Introduced by the union government in the Lok Sabha (lower house) last year July, the Code on Wages 2019 became an Act when the Rajya Sabha (upper house) passed it one month later. Presently, the draft rules of the law are being finalised.

One of the four existing laws that Code on Wages subsumed is the Minimum Wages Act 1948. The basic structure of the Act remains almost same in the new Code. The earlier independent Act is presently a Chapter in the new Code.

The basic objective of minimum wages act is to provide basic subsistence wages for the daily-rated workers. It is mostly relevant for workers in the unorganised sector. However, during the last two decades, minimum wages has become the yardstick of determination of wages for large number of workers in organised sector too.

However, the record of enforcement of minimum wages in India had never been satisfactory. On an average, in fifty percent of cases, minimum wages, even when applicable, was not paid. The compliance machinery could not be effective in such cases. The reasons behind this are manifold.

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Constitutional validity and international norms

Payment of minimum wages derives its principle from Article 43 enshrined in the Directive Principles of the Constitution of India, which mandates that:

“The state shall endeavour to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life, and full enjoyment of leisure and social and cultural opportunities in particular” to ensure a fair deal to the working class.

Further, Article 39 of the Constitution of India also reinforces that the State shall, in particular, direct its policy towards securing (a) that the citizen, men and women equally shall have the right to an adequate livelihood and (b) that there is equal pay for equal work for both men and women.

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The initiative for introduction of minimum wages was started in 1920 when a proposal for setting up boards for determination of minimum wages in each industry was mooted. The International Labour Organisation adopted in 1928 Convention No. 26 and Recommendation No. 30 relating to wage fixing machinery in trades or parts of trades.

Subsequently, in 1943, on the recommendation of the Standing Labour Committee and Indian Labour Conference, a Labour Investigation Committee was appointed to look into the question of wages and other matters, like housing, social conditions and employment. The Indian Labour Conference considered a draft bill in this regard in 1945.

The Standing Labour Committee, in 1946, recommended enacting a separate legislation for the unorganised sector, including working hours, minimum wages and paid holidays. Accordingly, a Minimum Wages Bill was introduced in the Central Legislative Assembly to provide for fixation of minimum wages in certain employments, which was passed in 1946. Subsequently, the Minimum Wages Act 1948 came into force.

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Background and context

The Minimum Wages Act 1948 in India is a law applicable to the workers mostly in the unorganised sector. It talks about payment of minimum wages for workers in sectors where collective bargaining was not happening. Collecting bargaining is a phenomenon that happens mostly in organised sector. Wage determined through collective bargaining is usually higher than that is provided in the Act.

Typically, in collective bargaining, the wage or salary that is being determined are monthly-rated and carry a scale concept – that is remuneration is a combination of basic, dearness allowance and other admissible allowances. Collective bargaining leads to wage agreement, which remains valid for a definite period. On the expiry of an earlier agreement, the new agreement comes into force and determines wage or salary afresh, based on the contemporary context. 

On the other hand, the Minimum Wages Act 1948 provides for fixation of minimum wages by the appropriate governments at the Centre and State levels for different scheduled employments under their respective domains for different time periods. The Act lists out the schedule of employments where minimum wages are applicable and are notified by the Central or State government respectively.

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The States may notify minimum wages only if there are more than 1000 workers working in the State in a particular employment. Depending on this criteria, employments (also occupations) are added to the Schedule of Employment. Wages notified under Minimum Wages Act typically are daily-rated. It is a kind of subsistence wage based on calorie consumption of a family on daily basis, plus some allowance for other needs. Such wages can easily be applied to daily-rated casual workers.  

The Act mandates revision of the wages by respective Governments at an interval of every five years. The minimum wage fixed has two components – the basic wage and the variable dearness allowance, which is adjusted to the Consumer Price Index (CPI) every six months. Minimum wages differ across states and employments. Within a state, for a particular employment, there would be two kinds of minimum wage as central and state minimum wages differ. Even for a particular employment for a particular government, there are three types – unskilled, semi-skilled and skilled. The very basic subsistence wage is for unskilled category and there is a 10 percent premium for each category upwards. 

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The Minimum Wages Act 1948 does not define minimum wages, nor does it lay down the criteria for fixing minimum wages. The criteria arrived at in the 1957 Indian Labour Conference forms the basis where minimum calorie becomes the yardstick. The 1992 Supreme Court judgment in the Raptakos & Co. vs its Workers laid down that children’s education, medical requirement, minimum recreation including festivals and ceremonies, provision for old age, marriage and others should further constitute 25 percent of the minimum wage and be used as a guide in fixation of minimum wages. 

The Minimum Wages Act also entrusts the appropriate government to lay down the hours of work for the scheduled employments as under: (a) fix the number of hours of work, which shall constitute a normal working day, inclusive of one or more specified intervals; and (b) provide for a day of rest in every period of seven days which shall be allowed to all employees or to any specified class of employees and for the payment of remuneration in respect of such days of rest; and provide for payment for a day of rest at a rate not less than the overtime rate. Even remuneration for piece rate work is fixed in Minimum Wages Act, like that for beedi workers.

There has been demand for formulating a national minimum wage, such that a uniform minimum wage can be applied across the country. To bring some degree of uniformity in the minimum wages fixed across States and occupations, the Central government had formed five Regional Minimum Wages Advisory Committees. In 1991, the National Floor Level Minimum Wage was introduced, which is only an advisory. The present national floor level minimum wage is Rs 178. 

