While the government’s plan to increase the minimum wage will be welcomed by workers and trade unions, if not matched by increases in productivity, this could hit overall employment growth, which is already quite poor. A good example of this is the apparel export sector where countries like Bangladesh and Vietnam are doing better than India. Bangladesh and India have roughly the same levels of productivity — measured in standard allowed minutes (SAM) — according to a study by the Boston Consulting Group (BCG) but its wages are much lower and workers are allowed double the overtime India allows. Vietnam has a 30% higher productivity than India, which is neutralised by the basic wage being higher, but add in the overtime rates and Vietnam has an advantage. Add to this the other costs of doing business like the cost of shipping or electricity and India’s disadvantage gets worse. Which is why, while India’s apparel exports to the US rose from just $3.1 billion in 2010 to $3.7 billion in 2015, Bangladesh exports rose from $3.9 billion to $5.4 billion and Vietnam’s from $5.9 billion to $10.6 billion.
