Minimum Wages Act 1948 and its implementation

While independence in India was a major achievement, India also faced various challenges in uplifting the country that had perished over the colonial period. One of the challenges was to protect the interests of the excess labour who lived in very poor conditions. India continues to be a labour surplus country to this date with a “workforce of 51.37 crores according to Central Intelligence Agency 2016.”1

“The Minimum Wages Act 1948 was introduced in India based on the Geneva Convention of the International Labour Organisation (ILO) conference held in 1928.”2 The Act primarily states that the employers that employ more than 1000 workers need to pay a minimum wage set by the Centre or State Government at regular intervals in the sectors included in the Scheduled Employments list set by the government.

As per section 4 of the Act, the minimum wages are set according to the cost of living index which constitutes factors such as consumption units, food requirement, cloth requirement, rent, fuel, children’s education, medical requirement and other miscellaneous items. “These are set by the Tripartite committee which consists of the employer, employee and government representatives.”3 The wages are set separately for unskilled, semi-skilled and skilled workers. The wage also differs among states due to differences in cost of living. Although a statutory national floor level is set, States can set a higher minimum wage.

While the Minimum Wage Act was introduced to diminish the gap between the poor and the rich, it has failed to do so. The very target group that the Act was supposed to help has suffered the greatest. There are various factors that contribute to such a failure. Some are listed below: –

  1. Unemployment: Increasing the minimum wages increases the burden on employers especially on MSMEs who do not earn as much as the large enterprises. When the workers’ value exceeds their costs, these employers are left with the options of either retrenching their workers, employing fewer workers, replacing the workers with technology or raising their prices. If prices rise at a macro level, then it could also lead to inflation which reduces value of the currency. The employer’s interests are not emphasized in the Minimum Wages Act. “The fact that an employer might find it difficult to carry on the business on the basis of minimum wages is an irrelevant consideration”.4 Raising minimum wages along with improper job creation and rising underemployment could affect India’s economy adversely.

  2. Informal Markets: As India is a developing country and has a huge informal market, the labourers who lose the privilege to work in formal markets would resort to working in even more poor conditions. Widespread contractualisation is also a major factor contributing to the exploitation of workers. The benefits of the formal sector like the right to minimum wages or social security are not enjoyed when it is informalised through contractualisation. The contractors in the formal sector are hardly inspected and therefore, exploit the workers and do not pay them the actual amount. For instance, in a primary research conducted in South Delhi, “the Delhi Metro Rail Cooperation (DMRC) constructors were paid much below the amount that was sanctioned as they claimed that the contractors took away their share.”5

  3. Union strikes: Labour unions often strike for increasing the minimum wages, ignoring the long-term impact of such an increase. The recent 37% hike in minimum wages by the Delhi government, can be seen as an opportunity to seek votes but this only shifts the problem to a later stage. While the government may gain initial support by raising minimum wages, the long-term impact would still lead to disappointment among the workers as the negative impacts, such as unemployment, of excessively hiked wages would be realised.

  4. Unfair determination of minimum wages: The 37% hike in minimum wages was opposed by the Apex Chamber of Commerce (representative of MSMEs) as according to them the wages were determined at a higher level. According to section 3(2)(b) of the Act, the wages are supposed to be reviewed within five years. However, the hike in March has given rise to various accusations that the amount was overvalued. As per the Act, the wages are to be determined by the tripartite committee which consists of an equal number of representatives. However, they contested that it violated section 5 and section 9 of the Act as the committee did not comprise an equal number of representatives from the employers’ category and the committee did not seek lieutenant government’s prior approval.

While these factors question the framework of the Act, what aggravates the issue is improper implementation. “In a primary research conducted, where 105 construction workers and security guards in South Delhi were interviewed”5, the following deficiencies were noted: –

  1. Lack of inspection: “According to Anurag Saxena (2017), leader of the Centre of Trade Union reveals that there are only 11 labour inspectors in Delhi government’s labour department to implement the newly approved minimum wages with more than 20 lakh labourers.”6 According to the primary research, “97% of the workers interviewed were not inspected.”4 Even if there was an inspector, there was the possibility of bribing the inspectors.

  2. Lack of Awareness: “84% of the construction workers and 48% of security guards were unaware of the mandated minimum wages.”5 The government announced awareness campaigns to be started by 11 July 2017 for a month which may be a sign of progress, if implemented well.

  3. Ineffective grievance redressal mechanism: Although there is no separate grievance redressal mechanism under the Minimum Wages Act 1948, Ministry of Labour and Employment provides an online portal for public grievances. Labourers can complain against violation of Minimum Wage Act through this portal. Most workers were not aware of such a mechanism and even if some knew, they complained that it is very ineffective. Filing complaints would also prove to be a threat to their job.

  4. Lack of unions due to migration: Labourers such as construction workers often resettle in the workplace and migrate frequently. Similarly, security guards are often shifted and guard at different sites from time to time. They also work for varied ranges of income. This keeps the workers disunited and adds to their plight.

Labourers, who are important contributors to the GDP of the country and who represent a large majority of the citizens suffer adversely in India. Although the state has introduced various labour laws, exploitation of labourers remain a pressing issue.

The equilibrium level of minimum wages could actually hurt the labourers and may not suffice for a sustainable living, as India is a labour surplus country. Any amount above the equilibrium level would hurt the employers which would result in low levels of employment. This would again shift the burden on the workers. To curb this issue, the minimum wages can be set at the equilibrium level, for the security of payment. At the same time, the wages can also be linked to the productivity of the company to protect small establishments. As the wages increase with greater productivity, labourers would also have a greater incentive to be more productive.

To improve implementation, it is important for the government, NGOs and civil society to organize awareness campaigns, advertise through various mediums, and set up worker facilitation centres at the district level so that it is easily accessible. It is also important to increase manpower of inspectors. The labour unions and NGOs should also be given the authority to keep a check on these inspectors to ensure more transparency and better implementation. Better implementation and fair judgement could bring a huge change and contribute to the development of the country.

 

List of citations and references.

  1. “The World Factbook” Central Intelligence Agency (2016)
  2. Shastree, Aniruddh, “Minimum Wages Act 1948 – An Evolutionary Panorama”, Legal Sources India, February 22, 2015. (Accessed August 25, 2015).
  3. Report on the working of the Minimum Wages Act, 1948”, labourbureau.nic.in, 2005. (Accessed July 25, 2017).
  4. Uchinoyi / vs/ State of Kerala 1961, I.LLJ 631, Supreme Court of India.
  5. “Labour and Employment” Delhi Citizens’ Handbook 2017, Centre for Civil Society (2017)
  6. Acharyya, Kangkan, “Delhi labour department lacks manpower to implement AAP’s 34% increment in minimum wagesFirstpost, July 3, 2017.

 

The author, Sharon Jose is a student of Jindal School of International Affairs.

One comment

  1. Hello Author Sharon Jose,

    I appreciate your attempt to write about pros and cons of minimum wages .

    I wish to clarify the point about the applicability of Minimum Wages Act, which you have mentioned that its applicability is where 1000 or more employees are employed. This understanding is wrong.

    Minimum wages Act – provides for fixing minimum wages in certain employments where labour is ignorant or less organised and is vulnerable to exploitation. Minimum wages are not to be fixed in respect of any industry in which there are less than 1,000 employees in the whole State.

    Mark the words “in the whole state ” , which means that the Act means to state that there need to be 1000 workers working in that scheduled employment in the whole state and not with any particular employer.

    Refer the weblink: http://labourbureau.nic.in/MW2k6%20Section-2.htm ,

    Like

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