By Rupin Chopra and Shantam Sharma
The Minimum Wages Act, 1948,[1] continues to be a cornerstone in ensuring fair compensation for workers across India. With recent updates in 2024, the government has made significant strides in addressing inflation and rising living costs, which have disproportionately affected low-wage workers. This article provides a comprehensive look at the recent changes, the broader legal and economic implications, and the challenges of enforcement.
Background of the Minimum Wages Act, 1948
The Minimum Wages Act, 1948, was enacted to protect workers from exploitation and ensure they receive fair wages. It applies to various employment sectors, including agriculture, manufacturing, and the service sector, where more than 1,000 workers are employed. Both central and state governments have the power to set and revise minimum wages for specific industries, considering local conditions.
The Minimum Wages Act mandates a review of wage rates every five years, though extraordinary circumstances like inflation can prompt earlier revisions. The Act also defines wages, the inclusion of variable components like Dearness Allowance, and special considerations like regional differences and skill levels.
Recent Revisions in Minimum Wage (2024)[2]
In September 2024, the central government revised minimum wage rates in key sectors, including construction, sweeping, cleaning, and labor-intensive activities such as loading and unloading. These changes have been triggered by inflation, particularly the rising costs of food, housing, and healthcare, which have significantly eroded the purchasing power of low-wage workers.
The recent revisions[3] are as follows (w.e.f. October 1, 2024):
| Category of worker | Rates of wages including Variable Dearness Allowance area wise per day (in INR)[4] | ||
| A | B | C | |
| Unskilled | 523+260=783 | 437+218=655 | 350+176=526 |
| Semi-Skilled /Unskilled Supervisory | 579+289=868 | 494+245=739 | 410+204=616 |
| Skilled /Clerical | 637+317=954 | 579+289=868 | 494+245=379 |
| Highly Skilled | 693+342=1035 | 637+317=954 | 579+289=868 |
These revisions are primarily driven by increases in the Variable Dearness Allowance (VDA), which is linked to the Consumer Price Index for Industrial Workers (CPI-IW). The government uses this index to adjust wages for inflation, ensuring workers can cope with the rising cost of essential goods and services.
Criteria for Wage Fixation
- The Indian government considers several factors when determining minimum wage levels. Key criteria include:
- Cost of Living: The CPI-IW is the main reference, reflecting price changes in essential goods and services consumed by industrial workers.
- Skill Level: Different wage rates are set based on whether the work is classified as unskilled, semi-skilled, skilled, or highly skilled.
- Sector-Specific Needs: The minimum wage varies between industries such as manufacturing, agriculture, and construction, recognizing that different sectors have distinct working conditions.
- Geographical Variability: States can set different wage rates according to local economic conditions. For example, higher wages may be required in urban centers where the cost of living is higher than in rural areas.
Economic Impact of the Wage Hike
The wage hike is expected to have both positive and negative effects on the economy. On one hand, higher wages boost workers’ purchasing power, which can stimulate demand in consumer-driven sectors like retail, hospitality, and services. This is particularly beneficial in periods of economic recovery when demand generation is crucial.
However, some industries, particularly small and medium enterprises (SMEs), might experience increased operational costs, which could impact their competitiveness. The construction and manufacturing sectors, where wages constitute a significant portion of total costs, might witness attempts to cut jobs or adopt automation to maintain profitability. Larger companies may have the ability to absorb the higher wage costs, but smaller businesses may struggle.
Regional Disparities
India’s wage structure is highly decentralized, with different states having the authority to set their own minimum wages in line with local economic realities. Some states, like Maharashtra and Karnataka, already have higher wage rates than others like Bihar or Uttar Pradesh, where economic conditions are less favorable.
The challenge with these regional disparities is that the minimum wage in some states may still be insufficient to meet basic living costs, particularly in areas with high inflation. The central government’s 2024 revision provides a baseline, but it is up to state governments to ensure that their wage levels adequately reflect the local cost of living.
Enforcement Challenges
One of the ongoing issues with the Minimum Wages Act is ensuring compliance, particularly in the informal sector. The informal sector, which accounts for nearly 80% of India’s workforce, often fails to adhere to minimum wage laws. Workers in industries like construction, domestic work, and agriculture are particularly vulnerable to exploitation, as they have limited access to legal remedies or grievance redressal mechanisms.
To improve enforcement, the government has been increasing the number of labor inspectors and encouraging digital reporting mechanisms, making it easier for workers to file complaints. However, more needs to be done to close the compliance gap, especially in rural areas where monitoring is difficult.
Conclusion:
The recent revision of minimum wages in India is a critical step towards protecting the rights of workers in a challenging economic environment. The government’s commitment to adjusting wages in line with inflation is commendable, but ensuring compliance remains a significant challenge, particularly in the informal sector.
Employers must be proactive in adhering to the new regulations, while also balancing their operational costs.
The future of wage policy in India will likely see more frequent adjustments and possibly the introduction of a national living wage. As India’s economy evolves, wage regulations will continue to play a key role in fostering equitable economic growth and protecting the most vulnerable workers in the labor force.
[1] Available at:href=”https://clc.gov.in/clc/sites/default/files/MinimumWagesact.pdf
[2] Available at:https://pib.gov.in/PressReleasePage.aspx?PRID=2059119
[3] The minimum wage rates are categorized based on skill levels—unskilled, semi-skilled, skilled, and highly skilled—as well as by geographical area—A, B, and C