Maximum mileage from minimum wage

Written by Raj Kumar Ray | New Delhi | Updated: Aug 10 2013, 17:53pm hrs
Minimum wage
The labour ministry will soon seek Cabinet nod for raising the national floor level minimum wage (NFLMW) to R135 a day from the current R115, a move aimed at providing some relief to factory workers ahead of elections even though it may raise costs for small and medium-sized enterprises struggling to protect their margins amid the economic slowdown.

The government also plans to link the variable dearness allowance to consumer price index for industrial workers (CPI-IW), labour secretary M Sarangi told FE. The proposals on minimum wage hike has been vetted by the law ministry and we are trying to take it up at the Cabinet soon, he said. The wage hike could happen this fiscal, he added.

The plan to hike minimum wages for factory workers by 17.4% within two years may not affect big corporates who already offer salaries much higher than the NFLMW, but could raise costs and slow hiring in small and medium-sized companies at a time when the growth in industrial output and exports is crawling. However, it will help bridge labour shortages in India Inc by increasing labour migration to the industry from agriculture where wages have risen faster after the launch of the MGNREGA scheme where wages are linked to inflation.

Many textile companies, for instance, want to hire labourers at double the MGNREGS wages during the peak seasons to meet export targets.

Even if the minimum wages are raised to R135 a day, it will fall short of what labour unions are demanding. In a 10-point demand to the Prime Minister, the coordination committee of all trade unions has urged the government to treble the minimum wages to R10,000 per month (R333.33 a day) from about R3,500 now.

The NFLMW has been raised seven times from R35 per day in 1996 to R115 in 2011 at an average annual rate of 8.7% even as CPI-IW has risen 7% during this period.

The government is also trying to bring a Bill to amend the Minimum Wages Act in Parliament to make it mandatory for states to implement the NFLMW across all states and hike penalties for companies violating labour laws.

At present, states are not bound to implement the Minimum Wages Act. The Cabinet has already approved the Bill earlier this year.

Unskilled workers in states, including Assam, Jammu & Kashmir, Meghalaya, Nagaland, Orissa and Tripura, get less than the NFLMW of R115, while it is much higher in Kerala and Delhi. Even within a state, wages offered to unskilled workers vary a lot R69-231.71 a day in Andhra Pradesh, R85.20-353 in Kerala, R88.29-222.35 in Tamil Nadu, R100-248.15 in Maharashtra and R98.67-200.77 in Uttarakhand. Though the government introduced a variable dearness allowance (VDA) in 1989 to protect wages against inflation, at least 11 states and Union Territories have failed to implement it.

Industrial unrest is rising in not just small units but also big companies like Maruti Suzuki and Bajaj Auto, as wage hikes have not kept pace with the rising prices of essential items. In recent years, trade unions have been protesting against the growing tendency among corporates to hire more contract workers at low salaries to meet higher production targets during economic boom and lay them off during slowdown to protect profit margins.