India has a new law that would benefit two fifths of its population, or 50 crore workers, according to Labour Minister Santosh Gangwar, ensuring them both a minimum wage and timely payment of it. With the Rajya Sabha passing the Code on Wages Bill, 2019, on Friday, the Narendra Modi government is pushing ahead with a series of labour reforms.
Who will this new legislation benefit — and how? How will the minimum wage be computed — and will that be sufficient? While the new law seeks to end a complicated wage system of over 2,000 rates, how many minimum wage rates will the country still end up with? The Code on Wages replaces four laws — the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976.
“Now 60% of workers are not covered under the Minimum Wages Act. The new law will give the right to minimum wages to the entire 50 crore workforce,” Labour Secretary Heeralal Samariya told ET Magazine. Also, while the Payment of Wages Act ensures timely payment of wages, it applies only to people earning less than `24,000 a month in scheduled employments, leaving out a large number of workers. Scheduled employments, for which the Centre fixes minimum wages, are 45, including agriculture and mining, while there are 1,709 scheduled employments in the states.
The Code will bring under its ambit even domestic workers. Only MNREGA workers will not come under it, says a Labour Ministry official who did not want to be identified, “MNREGA payout is not exactly a wage. It is a programme, a scheme, which does not have a strict employer-employee relation. Its wages will continue to be fixed by the Rural Development Ministry.”
Before the implementation of the Code, minimum wage rage was implemented by factoring in occupation, skill levels and geographical area. Under the Code, the minimum wage will be fixed by primarily taking into account skills and/or geography. It drops “type of employment” as one of the criteria. Under the Code, a government may take into account the arduousness or hazardousness of a particular occupation to fix the wage. A senior official of the Labour Ministry says that reducing the criteria will be beneficial: “This will drastically bring down the number of wage rates from 2,000-plus to around 300.”
There are four skill levels — unskilled, semiskilled, skilled and highly skilled — while geography can be plains, hilly and undulated, coastal, urban and rural, among others. “The occupation category is done away with. The states have an ‘and/or’ option while considering skills and geography to decide on a minimum wage rate. A state may well decide to have one wage rate if it goes for one geographical parameter, for e.g. rural,” the official adds.
While the number of minimum wage rates will come down under the Code, there will still be no single national minimum wage rate.
The current national minimum wage, which is not legally binding, is Rs 176 a day. Under the Code on Wages, the minimum wages in the states and the Centre cannot be below the floor rate.
In an interview with ET Magazine, Labour Minister Gangwar says, “The floor wage will be fixed by the Centre on the basis of recommendations of a central advisory board, which would be represented by members of trade unions, employers’ association, state government and independent experts. The details of the procedure would be given in Rules (of the Wage Code).” (See interview, “Don’t Want to Thrust Wage Rates on Any State”.)
There have been concerns on what the floor rate will be and how it will be computed under the Code. An expert committee constituted by the Ministry of Labour and Employment had proposed Rs 375 a day or Rs 9,750 per month as a single national minimum wage at an all-India level. It also suggested an alternative: a range of minimum wages — from Rs 8,892 to Rs 10,036 — for different regions.
“The fear is that the floor wage might be worse than the market wage rate in which case the entire purpose of having minimum wages and improving standard of living collapses,” says KR Shyam Sundar of XLRI Xavier School of Management, Jamshedpur.
“What if the floor wage is too conservative on the premise that the statutory wage fixed by states will anyway exceed it? Even as the Code is a good move in principle, the government is well advised to remove the word "floor wage" and replace it with "National Minimum Wage". A clear definition on how to calculate wage is also missing," he adds.
The Labour Ministry, which is calling the Code nothing short of historic, says the floor wage will be enough to meet the basic needs of a person.
"It is a wrong notion that the floor wage will be too low.
The floor rate will not be so low that one will be unable to meet one's basic needs. An expert committee will decide the floor wage. All stakeholders will have a say in setting the wage rates in states," says Gangwar. "The minimum wage is actually a living wage that covers not just roti-kapdamakaan," says a Labour Ministry official.
The floor wage will be revised every five years. However, Sundar says that "minimum wage must be revised once in three years". The Federation of Indian Chambers of Commerce and Industry (FICCI) has its own concerns. It says the Code should apply only to blue-collar workers with a salary ceiling.
"A lot many operations in the informal sector come under piece rate system (wages are paid according to a fixed rate for each unit of output) where the financial viability is very low. Enforcing floor-level wages or minimum wages in such operations will indeed be difficult," says Rohit Relan, president, All India Organisation of Employers, and member, national executive committee, FICCI.