The-minimum-wage-solution-IASToppers
Editorial Notes

[Editorial Notes] The minimum wage solution

While indexation of the NREGA wages is critical, lifting them to the minimum wage would help workers and the economy.
By IASToppers
October 11, 2019

Contents

  • About new Consumer Price Index-Rural (CPI-R)
  • Reduction in corporate tax cut
  • Conclusion
  • IT’s Input
    • About MGNREGA

The minimum wage solution

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Introduction

  • The government made two recent announcements: one is introduction of a new indexation of NREGA wages meant to increase rural incomes while the second is a reduction in corporate tax rate.

The-minimum-wage-solution

About New Consumer Price Index-Rural (CPI-R)

  • Indices are (weighted) averages of the prices of a basket of goods consumed and the index must be based on the main items of consumption for rural households.
  • NREGA daily wages are to be indexed with an updated inflation index called the Consumer Price Index-Rural (CPI-R) instead of the older Consumer Price Index-Agricultural Labourers (CPI-AL).
  • The calculation of CPI-AL involved more food items in the consumption basket while the calculation of CPI-R involves more non-food items such as healthcare and education.
  • CPI-R better reflects the rural consumption basket compared to CPI-AL.

Increase base wages

  • This new indexation will have a sizeable impact on increase in rural incomes only if the base NREGA wages are high. For example, a 10% increase in wages due to the new indexation will increase the NREGA wages in Kerala from 271 INR per day (one of the highest in India) to only INR 298.
  • Wages are a legal mandate that are arrived at by calculating the minimal nutritional requirement and basic needs of an individual. In fact, the Fair Wages Committee of the Ministry of Labour (1949) noted that a living wage should also include education, healthcare and insurance besides the bare essentials.
  • In Sanjit Roy v. State of Rajasthan (1983), the Supreme Court held that paying less than minimum wages is similar to forced labour. In Workmen v. Management of Raptakos Brett (1991), it said that the aforementioned provisions must be added to arrive at a moral living wage to ensure basic dignity of life.
  • However, the current daily NREGA wages are just a quarter of the minimum daily living wage of INR 692 as outlined in the 7th Pay Commission.

Reduction in corporate tax cut

Reduction-in-corporate-tax-cut

  • Recently, the government cut the corporate tax rate to 22% from 30% for existing companies, and to 15% from 25% for new manufacturing companies. However, the current corporate tax cut will widen economic inequality.
  • Due to the recent tax cut, 1,000 companies would have annual savings of around ₹37,000 crores which is equivalent to the annual earnings of around 7.2 crore NREGA labourers.
  • What is worse is that the budget allocation for NREGA gets exhausted by October of each financial year, leading to delays in payment of wages.
  • According to a 2015 International Monetary Fund (IMF) report, if the income shares of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, while an increase in the income share of the bottom 20% (the poor) increases the GDP growth.
  • While corporate tax cuts and lower interest rates would give corporations some liquidity, it is unlikely that rural demand will increase.
  • On the contrary, without a substantial increase in NREGA wages, the wages would hardly match inflation levels leading to wage stagnation.
  • It is therefore necessary to substantially increase the budget for public programmes such as NREGA.

Conclusion

  • In circumstances of unsustainable wages, the poor would be forced to become part of the migrant labour force.
  • India would, in turn, benefit by absorbing them at throwaway daily wages leaving no alternatives for laborers

IT’s Input

About MGNREGA

MGNREGA-IASToppers

  • National Rural Employment Guarantee Act 2005 (later renamed as the “Mahatma Gandhi National Rural Employment Guarantee Act”, MGNREGA), is an Indian labour law and social security measure that aims to guarantee the ‘right to work’.
  • The mandate of the MGNREGA is to provide at least 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work.
  • It was passed as a labour law and implemented across 200 districts in 2006. By 2008, it came to cover the entire country.
  • MGNREGA is demand driven wage employment programme and resource transfer from Centre to States is based on the demand for employment in each State.
  • Plans and decisions regarding the nature and choice of works to be undertaken, the order in which each worksite selection etc., are all made in open assemblies of the Gram Sabha and ratified by the Gram Panchayat.

Objectives

  • Strengthening the livelihood resource base of the poor
  • Proactively ensuring social inclusion
  • Strengthening Panchayati Raj Institutions
Topics
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