India Inc stares at higher labour costs

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Published: July 4, 2019 4:27:36 AM

Last year saw one of the steeper hikes in kharif MSPs (4-52%), as a poll-bound government unveiled the new policy and MSPs 50-97% higher than the full paid-out costs (A2+FL).

India Inc, labour costs, high labour costs, benchmark prices, Bill on Wage CodeThe floor levels of minimum wages set by the Centre under a 1991 law — which are now observed by many state governments in breach — will be made enforceable.

In a sign that the new government isn’t inclined to toe a populist line at the beginning, the Cabinet on Wednesday approved rather modest increases of 1-9% for 14 kharif crops for the 2019-20 season, while sticking to the policy of these benchmark prices being at least 150% of the production cost. Last year saw one of the steeper hikes in kharif MSPs (4-52%), as a poll-bound government unveiled the new policy and MSPs 50-97% higher than the full paid-out costs (A2+FL).

The Cabinet also approved the Bill on Wage Code for introduction in Parliament (a similar Bill was tabled in the House by the last government but it lapsed with the dissolution of the 16th Lok Sabha), a move that could extend the benefit of obligatory minimum wages to all workers – not just those in ‘scheduled employments’ as at present. The code will also do away with the variation in minimum wages across sectors. The entire working population will be categorised purely on the basis of skill — not sector-wise — for the purpose of minimum wage. Also, the floor levels of minimum wages set by the Centre under a 1991 law — which are now observed by many state governments in breach — will be made enforceable. All these steps could push up the labour costs for the industry.

The government’s decision on MSPs would help anchor inflationary expectations in the food segment. After remaining subdued for months, both wholesale price and retail food inflation started inching up fast since February/March 2019. Price pressure in food has been rising at a faster pace at the wholesale rather than retail level.

India Inc, labour costs, high labour costs, benchmark prices, Bill on Wage Code

WPI in food rose 6.99% in May, far higher than a 2.45% rise in the headline WPI, while retail food inflation inched up 1.83% in May, against the overall retail inflation of 3.05%.

In the June policy review, the monetary policy committee said the summer pick-up in vegetable prices has been “sharper than expected, though this may be accompanied by a correspondingly larger reversal during autumn and winter”.

Although the PM-AASHA scheme rolled out by the Narendra Modi government in September 2018 spoke of assured MSPs, it hasn’t led to any big increase in procurement. As for the wages code, minimum wages set by governments are currently applicable to only those who work in sectors employing 1,000 or more in the state concerned. Such scheduled sectors include 45 notified by the Centre and 1,709 listed by the state governments.

Sources said the removal of restrictive criteria will help in bringing parity of wages among workers in different industries apart form universalising the principle of minimum wage.

The code will subsume four existing central labour legislations — Minimum Wages Act, 1948, Payment of Wages Act, 1936, Payment of Bonus Act, 1965 and Equal Remuneration Act, 1976. It will have a provision for setting up a committee which will set and revise the minimum wages from time to time. A source in the labour ministry said even for short duration of work, minimum wages will be applied and in such cases, it will be calculated on an hourly basis.

The minimum wages for one unskilled agriculture labourer in the central sphere is Rs 321 per day while an unskilled person working in the non-agriculture sector is entitled to get Rs 373 a day. Among the states, there are wide disparities in average daily wages. In the case of men in “loggers & wood cutters” occupation, for instance, the highest annual average daily wage rate of Rs 971.85 was reported in Kerala in 2017-18 while the rate was Rs 154.31 in Madhya Pradesh.

Labour ministry sources said with the passage of labour code on wages, which might take more than six months since the Bill is likely to be referred to a select committee after tabling in Parliament next week, the provision of the National Floor Level Minimum Wages 1991 would be subsumed and the ingredients of calculating minimum wage would also be changed.

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