Minimum Wages: An Unlikely Solution To Democratic Growth of India

Minimum Wages: An Unlikely Solution To Democratic Growth of India

In his 2019 budget speech, Piyush Goyal, the Union Finance Minister of India, proposed annual assistance of six thousand rupees or in the main opposition party leader Rahul Gandhi's words a handout of seventeen rupees a day to farmers. Counteractively, Rahul Gandhi, himself, extended this idea of monetary assistance on the universal scale and promised a universal basic income (UBI) to all the poor in this country. The UBI can be seen as one of many steps toward eliminating the poverty and a way to democratize state's income and resources. However, it is a political promise and there is no guarantee, it will not turn out similar to fifteen lakh rupees promise made by the current ruling party before they came into the power. More importantly, it has put the veil on another social agreement, the Minimum Wages, which could really help the Indian economy and masses.

According to the 2018 survey by Oxfam India, the top one percent of India cornered seventy-three percent of the total wealth generated by India. Their annual income has risen by staggering 4891 billion rupees to cross the 20000 billion rupee mark, exactly 20651 billion rupees. The increase is enough to finance the eighty-five percent of the Health and Education budget of all Indian states combined. However, fifty percent of the Indian population, around sixty-seven crore people saw a negligible one percent rise in their annual income. The whole situation becomes laughable when government agencies claim that the inflation rate is at the lowest, mere 3.80 percent, last recorded in December 2018, and an average Indian is saving more money than any point in the past. Henceforth, he has a greater purchasing power than ever. Though, it is very much clear, who is saving, and who is not.

This problem of unequal wealth can be solved by minimum wages to some extent, but before jumping on any conclusion, we need to understand, what is a minimum wage and what are the issues related to minimum wages in India.

According to International Labour Organisation (ILO), the Minimum Wages can be defined as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”.

In Asiad Workers Case, the Supreme Court of India said, "...when a person provides labor of service to another for remuneration which is less than the minimum wage, the labor or service provided by him clearly falls within the scope and ambit of the words "forced labor" under Article 23." stressing on the importance of minimum wages.

The minimum wages in India are at dismally low levels. At some regional levels, it is even lower than the lowest minimum wage set by a SAARC nation, forget American or European Union standard. The situation is even worse, as these so-called minimum wages are not paid, and if held accountable, employers are fined at very negligible rates.

There are many issues with Minimum Wages in India. To name a few, uneven minimum wage rates at center and state, less protection against inflation, exemptions from paying minimum wages, lack of awareness, lack of say in wage determination, delays and inaction, and terminology.

Let us start with uneven minimum wage rates set by the central and state governments. Though one can expect states to be more proactive and set the minimum wages higher than the center, as they claimed themselves to be more socialistic than the central government, the case is altogether different. The minimum wage fixed for an unskilled worker at level three area category (small, remote, and rural townships) by Central Government is 300 rupees with an additional dearness allowance of 21 rupees, making it total lowest minimum wage guaranteed, 321 rupees. If you can see the chart, ten out of thirty six states and union territories (uts) has set the minimum wages for a highly skilled worker in top tier area even lower than minimum wage rates for an unskilled worker set by central government in rural and backward areas. Some states and uts miss the mark barely by few rupees such as Gujarat (INR 329.2), Himachal Pradesh (INR 329.5) and Uttrakhand (INR 328.65). The minimum wage in Nagaland for an unskilled worker is pathetically low at INR 115 and a highly skilled worker at INR 145. These rates have not been revised since 2012. As mentioned earlier, these rates are even lower than the minimum wages set by a SAARC nation, Bhutan, at 3750 Bhutanese Ngultrum (or INR 3751.57) per month, which translates into 144.25 BTN (or INR) per day.

Secondly, the minimum wage rates are not adjusted to inflation. As the price of essential commodities and other items change on daily, monthly, and yearly basis, minimum wages not. Minimum wages have become a political tool to woo the voters. There is a rise in minimum wage only in the election year. As we can see in recent Karnataka, Rajasthan, Punjab, and other state legislative elections. The incumbent governments raised the minimum wages manifolds in the election year. The Government of Karnataka led by Siddaramaiah increased its minimum wage rates by 55% in 2018 from 2017, whereas there was only one percent increase in 2017 from 2016 rates.

Thirdly, Government, itself, uses back door methods to not pay minimum wages by provision mentioned under clause 26 in the Minimum Wages Act, 1948, forget them forcing the minimum wage in private sector where lobbies are in action to keep the bar low. The Governments have done it for paying out in Rural Landless Employment Guarantee Programme (RLGEP) and again in case of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). The current payouts in MGNREGA are around 168 (Bihar) to 281 (Haryana) rupees for a day job.

