The COVID-19 pandemic has shown that undoubtedly India’s informal sector workers are the most vulnerable. 79 million workers informally employed in the unorganised sector were at the highest risk of losing jobs as a result of Lockdown 1.0. COVID-19 has not necessarily broken the labour system but merely exposed the fault-lines and vulnerabilities therein. The Wage Rules is a now-or-never opportunity to correct the systemic failures of our labour market.
Ministry of Labour and Employment recently invited public comments on the Draft Rules on Wages. These Rules, when finalised, will be the implementation framework for the Code on Wages enacted in 2019. This is part of the broader labour reform process aimed at consolidating all existing labour laws in the country into four Labour Codes.
The Draft Wage Rules provide need-based criteria for calculating the Minimum rate of Wages. The proposed calculation upholds most, but not all, of the criteria from the 15th Indian Labour Conference (ILC) 1957 and from the landmark Supreme Court judgement in Raptakos Brett case.
The proposed calculation criteria include – 3 adult consumption units, 2700 net calorie intake per consumption unit, 66 meters of cloth per family p.a., house rent expenditure at 10% of food and clothing expenditure, 20% of minimum wage for fuel, electricity etc. and 25% of minimum wage for education, medical, recreation etc.
These criteria are found to be severely inadequate to arrive at a Minimum rate of Wage compared to that proposed by an Expert Committee on Determining the Methodology for Fixing National Minimum Wages. The Expert Committee recommended setting a single value of the National Minimum Wage (NMW) (floor wage) at ₹ 375 per day (as of July 2018). It also recommended, introducing an additional house rent allowance (city compensatory allowance) for urban workers in addition to the NMW or floor wage.
The Draft Wage Rules have ignored many of these recommendations. Expert Committee recommended that minimum wages must be adequate to sustain a worker family that consists of 4.4 persons or 3.6 consumption units. In comparison, Draft Wage Rules consider only 3 adult units of consumption. The proposed 2700 net calorie intake per consumption unit ignores nutritional requirement norms and a balanced diet approach recommended by Indian Council of Medical Research (ICMR) and government think-tank NITI Aayog. The proposed calculation for house rent expenditure is at 10% of food and clothing expenditure. This is significantly inadequate and against the recommendations of the Expert Committee as well as the ILC.
The Wage Code Act introduced the concept of Floor Wages and Rule 11 lays down the process of fixing the Floor Wages by state governments. It loosely states the components to be considered for fixing the rate of floor wages. However, it does not provide criteria for calculation as that for the Minimum Wages. Labour rights experts feel that without an explicit ‘need-based criteria’ for calculating a national floor wage the entire purpose of the Wage Code would be undermined.
Violations of Minimum Wages Act are found to be disproportionately concentrated on informal workers and within the intersection of caste, gender, rural, etc[1]. A well-designed Minimum Wage system that caters to the 93 per cent workers in informal sector has the potential to reduce income inequalities, gender-wage gaps and poverty[2].
Accessible, timely and effective grievance mechanisms are necessary to address the disproportionate impact of inadequate enforcement of labour laws. The Draft Wage Rules propose continued reliance on form-based written complaint mechanisms. This effectively keeps the mechanism inaccessible for most of the workers. South Africa’s ‘Impimpi Alive’[3] system allows workers to send anonymous SMS messages to the Labour Department after which an inspector visits the employer’s place of business within 48 hours. In the Indian context, a voice and text-based anonymous and dependable grievance mechanism can prove to be very effective.
India’s state capacity to effectively implement policies is poor. Labour inspection departments are already under-resourced, entrusted with implementation and monitoring of other labour legislations and have a declining staffing trend across the country. Evidence from Thailand suggests that inadequate enforcement of Minimum Wage laws is likely to result in non-compliance, particularly for informal workers. Fiscally constrained State governments, even if they intend to, may not be able to increase resources and/ or capacity of labour inspection. Without adequately addressing the implementation issue it is very unlikely that the intended impact on workers in India will be achieved. Implementation of the Wage Code Act could get stuck in bureaucratic overload and potentially lead to unintended consequences of rent-seeking behaviour or a situation of the post-office paradox.
Wage Code Act introduced an ‘inspection-cum-facilitation’ role to potentially indicate a move away from the image of ‘inspector raj’. However, the Rules do not clearly define the facilitation function of the ‘inspector-cum-facilitators’. An information asymmetry exists between informal workers and employers and a facilitative ecosystem can help re-balance this asymmetry. Empirical research has shown that locally adaptive policy implementation with participation of block level staff, citizens, civic agencies and especially women’s groups has been more effective in India. A facilitative and participatory mechanism could be designed keeping in mind that the state of labour law enforcement is particularly weak for female workers, workers in rural areas, in certain caste groups, agricultural workers, low-skilled services sector and those in the informal sector.
Ministry of Corporate Affairs published the National Guidelines on Responsible Business Conduct (NGRBC) in 2019 and recently published a report on Business Responsibility and Sustainability Reporting (BRSR) Format. Linking reporting requirements under the Wage Rules and NGRBC could significantly enhance policy coherence, company disclosures, transparency, comparability, and reporting efficiency.
It will be a huge lost opportunity to not incorporate lessons learnt from the pandemic in the Wage Rules. In our efforts to help India build forward better, institutional mechanisms to standardize dignity for workers and help build their resilience to future shocks should be at the centre.
[1] India Wage Report, 2018 - ILO
[2] India Economic Survey 2018-19
[3] Department of Labour innovates a system to expose employers not complying with the NMW (2019) – Employment & Labour Department, Republic of South Africa
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