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Employment Guarantee Scheme

In 2005, the Government of India came up with a legislation titled the ‘National Rural Employment Guarantee Act’, later known as the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA). It provides for the enhancement of livelihood security of households in rural areas of the country by providing at least 100 days of guaranteed wage employment in every financial year to every household whose adult members volunteer to do unskilled manual work.

The Act also lays down the wage rate as distinct from the Minimum Wages Act 1948, wherein Section 6 of the MNREGA says that the Central Government may, by notification, specify the wage rate and that different rates of wages maybe specified for different areas and the wages rate fixed at any time shall not be less than Rs 100 per day. Anything higher than this shall be met by the State governments.

Difficulties in Implementation

Overall, labour laws implementation in India is lax. This is more so in the case of the Minimum Wages Act. There are certain reasons for this.

Minimum wage implementation becomes very difficult when prevailing market wage is significantly lower than the stipulated minimum wage. This happens when labour supply significantly outweighs labour demand. There are huge number of unskilled workers out there, and this puts downward pressure on the market wage.

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The share of agriculture in national income is declining, but manufacturing activities could not absorb surplus workers released from agriculture. This has left the rural labour market with a huge reserve army of labour force, and hence, wages tend to fall. Under such circumstances, it is difficult to enforce minimum wages as workers who don’t get work at the prevailing minimum wages, agree to work below minimum wages, as they want to earn at least something. For them, earning something is definitely better than nothing.

In such contexts, market realities dominate over statutory restrictions. Employers take advantage of this situation and employ workers below minimum wages. The enforcement machinery finds it very difficult to prosecute employers as affected workers do not come forward to testify. Prosecution under the Act requires production of documents showing payment less than the minimum wage and personal validation of the affected workers. But workers very rarely come forward as they fear losing their jobs and the little earnings.

In most cases, employers get prosecuted for minor violations, like non-maintenance of registers, and non-submission of returns and reports. Thus, labour market imperatives make implementation of the Minimum Wages Act very difficult in labour-surplus states.   

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It’s not that minimum wages are set deliberately higher than prevailing market wages. Minimum wage, as discussed, is determined at the basic subsistence level. Sometimes, the labour market is so skewed that the market wage fall to an abnormally low level. This makes implementation of minimum wage very difficult. Statutory minimum wages can’t fall to abnormally low levels, as that would not ensure social reproduction of labour power.

Minimum wage is theoretically a concept that derives from the Keynesian downward rigidity of wages. Wages ought not to fall below that subsistence level. This is in contradiction with existing labour market imperatives in most Indian states. Kerala is an exceptional State where the wages received under works other than public works is more than double the minimum wage prescribed for agriculture, probably due to Kerala being a labour-scarce State.   

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Also, there are many cases where the Act is not applicable. Within the informal sector, around fifty percent activities involve self-employment. Under such cases, the law doesn’t apply. Further, in case of certain wage employments, it would be very difficult to establish employer-employee relations, as there are layers of informal intermediaries in between.

Thus, overall, with about 50 per cent of the workforce engaged in self-employment and another 30 per cent engaged in casual employment, the applicability of Minimum Wages Act is essentially limited to less than 20 per cent of the workforce. Moreover, there are newer forms of employment and occupations that come up over the years and there is a procedural delay in accommodating those within schedule of employment under the Act. Workers in those newer occupations remain uncovered for a considerable period of time.

As per a World of Work Report published in 2013, only about 60 per cent of the wage earners, excluding public-sector workers, were covered under minimum wage legislation in India in the mid-2000s.

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Systemic challenges and way ahead

Further, there are problems regarding revision of minimum wage over time. To maintain purchasing power parity, minimum wage is revised based on movement in consumer price index every six months. There are problems with such revisions in certain states where timely revision and necessary gazette notifications are irregular. Real problems lie with situations where ‘basic’ component of minimum wage, which is supposed to be revised every five years, do not happen. This is required as consumption basket changes over time and newer items come into use and certain older items become obsolete.

There is an urgent need to carry out detailed family budget inquiries to determine relevant consumption basket and revise the core minimum wage accordingly. But barring few states, this exercise does not happen. Old minimum wages are being revised based on the CPI. As a result, minimum wage loses contemporary relevance and gets further undervalued.   

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Lack of awareness about the Minimum Wages Act among workers is also an issue, which has been highlighted in the Evaluation Studies on Implementation of the Minimum Wages Act, 1948 conducted by the Labour Bureau under the union Ministry of Labour and Employment. Most of the workers in the informal sector are not aware of the applicability of minimum wages. Employers do take advantage of such information asymmetry. They are even reluctant to follow paper documentations associated with the act.

Out of a total of 76,98,033 establishments covered under the Act, the number of establishments that submitted their annual returns in 2012 was just 2,21,110 – about 3 per cent. the size of the labour administration is gradually shrinking in most states and there are not adequate number of inspectors or officers available to enforce minimum wages law in a meaningful manner.

Labour inspection is increasingly been perceived as nuisance in industry parlance and efficacy of inspection mechanism is being gradually curtailed in the name of ease of doing business (EODB). Despite these hurdles, even when prosecutions are launched under this act, those cases suffer from judicial delays as our judicial system is already hugely overburdened.

Thus, in all, the longstanding existence of a minimum wage legislation hasn’t really translated to a robust labour rights regime on the ground.

Views expressed are the author’s own and do not necessarily reflect those of the organisation the author belongs to. 

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