Lack of awareness, lack of education, and mass unemployment make the problem even worse. Most are not aware of the minimum wages in both rural and urban centers. They work for as low as fifty rupees in rural areas. The problem is not that worse, but taking the living cost of urban centers in the count, people work for as low as one hundred rupees in urban centers. The mass unemployment takes the voice away from those who want to protest as there are hundreds of people who fight for that one job.

To rub salt into the wound, there is a policy paralysis at both center and state levels. There are unwanted delays in framing policies, and their implementation. There is a huge manpower shortage in government departments who oversee implementation of the minimum wages, and there are no regular inspections. Additionally, there are many industries and services which do not fall under the scope of minimum wages.

Also, in-fighting between center and state, in the case of Delhi, can be seen as one of the sources behind the delay. The Government of Delhi has increased minimum wages for unskilled, semi-skilled, and highly skilled workers from INR 538, 592, and 652 to INR 592, 652, and 710, but center opposed the changes through their proxy Lt. Governor of Delhi. Though this problem is unique to Delhi, as Government of Delhi do not have authority in multiple issues, but with a similar legislative setup in Puducherry, it can be seen therein near future if such scenarios arise, and by the advent of new laws and policies, it can be observed in other states.

Though, not much a problem, but the government uses different and vague terminologies to define the concept of the minimum wage as a living wage, fair wage, and minimum wage. These wages are again redefined at the sub-categorical level and sub-sub-categorical levels, and these vague definitions can be used for setting lower wages.

The main goal of minimum wages is to protect workers against unduly low wages. They help in democratizing and distributing fruits of progress among the masses. As it is a common saying, money begets money, and we can see this phenomenon work in case of China, where minimum wages are comparably better than India, and its economy is five times of Indian economy. The minimum wages in China varies from RMB 1000 (Guangxi Province) to RMB 2420 (Shanghai) per month (translating INR 408.5 to INR 988.5 on daily basis *exchange rate RMB 1 = INR 10.62). This variance also reflects the economic development of the regions, where Guangxi is among the least developed and Shanghai is among the highly developed center of China. The similar pattern can be seen in the Indian scenario, states with lower minimum wages are mostly underdeveloped and have lesser economy than states with higher minimum wages. If we can understand the simple logic, we can see the changes in the Indian context.

There are some oddly simple solutions to the problems of minimum wages in India, and we can see the wheels of transformation start working as soon as we implement them.

Firstly, the Central and State government should come up with a federal base minimum wage rate. The state government can add dearness allowance according to their economic conditions to this federal base rate. However, no state government can pay less than this fixed base rate. The current central minimum wage (without dearness allowance) of INR 300 a day can be set as the base rate.

This base rate will itself increase the income of daily wagers, landless farmers, and others from 20 to 160 percent (depending upon which state we are talking about) in no time. This concept of a federal base rate can be seen working in Brazil, where states cannot set a lower minimum rate than the federal minimum wage of BRL 998.

Secondly, Governments should fill the vacant watchdog positions as soon as possible, as it is also important to implement the policies than making them. Currently, there are thousands of position left vacant in such agencies. The government should punish offenders in a harsh manner who do not comply with the Minimum Wage Act. Additionally, they should do away with provisions like clause 26 of the Minimum Wages Act, and only use such provisions in case of an emergency.

Thirdly, the Government should start an awareness programme in the line of anti bonded labor and anti-child labor programmes. The Government should use every sort of resource at its disposal to make people aware of their due wages and rights.

Fourthly, the Government should widen the scope of the Minimum Wage Act to the last person in the queue. The Government of Rajasthan and Goa has shown the way. The Government of Rajasthan has fixed the minimum wage rate for domestic help at INR 757 rupees on monthly basis for an hour daily work, and at INR 6058 monthly for a full day job. Similarly, the Government of Goa has fixed INR 18.93 per kilo or INR 302 per day for shelling and peeling of cashews.

Finally, the Government should link the minimum wages to inflation, at least inflation in food, healthcare, and education; and change the base minimum wage rate, every six months.

The Indian lawmakers have to understand, instead of making tall promises, they need to work on practical solutions, if they really want to see India grow, and the minimum wage is one such workable practical solution, which can help them fixing many such problems.

The red color highlighted cells shows the prescribed minimum wages which are lower than the lowest minimum wage set by central government in any category.
Some states have prescribed minimum wages on monthly basis. These wages are converted into daily wage by dividing them with 26 (A typical 30 day month has 26 working days and 4 Sundays).
All data is taken on 7th February 2019.

*Afghanistan and Maldives do not have minimum wage rates for private sector.
**Bangladesh has different minimum wages for different sector. Here we have taken minimum wages revised for garment sectors.
***The Central Government Minimum Wage rates are taken for India. Monthly rates are converted for India by multiplying daily wages by 26, as a typical 30 day month has 26 working days and four Sundays.
All data is taken on 7th February 2019. All the currencies are converted at the exchange rate of 7th February 2019.