India is revamping its minimum wage laws for the first time in 60 years

In a move that will benefit millions of unskilled workers across the country, the current Indian government is about to make its first significant foray into labour reform. On May 1st, the country’s minister of labour, Santosh Gangwar, told the Press Trust of India that a Parliamentary standing committee had finalised a policy draft of the Wage Code Bill 2017, and that the bill would be debated for passage in the next session of Parliament commencing in July.

The bill largely aims to set a minimum wage for different geographical regions in India. It was introduced in the lower house of Parliament (Lok Sabha) in August last year before being referred to a standing committee- the second step in the process of a bill becoming an act.
Once the bill is implemented, a state government will not be allowed to set a minimum wage below the central government’s benchmark for that industry.

A combination of four laws

The bill updates and combines all four of India’s outdated minimum wage and remuneration laws- the 1936 Payment of Wages Act, 1936, the 1949 Minimum Wages Act, the 1965 Payment of Bonus Act, and the 1976 Equal Remuneration Act - into one labour code. This will reduce overlap and contradictions and also make it easier for businesses to comply with the norms.

The previous minimum wage acts only applied to “scheduled companies” with more than a 1000 employees, while the new bill applies to all workers across India in different sectors. The new bill also proposes the payment of wages to beneficiaries through electronic means, for the purpose of monitoring, and allows the central government to set a minimum overtime wage- which will be twice the normal minimum wage.

No national benchmark

The government will not specify a set national minimum wage. In response to news reports that the national floor level minimum wage would be fixed at ₹18,000 per month, the labour ministry has said that the minimum wage will vary across the country. Furthermore, the minimum wage levels will be assessed and revised every five years by central and state governments.

While one can’t help thinking that a national floor rate across the country would be easier to enforce, the government is taking into account the widely disparate costs of living in different states and the nature of work in different industries. For example, rent and food costs in urban areas in Maharashtra are a lot higher than they are in the Northeast, hence they will have a higher minimum wage. Or labour intensive industries like manufacturing will likely have a higher minimum wage than less arduous ones like hospitality.

A few problems

There are a few weaknesses in the new bill, however. Firstly, it dilutes the Equal Remuneration Act of 1976 by taking out the clause preventing companies from discriminating against women when making hiring decisions, which is definitely a problem in today’s climate.

Secondly, while the practice of having different minimum wage levels for different states and industries makes sense, it could lead to lobbying by large companies or resistance from states that aren’t ruled by the BJP. A number of industry leaders campaigned for lower GST rates while the rates were being set, and it isn’t hard to see that happening again here.

Knock-on effects

Following the recent slowdown in India’s economy, India’s small businesses have been struggling to stay afloat. They have had to contend with demonetisation, the implementation of GST, a dearth of credit options and a hike in wages paid to employees might just force them to slow down their hiring.

While actual minimum wage rates are yet to be determined, they will be higher than current wage rates, which could impact employment in the formal sector. Concurrently, as India struggles to create new jobs, higher minimum wages could serve to exacerbate the situation. A hike in minimum wages could compel companies to hire employees on a temporary basis or off the books- something that the new bill should seek to address.

Companies could also pass on the higher labour costs to customers. It’s highly plausible that you might end up having to pay more for your food at a restaurant or for gadgets that were assembled in India.

What is certain though, is that the government needs to supplement the minimum wage code with policies that enable the formalisation of the economy and make hiring-and-firing easier. This will allow the new bill to have its intended effect.