl/root_files/Minimum%20Wages%20in%20India.doc accessed on 12th July, 2017
[iii] THE HINDU http://www.thehindu.com/opinion/op-ed/Do-we-need-a-minimum-wage-law/article14616002.ece accessed on 12th July, 2017
[iv] TIMES NOW http://www.timesnow.tv/india/article/delhi-hc-seeks-response-from-aap-govt-on-minimum-wage-rates-for-workers/65763 accessed on 12th July, 2017
[v] INDIAN EXPRESS http://indianexpress.com/article/business/business-others/india-has-lowest-annual-base-salaries-among-asia-pacific-region-nations-report-2839581/ accessed on 12th July, 2017.
[vi] TIMES OF INDIA http://timesofindia.indiatimes.com/india/Centre-offers-bonus-wage-sops-but-trade-unions-firm-on-strike/articleshow/53937980.cms accessed on 11th July, 2017.
[vii] INDIAN EXPRESS http://indianexpress.com/article/india/india-news-india/delhi-50-per-cent-increase-in-minimum-wages-for-workers-says-arvind-kejriwal-2976907/ accessed on 11th July, 2017
[viii] FORBES https://www.forbes.com/sites/timworstall/2016/08/31/indias-gross-mistake-in-raising-the-minimum-wage-its-already-too-high/#70464e714974 accessed on 13th July, 2017
[x] ONEINDIA http://www.oneindia.com/india/after-7th-pay-commission-minimum-wage-revision-to-be-made-compulsory/articlecontent-pf29321-2494043.html accessed on 12th July, 2017
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