Mains Articles

Why minimum wage won’t fix India’s woes [Mains Article]

The recently approved Code on Wages 2019 will result in reducing worker exploitation. However, a single mandate on minimum wages will not be enough to tackle inequality.
By IT's Mains Articles Team
August 20, 2019

Contents

  • Why it was in News?
  • How has India fixed minimum wages so far?
  • Highlights of Code on Wages 2019
  • Background
  • What is a floor wage?
  • Need of the Code
  • Significance
  • Criticisms
  • Challenges
  • How government calculates minimum wage?
  • Conclusion

Why minimum wage won’t fix India’s woes 

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Why it was in News?

wage won’t fix India’s woes Why minimum wage won’t fix India’s woes

  • The Parliament passed the Code on Wages Bill, 2019 mandating a universal minimum payment of ₹178 a day.
  • This wage prescribed is less than what was recommended by a high-powered labour ministry panel in 2019 (₹375 a day).
  • It is also way lesser than the ₹700 fair wage that the 7th Central Pay Commission suggested.

How has India fixed minimum wages so far?

  • fixed minimum wages so far IASToppers
  • India has been fixing minimum wages for workers since 1948 when it passed the Minimum Wages Act, but they are a cause of much confusion.
  • The government uses a roundabout method of setting minimum wages that includes defining nearly 2,000 different types of jobs for unskilled workers and 429 categories of employment with a minimum daily wage for each type of job.
  • States set their own minimum wages for different jobs that sometimes differ significantly from the central minimum wages.

Highlights of Code on Wages 2019

  • The Code on Wages, 2019 seeks to regulate wage and bonus payments in all employments where any industry, trade, business, or manufacture is carried out. 
  • This is the first in the series of four labour codes that have been proposed by the government. The labour ministry has decided to amalgamate 44 labour laws into four codes — on wages, industrial relations, social security, and safety, health and working conditions.
  • The Code on wages replaces the following four laws:

(i) The Payment of Wages Act, 1936,

(ii) The Minimum Wages Act, 1948,

(iii) The Payment of Bonus Act, 1965 and

(iv) The Equal Remuneration Act, 1976

Code on Wages 2019

A simplified definition of wage

  • The definition of ‘Wages’ under the Code on Wages has been defined to include salary, allowances and other components expressed in monetary terms. The definition lists down the specific items which are excluded from the ambit of Wages such as certain allowances for conveyance and house rent allowance.

Coverage

  • The Code will apply to all employees.  The central government will make wage-related decisions for employments such as railways, mines, and oil fields, among others. State governments will make decisions for all other employments.

Floor wage

  • The central government will fix a floor wage, taking into account living standards of workers. Further, it may set different floor wages for different geographical areas. 

Fixing the minimum wage

  • The Code prohibits employers from paying wages less than the minimum wages.  Minimum wages will be notified by the central or state governments. 
  • The minimum wages will be reviewed at an interval of not more than five years.  While fixing minimum wages, the central or state governments may take into account factors such as: (i) skill of workers, and (ii) difficulty of work.

Overtime

  • The central or state government may fix the number of hours that constitute a normal working day. 
  • In case employees work in excess of a normal working day, they will be entitled to overtime wage which must be at least twice the normal rate of wages.   

Deductions

  • Under the Code, an employee’s wages may be deducted on certain grounds including fines, absence from duty etc. which should not exceed 50% of the employee’s total wage.

Determination of bonus

  • All employees whose wages do not exceed a specific monthly amount will be entitled to an annual bonus. 
  • The bonus will be at least: (i) 8.33% of his wages, or (ii) Rs 100, whichever is higher. 

Gender discrimination

  • The Code prohibits gender discrimination in matters related to wages and recruitment of employees for the same work or work of similar nature. 

Advisory boards

  • The central and state governments will constitute advisory boards. One-third of the total members on both the Boards will be women. 
  • The Boards will advise the respective governments on various issues including: (i) fixation of minimum wages, and (ii) increasing employment opportunities for women.

Offences

  • The Code specifies penalties for offences committed by an employer, such as (i) paying less than the due wages, or (ii) for contravening any provision of the Code, with the maximum penalty being imprisonment for three months along with a fine of up to one lakh rupees. 

