Ashraf Engineer
October 19, 2024
EPISODE TRANSCRIPT
Hello and welcome to All Indians Matter. I am Ashraf Engineer.
Making ends meet is getting increasingly difficult, especially for those at the bottom of the economic pyramid. This is why the minimum wage assumes great significance, especially in a country like India.
What is a minimum wage? It is the lowest amount of money an employer can legally pay an employee for his or her work. The objective is to protect workers from being paid too little and to ensure a reasonable standard of living for them. Minimum wages are often used by governments as a strategy to reduce inequality and poverty.
In recent times, the debate over the minimum wage has gained momentum with the Congress highlighting the decline in real wages and demanding that the minimum wage be fixed at Rs 400 per day. Real wages refer to the income of a person expressed in terms of purchasing power as opposed to the actual amount received. It considers inflation as part of the mix. So, if, because of inflation, this year you can buy less with Rs 100 than you could last year, then there is a decline in real wages even if your salary has remained constant.
Congress General Secretary for Communication Jairam Ramesh said that multiple data sources, including the government’s own statistics, showed that “workers can buy less today than they could 10 years ago”. The Labour Bureau’s Wage Rate Index, Ramesh pointed out, showed that real wages for labourers declined between 2019 and 2024.
So, despite many earning a daily minimum wage of Rs 176 or more, the national wage floor has remained stagnant since 2017. There is also lack of enforcement, which has led to wage payment discrepancies. But, most importantly, the cost of living has soared. So, shouldn’t India raise the minimum wage? Most would say yes, and there is a move to shift from a minimum wage system to a living wage regime.
SIGNATURE TUNE
Jairam Ramesh, making the case for a higher minimum wage, referred to Ministry of Agriculture data, saying: “Under [former Prime Minister] Dr Manmohan Singh, real wages for agricultural labourers grew at 6.8% each year. Under Mr Narendra Modi, real wages for agricultural labourers declined by 1.3% each year.”
As I pointed out earlier, a pincer attack of slow wage growth and debilitating inflation has eroded real wages.
Let’s talk a little more about why minimum wages are important. They are a commonly used tool to address poverty and wage inequality across the world. According to the International Labour Organization, or ILO, most of those receiving minimum wages or below are in the tail of the income distribution spectrum. A minimum wage provides a floor to market-determined wages and protects low wage-earners.
Among those that make up this group are those with no high-school education, inexperienced cohorts, transitional workers and women. Many of these people work in the unorganised sector and on temporary contracts. A legally-enforced minimum wage protects them.
However, many in India have no contracts at all and are therefore outside the purview of legal mandates on wages and working conditions. Many employers have argued that a minimum wage will negatively affect the formal and informal sectors by affecting labour supply. This is a hollow argument. It is well understood that a rise in wages does not lower labour supply or labour force participation among low-skilled individuals.
India, meanwhile, has set its sights on replacing the minimum wage system with a living wage by 2025. For this, the government has sought technical assistance from the ILO to develop a framework for it. The ILO itself has endorsed the concept.
India is a founding member of the ILO and a permanent member of its governing body since 1922. In 2019, India passed the Code on Wages, which proposed a universal wage floor to apply to all states.
This shift is aimed to hasten the lifting of millions out of poverty. It is estimated that India has more than 500 million workers, with 90% in the unorganised sector and 10 million added to the pool every year.
Let’s understand the difference between a living wage and a minimum wage
The ILO defines a living wage as “the wage level necessary to afford a decent standard of living for workers and their families, taking into account the country’s circumstances and calculated for the work performed during normal hours”.
The minimum wage, in contrast, is the lowest amount of remuneration required by law for work performed during a given period. While the minimum wage protects workers from low pay, the living wage goes further by ensuring enough income to cover basic needs such as food, clothing, shelter, healthcare and more.
While there can be few arguments against a living wage, there are serious implementation challenges. Enforcing a uniform national living wage is virtually impossible because the cost of living varies from state to state and even within states from rural to urban areas. It will require careful planning and calculation. Some small and medium-sized enterprises may face additional financial burdens due to the higher labour cost. Therefore, balancing financial survival for businesses while ensuring worker well-being is the key.
However, the shift is crucial for India to achieve its Sustainable Development Goals by 2030. These include the goal of promoting decent work and economic growth.
Like with all major initiatives, the key is execution. A living wage would be a significant step towards improving the lives of Indian workers but, without a well-defined system that actually works, it won’t happen.
A living wage would cater to the aspirations of India’s vast and fast-growing worker population. The resulting higher standard of living would boost the economy through greater consumption and improved skills. It would mean a higher cost of labour but India can’t forever base its economy on the availability of ultra-cheap labour. Somewhere, sometime it needs to push for a better-off worker.
Roughly 90% of Indian workers are in the unorganised sector, which leaves them out of social security protections. Many of them do earn at least a daily wage of Rs 176; but that’s abysmally low. For those listeners who are outside of India, that’s a mere $2.11 a day. There were discussions on raising this minimum wage but they were deferred by the COVID-19 pandemic. Earlier, in 2019, the Anoop Satpathy Panel had proposed a minimum wage of Rs 375 per day – that’s roughly $4 a day.
India’s minimum wage and salary structure differ based on the following factors: state, area within the state based on development level, industry, occupation and skill. Under the Code on Wages Act (2019), all workers are entitled to minimum wages fixed by their respective states. Incidentally, labour matters come under the purview of, both, state and Central governments. This makes them multi-jurisdictional.
The method used to set minimum wages defines nearly 2,000 different types of jobs for unskilled workers and over 400 categories of employment, with a minimum daily wage for each. The calculation includes the variable dearness allowance component, which accounts for inflationary trends, and where applicable, house rent allowance.
Earlier, only workers from a particular set of industries, which accounted for only 40% of the labour population, were entitled to minimum wages. However, despite the wage code coming into effect in 2019, there is no move to implement a national minimum wage.
By 2030, it is expected that India’s working age population would cross the 1 billion mark. You could look upon it as a job-creation burden or as India becoming the largest provider of human resource assets to the world.
If the latter has to happen, India needs a commitment to a floor on what workers earn. A living wage assumes significance also because inequality has skyrocketed, with the top 1% having a 22.6% share of the national income. Inequality, according to at least one report, is worse than it was during the British Raj.
Income inequality puts in bleak perspective the reality of the rich and the poor in India. India needs a better-designed wage framework to tackle it.
Thank you all for listening. Please visit allindiansmatter.in for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at editor@allindiansmatter.in. Catch you again soon.
