Introduction

Despite India’s outstanding growth in the last two decades, low pay and wage inequality remain serious obstacles towards achieving inclusive growth. An effective minimum wage policy that targets the vulnerable bottom rung of wage earners can help in driving up aggregate demand and building and strengthening the middle class, and thus spur a phase of sustainable and inclusive growth. However, the present minimum wage system in India is extremely complex with 1,915 minimum wages defined for various scheduled job categories for unskilled workers across various states.

Despite its complex structure and proliferation of scheduled employments over time, the Minimum Wages Act,1948 does not cover all wage workers. One in every three wage workers in India has fallen through the crack and is not protected by the minimum wage law. Given this situation, this chapter reviews the situation pertaining to minimum wages in India and suggests the way forward for rationalising and streamlining the policy for minimum wages.

Minimum Wages Act, 1948

• India was one of the first developing countries to introduce minimum wages with the enactment of the Minimum Wages Act, 1948.
• The Act protects both regular and casual workers with wages set for different categories of workers based on skill levels, location and occupations.
• Minimum wage rates are set both by the Central and the State governments for selected ‘scheduled’ employment, that are notified under the act.
• However, the Act did not prescribe norms for fixing the level of the minimum wage.

The minimum wage system in India is extremely complex with a plethora of minimum wages. The major issues are as follows,

1. Issues due to Coverage
   • Presently, there are 12 different definitions of wages in different Labour Acts which creates confusion in implementation.
   • Massive expansion in job categories and wage rates has led to major variations across states and within states as well. For instance, only 3 scheduled employment is notified in Mizoram while 102 in Assam.
2. Lack of a National minimum wage
   • The central government has declared a national minimum wage floor, however it’s not statutory.
   • Wages are linked to the cost of living, through a variable dearness allowance (VDA) In some states but not in others.
   • Some of the lowest minimum wages for unskilled workers are in the more advanced and industrialized states and vice versa.
   • The main justification for different wages is that they reflect different levels of economic development.
3. High worker exclusion and delays
   • 1 in 3 wage workers in India has been left uncovered such as the domestic workers which is covered in only 18 states and UTs.
   • Also, there is delay in regularly revising the minimum wage levels across the country.
4. Gender gap
   • While the Act does not discriminate between women and men, analysis shows that there is systematic bias against women.
   • For instance, the minimum wage rate of domestic workers (dominated by women) is consistently lower than that of security guards (dominated by men).
5. Inadequate compliance
   • The proliferation of minimum wage rates and scheduled employments has deterred compliance and in turn has affected the welfare of people.
   • Multiple wage rates for the same occupation between states also triggers migration of the industry to lower wage regions/state.
   • The compliance level of regular workers, especially males is considerably higher than casual workers and females which makes them more vulnerable.
   • However, there is an increasing trend of compliance in terms of the wage level with respect to the national minimum wage floor.

1. Wage levels
   • Minimum wage in India does not operate as a conventional floor wage to protect the lowest paid workers.
   • However, it creates a “lighthouse effect” to increase the wages in low-paid and informal sector by enhancing the bargaining power of vulnerable workers, especially the construction sector.
2. Wage Inequality
   • Between 1993 and 2011, real wages increased in India, with fastest growth for casual, women and rural agricultural labour.
   • Despite these increases, the wage inequality has increased amongst regular workers while it has decreased among casual workers which may be attributed to the rise in minimum wages of Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).
   • This suggests that a well-designed and effective implementation of minimum wages will decrease wage inequality especially at lower levels dominated by women and increase the welfare.
3. Employment
   • Study across BRICS countries finds that minimum wages have only a minimal negative impact on employment and an increase in jobs in emerging economies.

International experience shows that a well-designed simple minimum wage system with adequate compliance will protect workers and alleviates poverty. The Policy suggestions in this context include;

• Simplification and Rationalization of minimum wages as proposed under the Code on Wages Bill which merges multiple wage acts needs to be adopted.
• Setting a National Floor Level Minimum Wage through a central government notification with variations across five regions can help tide up the differential development across the country.
• Criteria for setting minimum wage must be included in the Code on Wages Bill based on skills and geographical region only.
• Universal Coverage of all employments and workers in both organized and unorganized sectors must be done.
• Regular revision mechanism should be developed to adjust minimum wages regularly and more frequently.
• Role of Technology: A National level dashboard at the Centre with access to the state governments whereby the states can regularly update the notifications regarding minimum wages must be made available at Common Service Centres (CSCs), rural haats etc., to enhance compliance and transparency.
• Grievance redressal mechanism by means of a Toll-free number to report on non-payments of the statutory minimum wages must be created.