The International Labour Organization (ILO) recently highlighted the ambiguous criteria for minimum wage determination in India’s Draft Code on Wages (Central) Rules, 2020. The Central Government had published this draft on 7th July 2020 in the Official Gazette and sought public opinion on it.
Fixation of Minimum Wage and Consumption Units
According to the Wage Code, a minimum wage is determined based on the living standard of a typical working-class family, equivalent to three adult consumption units. However, the ILO points out that this method of calculating the minimal wage may be flawed. It considers the male worker as one consumption unit, his wife as 0.8, and each child as 0.6 units. Families with elderly dependents, however, are not considered in these calculations.
Expenses Considered for Minimum Wage
The minimum wage laid out in the code has been calculated by considering the costs towards food, clothing, housing, fuel, electricity, children’s education and medical needs, with additional allowances for unforeseen expenses and miscellaneous items. However, it fails to consider all modern-day expenses incurred in daily life. Typical outlays such as transport, mobile phone bills, and internet connection charges are entirely excluded.
Clothing and Housing Requirements
The clothing requirement is estimated at 66 meters of cloth annually for a typical working-class family, a figure criticized as unrealistically low. Also, it does not factor in the increased clothing demands of those living in colder regions. Housing rent estimation, calculated to be 10% of food and clothing expenditure, is also deemed unrealistic. Particularly so for metropolitan areas, where a decent dwelling costs upwards of Rs. 5000 per month.
Concerns Related to the Basis of Wages and Floor Wage
The draft code proposes the determination of minimum wages on a daily basis, a move that has led to concerns among trade unions. They believe that it might disadvantage workers compared to a monthly wage system. In addition to this, the Code introduces the concept of floor wage – a baseline wage below which states cannot fix their minimum wages. However, this allows for different floor wage levels for different areas, promoting the fear of capital moving to regions with lower wages. Concerns have also been expressed about potentially lower wage fixation by governments seeking to attract investment. Further confusion arises from the absence of clear methods for determining these floor wages.
Suggestions and Proposals
In view of the above, several suggestions have been raised to refine the rules in the proposed wage code. For example, outlining the exact methods for defining the floor wage rates will provide clarity once the wage code is implemented. Additionally, setting the frequency of minimum wage revisions could be beneficial. The suggestion involves reviewing the basic wage component of the minimum wage every five years—a provision currently missing in the draft rules. Lastly, adopting an evidence-based approach through consultations with representative organizations of workers and employers can further aid in refining the rules.