Budget 2019: Five polices to redesign India's minimum wage system

Everyone agrees, India's minimum wage system is complex. The Economic Survey of 2018-19 points out that there are 1,915 minimum wages defined for various scheduled job categories across various states in the country.

While the current system of determining minimum wages needs simplification, India needs higher compliance too. The Survey explains why: "A simple, coherent and enforceable Minimum Wage System should be designed with the aid of technology as minimum wages push wages up and reduce wage inequality without significantly affecting employment. An effective minimum wage policy is a potential tool not only for the protection of low paid workers but is also an inclusive mechanism for more resilient and sustainable economic development."

In an interesting chapter titled 'Redesigning a Minimum Wage System in India for Inclusive Growth', the Survey suggests policies for designing a better minimum wages system. Here are five of them:

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1. Simplification: The Survey states that rationalisation of minimum wages as proposed under the Code on Wages Bill needs to be supported. This code amalgamates the Minimum Wages Act, 1948, the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976 into a single piece of legislation. The definition of wage in the new legislation should subsume the present situation of 12 different definitions of wages in different Labour Acts.

2. Setting a National Floor Level Minimum Wage: This has been a subject of heated debates. The Survey now suggests that the Central Government should notify a national floor minimum wage that can vary across five geographical regions. "Thereafter, states can fix minimum wages, which shall not be less than the 'floor wage'. This would bring some uniformity in the minimum wages across country and would make all states almost equally attractive from the point of view of labour cost for investment as well as reduce distress migration," the Survey states.

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3. Criteria for setting minimum wage: The Survey suggests that the Code on Wages Bill should consider fixing minimum wages based on either of two factors: (a) the skill category i.e. unskilled, semi-skilled, skilled and highly skilled; and (b) the geographical region, or else both. "This key change would substantially reduce the number of minimum wages in the country. For instance, Madhya Pradesh has notified minimum wages based on just four skill levels of unskilled, semiskilled, skilled and highly skilled across occupations and regions. The state has just four basic minimum wages for the four skill categories."

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4. Regular adjustment: It is not enough to just do a good job of fixing the minimum salary once - they need to be adjusted regularly to keep pace with inflation. "A mechanism should be developed to adjust minimum wages regularly and more frequently, similar to countries like Montenegro, Nicaragua, Netherlands, Uruguay, and Costa Rica, where the minimum wage adjustment takes place every six months," the Survey states.

5. Role of technology: Technology will increasingly play an important role in both the processing of information around wages as well as tracking compliance. The Survey says that a mix of online, mobile phone and networking technologies could facilitate the collection and analysis of labour statistics, assist with the dissemination of information about labour laws and policies, reduce costs and improve transparency. "A national level dashboard can be created at the Centre with access to state governments whereby states can regularly update notifications regarding minimum wages. This portal must be made available at Common Service Centres and rural haats with the required mass media coverage so that workers are well-informed and their bargaining skills and decision-making power are strengthened. Uniformity in minimum wages would also encourage industries to move towards interior areas and thereby reduce labour migration," the Survey states.