Inspector cum Facilitator

  • With the objective of removing the arbitrariness in inspection, the Code on Wages requires the appropriate Government to appoint Inspectors cum Facilitators (in the place of Inspectors), to carry out inspections and provide information to employers and employees for better compliance.

Background

  • In India, labour is included in the concurrent list which implies that both the central government and state governments can make laws regarding this subject.
  • Currently, there are over 40 state and central laws regulating various aspects of labour such as resolution of industrial disputes, working conditions in factories, and wage and bonus payments.
  • The Second National Commission on Labour (2002) had recommended that existing labour laws should be classified into broader groupsfor easier compliance, such as (i) industrial relations, (ii) wages, (iii) social security, (iv) safety, and (v) welfare and working conditions. This would also allow for uniformity in the coverage of various labour laws that are in force.
  • In this context, the Code on Wages, 2017 was introduced in Lok Sabha in 2017 which seeks to regulate wage and bonus payments in all employments where any industry, trade, business or manufacturing is carried on. However, it lapsed.
  • In January 2019, a committee of experts appointed by the Labour Ministry recommended that the government set the national minimum wage at Rs 375 per day. This number was arrived at on the basis of food and non-food expenditure from the consumer price index of 2018 prices.
  • However, the government did not consider its recommendation and set 178 INR per day as minimum wage.

What is a floor wage?

floor wage Why minimum wage won’t fix India’s woes [Mains Article]

  • Floor wage is the minimum wage established either by law or by an agreed-upon wage bracket. It is the lowest wage legally permitted.
  • Since the minimum wages fixed by states varied widely, in 1996, the Centre introduced a national floor wage.
  • However, it was not legally binding on states. The floor wage was initially Rs 35, but subsequent revisions brought it up to Rs 176 in 2017.

Need of the Code

  • Indian industry had number of socialist-era laws that prevent Indian companies from becoming competitive such as workers cannot be fired, organization structures are not flexible, transfer policies are not agile enough, and a high human resource cost prevents companies from growing bigger.
  • More than 45 central laws and at least 100 state-level legislations related to labour laws created confusion and complexity.
  • The Economic Survey of 2018-19 had highlighted the complexity in the minimum wage system in India by pointing out that there were nearly 429 scheduled employments and 1,915 scheduled job categories for unskilled workers across India covered by the Minimum Wages Act of 1948.

Significance of Code on the wages, 2019

wages-IASToppers

  • It simplifies the definition of wages.
  • It seeks to increasethe legislative protection of minimum wage to 100 per cent of the workforce.
  • The meager increase in the new wages code (from 176 INR in 2017 to 178 INR) will allow for wages to rise in informal sectors and will address the issue of gender-based disparities as well.
  • At present, many States have multiple minimum wages. The Code fixes the minimum wages by doing away with ‘type of employment’ as a criterion. Rather, the minimum wage will be fixed primarily based on geography and skills.
  • The ease of compliance is also expected to promote setting up of more enterprises catalyzing the creation of more employment opportunities.
  • A national wage floor would reduce rural-urban gaps.
  • Currently, urban workers in regular sectors earn ₹149 more per day than their rural counterparts. Casual workers earn ₹33 more in urban areas. Since casual workers can be fired easily, their wage may even go down to a miserable ₹20 a day in times of poor demand. A mandated minimum wage, as given in the new code, will reduce these inequities.

Criticisms

  • It de-linksthe process of fixing the minimum wage from a scientific calorie-based formula and allows the Centre to ‘arbitrarily’ fix the wage.
  • Without the complain of ‘appropriate authority’ as described in bill, no court can take cognisance of any offence under the proposed legislation. The government ignored suggestions of the Standing Committeewith regard to strengthening this enforcement mechanism.
  • The use of the term ‘Facilitator’ instead of ‘Inspector’ in the Code restricts the inspection which is the lifeline of enforcement. The word ‘Facilitator’ should be substituted by ‘Inspector’. However, the bill used the term ‘Inspector-cum-facilitator’.
  • The Code lacked consistency in its use of both ‘worker’ and ‘employee’ terms and underlined that since minimum wage is a matter of right for every working person, a common definition of the employee/worker needs to be given in the Code. However, in the Bill retained the definition as it is.
  • The definition of ‘wage’ is confusing, too long and too difficult to determine what wage is as per this definition.
  • Provisions for different floor rates for different geographical areas will make the concept of a national rate a deceptive ploy to mislead people.
  • According to the Periodic Labour Force Survey 2017-18, 45% of regular workers (those who are in the relatively stable, formal sector) are paid less than the minimum wage. Despite of this dire situation, the new law increases the prevailing minimum wage standard by a paltry ₹2 a day (from INR 176 in 2017 to INR 178).
  • States have to ensure that minimum wages set by them are not lower than the national minimum wage.If existing minimum wages set by states are higher than the national minimum wage, they cannot reduce the minimum wages. This may affect the ability of states to reduce their minimum wages if the national minimum wage is lowered.
  • The Equal Remuneration Act, 1976, prohibits employers from discriminating in wage payments as well as recruitment of employees based on gender. While the Code prohibits gender discrimination on wage-related matters, it does not include provisions regarding discrimination during recruitment.

