India’s minimum wage laws are inadvertently harming the most vulnerable workers they were meant to protect, according to a report released by the Foundation for Economic Development (FED) on Thursday. The report, titled “Minimum Wages Hurt the Most Vulnerable Workers,” stated that the country’s wage floor has been set excessively high relative to actual worker productivity and earnings, effectively pricing millions out of formal employment opportunities.
Drawing on data from the Periodic Labour Force Survey 2023–24, the report highlights that in 14 of India’s largest states, between 40% and 79% of workers earn below the legal minimum wage and nationally, it is 64% of all workers. For nearly half of all Indian workers (47%), even a 30% increase over their current earnings would still fall short of the mandated floor, making their employment illegal under existing rules.
India’s minimum wage stands at approximately 1.7 times the median earnings of casual workers, the segment most in need of formal jobs, the report stated. It further added that the minimum wages as proportion of monthly per-capital GDP stand at 77%, far exceeding the roughly 50% average seen in major export competitors such as Vietnam, Bangladesh, China, and South Korea. This positions India’s labour costs as uncompetitive in labour-intensive sectors critical for absorbing the 8–10 million new workers entering the labour force each year.
“If nearly half of our workforce cannot be legally hired even after giving them a 30% raise, then the minimum wage has backfired”, said Rahul Ahluwalia, Founding Director of FED.
While recent labour codes have introduced some positive changes, such as greater flexibility for fixed-term employment contracts and more autonomy for states, the Code on Wages, 2019, has introduced the concept of a national floor wage, Ahluwalia said. “Our report recommends that we allow the national floor wage to reflect regional realities”.
The report highlighted that India maintains an informal workforce share of around 88%, higher than in peer economies like Vietnam, Thailand, Bangladesh, or Mexico, leaving most workers without contracts, provident funds, or other legal protections. Labour-intensive exports fall short by an estimated $60 billion annually compared to what the country’s labour endowment would predict, resulting in lakhs of missing jobs.
The report also pointed to a stalled structural transition out of agriculture, with India shifting only 19 percentage points of its workforce off farms in the first 30 years of reforms, compared to China’s 32 percentage point shift. It also notes slower growth in labour-intensive industries such as apparel, footwear, and leather relative to capital-intensive sectors, alongside declining manufacturing employment shares and instances of factories relocating or closing due to unviable wage mandates.
Employers facing a wage floor above worker productivity have nine realistic options, the report explains, but only one, paying the higher mandated wage, actually benefits workers, and only when firm economics allow it.
In its recommendations, the report advocated prioritising job creation over rigid wage mandates. It advocates allowing workers and employers to freely negotiate wages and replacing further minimum wage hikes with targeted wage subsidies that boost labour demand.