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In this article, Raghav Harini, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata gives a critical analysis of the Minimum Wages Act

Indian economy, in its elements, is a typical example of double-crossing. While the organised sector is excessively regulated by a litany of regulations and labour law, the unorganised sector is in the abyss of development. The unorganised sector which accounts for more than 50% of the employable population is abused by the wealthy and aristocratic employers. What we as a community need is a well-balanced, sophisticated mechanism that is instrumental in regulating the wages and employment of workers in the unorganised sector. In a bid to bring tougher sanctions on the employers, legislators introduced the Minimum Wages Act in India in the year 1948.

The Enactment and The Constitution

While independent India was still in its nascent stage, Minimum Wages Act (hereinafter the Act) was enacted. The Act was a brainchild of the Shri.K.G.R.Choudhary, who was appointed to analyse the deplorable wages of the unorganised sector.  The Act, which is older than the Constitution itself, was introduced with a communist and socialist perspective. Soon after the independence, the learned legislators realised the impending need to regulate the middle and lower class (these two classes constituted more than 75% of the Indian population). It was a period when the industrial and economic revolution was burgeoning and the wealthy abusive bourgeoisie was emerging. Soon after the independence, an array of industrial and economic policies were introduced in a bid to control the excessive growth of the bourgeoisie.

Constitution of India conceives the concept of basic standard of living for every citizen by promulgating suitable economic and labour legislations under Article 43 (recognised as a directive principle and not as a fundamental right). Several state and central machineries have been constituted to moderate and alleviate the deplorable conditions of the unorganised sector. But despite continuous legislative and societal intervention, the unfortunate dichotomy in the economy has not ceased to exist. The unorganised sector has not witnessed any significant development in terms of positive work environment.

The Act

The legislative intent of the Act is to guarantee basic remuneration and wage subsistence for the workers in the lower strata of the society. The Act aims at revising the rates of wages at timely intervals by the Central/state machinery. The Act confers the statutory right on the employees to institute a suit against the employers or the other contractors if they pay less than the stipulated amount as per the timely revision. It also appoints advisory committees and other Boards which are the primary statutory institutions for effectively implementing the Act. While on a microeconomic level, the Act seeks to improve the purchasing power of the lower class at par with the middle class (by regulating the wages) and enforce the right to work, on a macroeconomic level, it seeks to increase the collective bargaining power of the lower strata against the abusive bourgeois. The Act empowers the workers to demand special allowance which is contingent upon the cost of living index prevalent, in addition to basic pay, as per Section 4. As per Section 9 of the Act, an adult is entitled to a weekly holiday and 1-hour interval. The maximum working hours per day is 9 hours while the weekly working hours should not exceed 48 hours. The Act also demands the employer to compensate appropriately for extra working hours and overtime duty. Labour Commission is the statutory body that has been set up under the aegis of this Act which is authorised to hear any matters regarding non-payment or underpayment of the stipulated wages. The aggrieved party may get his claims within 6 months from the date of intimating and filing a complaint in the office of the Labour Commission.

Legislative intervention in regulating the unorganised sector has always been very apathetic for various reasons. While the lack of necessary infrastructure and funds can be pointed out as a fundamental reason, the government’s “scrap it if it’s not effective” attitude without critically analysing the loopholes of the schemes, has exacerbated the problem. The fate of the infamous Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)under the flagship of the Congress government, illustrates the bureaucratic inefficiency in implementing the Act.  

Parameters for determining the minimum wages

While fixing the basic remuneration as per the Act, various parameters have to be considered. The following are the basic factors that have to be evaluated to ascertain the wages as suggested by the Indian Labour conference in 1957

(a) Three square meals with a minimum calorie requirement of 2700 kcal per average Indian adult per day

(b) Cloth requisite of 72 yards per annum per family,

(c) Rent as per the minimum area provided under the relevant state government’s Industrial Housing Scheme (IHS) and  

(d) Fuel requirements, electricity and other miscellaneous items of expenditure which account for 20% of remuneration,

(e) Education of children, medical expenditure, minimum leisure including festivals/ceremonies and provision for old age, marriage etc. should further constitute 25% of the total minimum wage.

On a cursory perusal of the Act, it seems that the Act confers affirmative enforceable rights against the employers, but in reality, most of these rights are nothing more than mere travesties.  Notwithstanding the bureaucratic red-tapism and apathy, the central government and the concerned ministry have rather adopted a conservative approach in gauging the floor level pay to the workers in the unorganised sector. Thus an important question that we need to raise is why does this approach suggest by the committee fail? One of the basic reasons is the asymmetry to the Consumer Price Index (CPI). CPI is an aggregate change in the prices paid by retail customers for certain quantitative measures of goods and services. Real CPI accounts for inflation but the nominal GDP does not account for the same. Wages which are not adjusted for inflation rates (that is wages calculated on nominal CPI) ensues in reduced consumer purchasing power. Such an amendment to the Act would result in a fruitful realisation of the legislative intent of the Act.  

The Proposed Bill – The way forward

The Act and various other regulations which intervene in the labour market operations are replete with loopholes. Thus in a bid to bring unilateral convergence in the regulatory regime of the labour market, the Wage Code Bill was introduced in 2017. The proposed bill seeks to merge 4 Acts, namely Payment of Wages Act of 1936, the Minimum Wages Act of 1949, the Payment of Bonus Act of 1965, and the Equal Remuneration Act of 1976.  The proposed bill could result in a paradigm shift in the labour market operations considering the unique mandates in the code. The code seeks to ascertain the basic pay for minimum subsistence based on geographical contours. Moreover, the bill, if enacted, would set up judicial forums and appellate tribunals to look into labour disputes. The bill also envisages an increased accountability on part of the concerned officer. However, the government turned down the recommendation of the Seventh Pay Commission to set Rs 18,000 as the monthly minimum wage.

In a bid to further regulate the existing labour laws, we need to approach the public policy from a beneficial and holistic perspective

  1. Recognition of labour: – International Labour Organisation in one of its founding principles states that labour is not a commodity. Bonded labourers and contractual labourers who are paid less than the stipulated wage are victims of modern-day slavery. It is, however, quite ironic that the government itself has been paying less than Rs.8, 000 to a lot of employees who are working under the MUNREGA and Anganwadi programmes.
  2. Improving the working conditions: – A positive and reassuring legislation is the one that ensures utmost protection and conditions conducive to working. Such a regulation should provide for fundamental measures such as regulating the minimum hours of work, safety and safety while handling toxic substances in the factories, equal wages that transcend beyond the gender, prohibition of employment of children.
  3. Multidimensional poverty – Poverty is merely not a financial parameter. In addition to lack of resources, poverty accounts for inability to fund education and most importantly health insurances. While the proposed code guarantees significant growth in the unorganised sector, affordability of health insurances and education is instrumental in alleviating the standard of living.

The myth of evolving unorganised sector is nothing but a debunked parody without any affirmative social reforms and convergence in the regulatory regime.


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