Challenges

Potential threat from labour officials

  • In India, small and unorganized businesses employ more than 90% of the workforce, an estimated 500 million people.
  • The new law seeks to cover all employees as recommended in the Directive Principles. This could lead to compliance problem leading to the threat of harassment from labour officials.

Less coverage of Code

  • In India, 50% of the workforce is self-employed. Nearly 30% work on a causal basis, approaching the labour market at irregular intervals.
  • The new code therefore will actually only work for 20% of the total workforce. Even within this, more than half belong to very small enterprises that hire between one and five people. Making these small enterprises comply with new laws is very difficult.

Counterproductive for bringing transparency

  • The new code aims to remove multiplicity of definitions and authorities without compromising on the basic concepts of benefits to workers.
  • However, a centralized code is extremely unlikely to reduce complexity and almost certainly is counterproductive to bringing transparency or accountability into the system.

Concentrating on more than one goal

  • The new code seeks to achieve a large number of objectives. The code states that it would provide for all essential elements related to wages, equal remuneration, its timely payment, and bonus.
  • It takes four major acts at once and seeks to bring them together into one.
  • However, the basic premise in public policy setting is that an instrument must have one clear goal. If it has more than one, it would not achieve any.

How government calculates minimum wage?

  • India’s minimum wage system comprises of 1,915 minimum wages defined for various scheduled job categories across different states in the country.
  • The 15th Indian Labor Conference (ILC) in 1957 had determined the need-based minimum wage for a single industrial worker. The norms set by the ILC had said that it should cover all the needs of a worker’s family.
  • The family is taken to consist of a spouse and two children below the age of 14. With the husband assigned 1 unit, wife, 0.8 unit and two children, 0.6 units each, the minimum wage needs to address 3 consumption units.
  • The food requirement per consumption was derived from the recommendations of Dr. Wallace Aykroyd.
  • He had stated that an average Indian adult engaged in moderate activity should, on a daily basis, consume 2,700 calories.
  • He had further pointed out that animal proteins, such as milk, eggs are more efficient than vegetable proteins and suggested that they should form at least one-fifth of the total protein intake.
  • The clothing requirements should be based on per capita consumption of 5 meters per month for the average worker’s family.
  • For housing, the rent corresponding to the minimum area provided under the government’s industrial housing schemes is to be taken. The 15th ILC kept it at 7.5% of the total minimum wage.
  • Besides, fuel, lighting and other items of expenditure should constitute an additional 20 percent of the total minimum wage.

Conclusion

  • With almost 45 federal level laws and close to 100 state level laws dealing with labour and employment aspects, it was the need of the hour to consolidate, amalgamate, simplify, rationalize and codify these laws.
  • Directive Principles of the Constitution already encourage the state to work for higher than minimum wages.
  • Rather than mandating jobs quota for locals, as done by state governments like Gujarat, Maharashtra, Andhra Pradesh and Karnataka, they should provide wage support to companies, thus incentivising investment and local hiring, while keeping wage bills low for firms operating in competitive environments.
  • One of the labour ministry panel suggested a ₹1,430 housing allowance for city-based workers. This would allow for labour mobility and address the housing concern.
  • As per Article 43, the state shall provide a decent standard of life and full enjoyment of leisure and social and cultural opportunities in particular to ensure a fair deal to the labour class. Article 39 reinforces the same. These goals have not been reached and the new code seeks to do so.

 

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