Wage revision should bring some relief for the informal sector
India should find a way to index workers’ wage revision to prevailing inflation rates within a specific period of time as a mandatory ruleUpdated: Jul 05, 2016, 19:30 IST
The Narendra Modi government has set in motion long overdue plans to raise the minimum wages for people working across a broad spectrum of economic activities. As reported by this newspaper, the labour ministry has proposed a substantial jump in earnings of workers of different skill levels. If the Cabinet approves the proposals, a sweeper or an unskilled construction worker can claim a daily wage of ₹449, higher by 22% or ₹81 more than the current ₹368. Likewise, an unarmed security guard, ubiquitous in most corporate offices, would be entitled to a salary hike of ₹139 a day, to ₹546 from the current ₹407. These are welcome moves, given that millions of skilled, semi-skilled and unskilled workers deserve a salary hike periodically, if not annually.
In theory, and in principle, these centrally determined wages should serve as the floor for remuneration given to workers both in the formal and informal sectors. The peculiarities and rigidities of India’s labour market, however, make policing its implementation difficult. For one, the predominance of a colossal informal sector queers the pitch. Estimates suggest that nine out of 10 (90%) of informal workers are engaged as self-employed and casual workers. Second, job creation in India is squeezed by a welter of labour laws. The web of rules and the informal sector’s opacity prevent a textbook adoption of the Centre’s minimum wages by states. Industrialists often cite India’s complex labour rules as one of the major hurdles that have kept away large-scale private investments in what should otherwise count as an attractive market. Business leaders argue that more than 40 central laws and over 150 state labour laws are time consuming, costly and outdated. A World Bank report had pointed out that although the many regulations are meant to enhance the welfare of workers, they often have the opposite effect by encouraging firms to stay small and circumvent labour laws.
The high incidence of informalisation in India’s so-called organised sector also prevents a standardised revision in salaries. Under the Minimum Wages Act, 1948, wages have to be reviewed every five years, but it was last done in the agriculture sector in 2005, for sweepers and cleaners in 2008, and for construction sector workers in 2009. As a first step, India should find a way to index workers’ wage revision to prevailing inflation rates within a specific period of time as a mandatory rule. It will ensure that their ‘real’ or inflation-adjusted income does not fall during periods of rapid price escalation. This should be followed up by a system of incentives and penalties to progressively reduce India’s mammoth informal labour market.