Not surprisingly, given his penchant for grabbing headlines, Delhi chief minister Arvind Kejriwal clearing a 50% hike in minimum wages across the country will end up causing greater....
Not surprisingly, given his penchant for grabbing headlines, Delhi chief minister Arvind Kejriwal clearing a 50% hike in minimum wages across the country will end up causing greater damage across the country, apart from what it will do to employment in the capital – Kejriwal’s huge electricity subsidies for the middle classes were replicated in various states and, with elections coming in Punjab, the SAD-BJP will be under pressure to do the same in that state. Traders and industrialists have protested the move will make it prohibitive for them to carry on business, and while it is true that is not the Delhi chief minister’s core constituency – this is the traditional BJP vote bank – he has to worry about what the move will do the capital’s treasury since voters are going to judge him by the work he manages to get done, not just by the fights he picks with either the central government or the lieutenant governor.
What the chief minister appears to have realized belatedly is that the move could end up harming workers in even the short term – that is, even before establishments either start moving out of the capital or stop expanding their business and create more jobs. Under the current social security schemes like the EPFO, a monthly salary of Rs 15,000 is a cutoff, beyond which several benefits are not available. So, in the case of the Employees Pension Scheme (EPS) part of the Employees Provident Fund Organisation (EPFO), the maximum pension given to a retired person is based on a maximum possible salary of Rs 15,000 per month – that is, a person may earn Rs 50,000 per month today, but the EPS contribution will be deducted on the basis of a Rs 15,000 salary and the maximum pension will be Rs 7,500 per month on retirement. Under the proposal Kejriwal has just cleared, the minimum wage for an unskilled worker has been hiked to Rs 14,052 and that for a skilled worker to Rs 17,033.
Even the healthcare benefits under the Employees State Insurance Scheme (ESIC) are capped at a monthly salary of Rs 15,000, so workers whose salaries are higher will lose out on these benefits. The chief minister now plans to write to the central government to raise the eligibility under both schemes from Rs 15,000 right now to around Rs 21,000 – that is, to cover the hikes he has made. While this will pit Kejriwal’s scheme against the central government – and can therefore be shown to be the centre not allowing him to benefit the capital’s citizens – the reason why the centre cannot take such a decision is because of its huge financial implications. Any hike in the ESIC, for instance, will have to be thought through carefully in terms of what it does to the organisation’s finances. This is far more problematic in the case of the EPFO which, in any case, has a big problem in running a defined benefit scheme in these days of falling interest rates and increasing longevity. While that may not make a big difference today since there are far more people contributing than those retiring, hiking the pension-eligibility limits will push the
EPFO faster towards bankruptcy.