Banning cash wages can bring back inspector-raj
The government’s plan to amend the law to make it mandatory to pay wages via bank accounts is in continuation with its policy to make India more cashless and, to that extent, is not surprising. Indeed, it is expected to have other benefits as well since, the hope is, once wages are paid online, there is an automatic track of what is paid, and so employers will be forced to pay the correct wage. With wages closely tracked, it is also easier to keep track of the value of output a unit produces. While it is not certain if the Bill to effect this change can be introduced and passed in the current session of Parliament, it can certainly be passed in the Budget session. It will then be up to the state and central governments to decide which industries this should be made mandatory for, and over what time-frame.
Given the ingenuous new ways in which money launderers have carried on their trade since November 8, the government would be naïve to think digital payments will force employers to pay the full wage if they aren’t already paying it today. So, for instance, employers could pay the full wage digitally but, instead of employing someone for five days a week, may choose to show employment for only three days. The other option is to use more workers who are on the books of contractors—as the Maruti Suzuki Limited case showed some years ago, this caused more problems since there was a big difference between what was paid per worker to the contractor and what the workers were actually paid.
The larger problem with insisting on paying the minimum wage, through a digital system that records all payments, is that employers will become that much more reluctant to keep people on their records—as it is, Indian factories are employing less labourers per lakh of capital invested, this situation could get worse with the new law. Apart from the issue of every worker not having a bank account, there is every possibility that the new rule will trigger off another wave of inspector-raj, with factory inspectors keeping track of what portion of workers’ wages are paid directly to their bank accounts. What the move ignores is the real reason why most factories, especially the smaller ones, like to pay wages in cash. With rigid and outdated labour laws putting all manner of restrictions on factories, most try their best to keep out of the way of labour inspectors—paying workers in cash is one way to do this since workers are hard-pressed to prove long-term employment, and factories are able to show they don’t come under the purview of labour laws. While the government has done little to reform labour laws, adding one more layer of inspector-raj is a bad idea.