IndiaFilings » Learn » Minimum Wage Regulations in India 2019

Minimum Wage Regulations in India 2019

Minimum Wage Regulations

Minimum Wage Regulations in India 2019

The Code on Wages Bill (2019) passed recently by the parliament, has mandated the payment of a minimum wage to workers around the country. According to the new Bill, a minimum wage of ₹178 per day must be paid to all workers in India. This new law has caused much excitement around the country, as well as some disappointment. Experts believe that the prescribed amount should have been higher, as ₹375 was the amount suggested by a prominent Labor Ministry panel deliberating on the ideal minimum wage rates. The 7th Central Pay Commission too had arrived at a fair wage much higher than the one decided on by the government, at ₹700 per day.

Problems with the Existing Labor Laws and Wage Structure

It is, of course, a well-known and widely acknowledged fact that India has a major problem when it comes to the codification and universalization of fair wage norms. The Periodic Labor Force Survey of 2017-18 found that regular workers working in the relatively stable organized sector often earned less than the government-mandated minimum wage. The new law simply increased the already existing minimum wage by ₹2 a day.

This meagre increase has caused some amount of consternation in various sectors of the economy. However, if this law, even with the negligible increase in wages, is strictly enforced by the government, that too could bring about a significant positive change in the lives of workers in the country.

One of the major reasons provided by the government to justify the small increase in actual wages is the fact that the new wage will be an explicit minimum for all workers living across the length and breadth of India, with no industry, sector, or region being exempt.

Problems Faced by Women and Rural Workers

It is, therefore, hoped that the new law will encourage the increase of wages in the formal sectors. It is also expected to address the problem of gender-based discrimination in the matter of remuneration.

Presently, women in India earn almost half as much as men while working at the same job. Female employees in the country are paid about 45 per cent less than their male colleagues who are doing the exact same work. This is a problem that the central government has long been trying to address, as the number of female workers in the country continues to grow.

Many experts also believe that a nation-wide wage floor will help narrow the urban-rural wage gap, which has been growing wider with every passing decade in India.

Rural workers employed in the organized sector earn almost ₹150 less than their urban counterparts today, a discrepancy that has contributed to the rapid and unsustainable urban migration which has caused many logistical and infrastructural problems in India. Similarly, casual workers in the rural areas of the country typically earn ₹33 less than those doing the same work in an urban location.

The problem is enhanced due to the fact that casual workers can be easily dismissed.  Hence, during times of low demand, the real wage may be as little as ₹20 a day for such workers in the unorganized sector.

Experts say that such unsustainable economic iniquities will be reduced once the new minimum wage law comes into force. This is why labour law and minimum wage reforms had been so eagerly awaited in the country.

Essential Labor Law Reforms

Wide-ranging reforms in the labour laws were one of the most important promises made by the NDA government during elections. With the new Code on Wages, the central government has taken the first step towards fulfilling that promise, although the level of enforcement and implementation still remains to be seen.

However, the Indian industry had so far been shackled by several laws inherited from the colonial era, when the country was governed by the British. Some laws also originated in the socialist era in the early years after Independence. These factors, experts suggest, hamper the competitive edge of Indian companies in the global market.

Some of the problems caused by the old labour laws were:

  • Workers couldn’t be easily hired or fired
  • Organizational structures were rigid and inflexible
  • Transfer policies were convoluted and rigid
  • The cost of human resource was inordinately high
  • There were too many laws and too little enforcement

Much confusion and unnecessary complexity is created by the fact that there are over a hundred state-level laws and forty-five central laws governing the exchange of labour in the country. Hence, the financial burden associated with complying with these laws is huge and often prevents the growth of companies in the nation.

Bringing a Change in Labour Policy

A change needed to be brought about in order to improve the ease of doing business in India. However, the idea of comprehensively changing the labour laws met with a lot of opposition, as a result of which the process had to be made more gradual and incremental in nature.

Hence, one of the first labour reforms the new government focused on was the minimum wage law. While the higher minimum wage might increase the cost of doing business in the short term, cutting into the bottom line of companies, it is expected that it will improve the quality of human capital in the long run and benefit businesses that want access to higher-quality workers with an excellent education, training, and health.

However, it is believed that implementing the new minimum wage laws may not be easy, considering the incredible diversity of India and the many different sectors within the country.

Over half a century ago, the 15th Labor Conference suggested that the minimum wage should be determined keeping certain factors in mind. These factors would include the cost of every item that is considered to be an essential need for the survival and wellbeing of a human being, such as:

  • The cost of food containing 2,700 calories per day, per person
  • At least 18 yards of cloth for wearables every year
  • Housing rent as determined by the government for low-income individuals
  • Expenses associated with fuel and lighting
  • Miscellaneous pieces of unexpected expenditure

The conference and its attendees concluded that all of these expenses should account for only 20 per cent of the minimum wage. However, making these calculations can be quite complex and time-consuming, especially considering the differences in the cost of living in various parts of India and the constant impact of inflation.

First Step in the Right Direction

Labour in India faces multiple challenges, and the new Code on Wages is being seen as the first in a number of reforms that are expected to improve the situation in the country, both for business owners and workers.

It is expected that the Code may play a role in the development of better working conditions and the resultant decrease in labour exploitation. Moreover, it will provide a benchmark which will make the process of hiring workers less complicated, thus enhancing the ease of doing business in the country.

The disposable income in the hands of workers will also increase, providing a much-needed boost to domestic demand and to the economy in general.