Why is it necessary to fix a minimum wage?

Why is it necessary? How will the provisions of the Code on Wages, 2019, be implemented?

Updated - November 17, 2019 12:21 am IST

Published - November 17, 2019 12:02 am IST

Flat design businessman pays Indian rupees under the signed contract. Hand holding indian rupee banknote. Vector icon template.

Flat design businessman pays Indian rupees under the signed contract. Hand holding indian rupee banknote. Vector icon template.

The story so far: On August 8, the President gave his assent to the Code on Wages, 2019, that had earlier been approved by Parliament. The Code, which 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 — seeks to regulate wages and bonuses for all workers employed by any industry, trade, business or manufacturer. While the Code is now law, the Ministry of Labour and Employment on November 1 published the draft rules for implementing the provisions and sought comments from stakeholders until December 1. Following the consultation, the Centre will notify the rules that will create the mechanisms to fix a floor wage that would then undergird the minimum wages for different categories of workers — unskilled, semi-skilled, skilled and highly skilled — that the States and Central government would have to set and enforce.

Why is the Code significant?

Minimum wages are accepted globally to be a vital means to both combating poverty and, equally crucially, ensuring the vibrancy of any economy. In the aftermath of the 2008 global financial crisis and the erosion of purchasing power worldwide, the International Labour Conference’s Global Jobs Pact of 2009 identified “the regular adjustment of wages, in consultation with the social partners” as a means of reducing inequality, increasing demand and contributing to economic stability.

The Code acknowledges that the aim in setting the floor wage is to ensure “minimum living standards” for workers and the draft rules incorporate criteria declared in a landmark judgment of the Supreme Court in 1992 as well as recommendations of the 15th Indian Labour Conference. These include 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% of food and clothing expenditure, as well as expenses on children’s education, medical needs, recreation and contingencies.

The rules, similarly, cover almost the entire gamut of wage-related norms including the number of hours of work that would constitute a normal working day (set at nine hours), time interval for revision of dearness allowance, night shifts and overtime and criteria for making deductions. A separate chapter of the draft rules also deals with the payment of bonus while another lays down the guidelines for the formation of the Central Advisory Board as well as its functioning.

How will it impact the economy?

A lot will depend on the final floor wage or wages (there could be different floor wages for different geographical areas) that the Centre will choose to set based on its consultations with the Board as well as any State governments it opts to consult with. While a national minimum wage of ₹176 per day had been recommended in 2017, an expert committee constituted by the Labour Ministry had in February this year recommended that a “need based national minimum wage for India” ought to be fixed at ₹375 per day (₹9,750 per month). Additionally, the committee had mooted payment of a city compensatory allowance averaging up to ₹55 per day for urban workers. Earlier, in 2015, the Seventh Central Pay Commission had recommended setting the minimum pay for government employees at ₹18,000 per month. And just last month, the Delhi government set a minimum wage of ₹14,842 per month for unskilled workers after the Supreme Court ruled in favour of the local government, brushing aside the objections raised by a plethora of employers’ associations.

The Finance Ministry’s Economic Survey, in July, had in a chapter titled ‘Redesigning a Minimum Wage System in India for Inclusive Growth’ stressed the importance of establishing an effective minimum wage system. Such a statutory national minimum wage would have multiple impacts including helping lift wage levels and reducing wage inequality, thus furthering inclusive growth, according to the survey. For India to reap the much touted ‘demographic dividend’, robust wage expansion would ultimately be essential to help buoy consumption-led economic growth.

What lies ahead?

Trade unions, including the RSS-affiliated Bharatiya Mazdoor Sangh (BMS) and the All India Trade Union Congress (AITUC), have voiced their reservations with multiple aspects of the Code and plan to submit detailed feedback. The points of contention include the nine-hour working day definition, a lack of clarity in the rules on scope for upgradation of workers’ skill category and the lack of representation for trade unions in the wage fixation committee. The ultimate success of the Code will be determined by the extent to which the minimum wage set is both fair and actually implemented so as to benefit the millions of workers in the unorganised sectors of the economy.

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