Living wage system will be a life changer for India’s workforce

The momentous news that India will shift from the minimum wage system to that of a living wage by 2025 has evoked a muted response. This, even though implementing it could lead to a significant decline in overall poverty. Moving towards a living wage would impose much higher labour costs on both government and private sector, but the outcome will be eminently worthwhile in the long run.

While considering the implications of this move, it is important to recognise the difference between a minimum wage and a living wage. A minimum wage is the legal limit below which remuneration cannot be paid to workers. In contrast, a living wage is the amount needed for a family to live above the poverty level, taking into account food, housing, and other essentials. Currently, the minimum daily wage is fixed at Rs 176 per day, a level arrived at in 2017. Even this minimum wage is not being paid uniformly throughout India.

Given the fact that the minimum wage is enforced in an uneven manner, the initiative is bound to be resisted by state governments as well as private industry. Both public and private entities will have to shoulder a higher financial burden in terms of labour costs. The issue of effective implementation will thus have to be given careful consideration while formulating the plans to launch a living wage in this country. This is critical as otherwise, an excellent policy measure could end up being a regulation on paper alone, and will fail to have the needed impact on those at the bottom of the pyramid.

Even in the case of minimum wages, it has not been possible to enforce the rules uniformly. One complication is that states lay down their minimum wages even if the Union government sets higher rates. Regional disparities are thus persistent.

It should be recalled that the living wage movement was launched initially in the United States. It was introduced in Baltimore during the mid-1990s where several non-profit and religious organisations found that the minimum wage laid down did not bring families out of poverty. It was then felt that wages should be based on more realistic criteria. In other words, these should cover basic needs like food, clothing, and shelter, rather than simply being fixed at arbitrary minimum levels. The same concept has now been introduced in many countries around the world, including Bangladesh.

As of now, the move towards a living wage in India is a work in progress. The government has sought technical assistance from the International Labour Organization (ILO) to develop a framework for estimating and implementing it. Realistically, the target of 2025 must be considered as somewhat ambitious since the country is on the verge of general elections and major policy decisions have to be put on hold. This will especially be so for sensitive issues like workers’ wages and rights. The proposal can thus only be taken up when the new government takes charge in mid-2024. It will also have to be seen whether the proposal continues to be a priority for the new regime. Though pre-poll surveys are leaning heavily towards the return of the Bharatiya Janata Party (BJP) and its allies in the National Democratic Alliance (NDA), long-term alterations in labour policies will depend on the economic climate over the next few months.

On the plus side, one of the motivating factors for the government seeking a shift from the minimum to living wage system has been the buoyancy in economic growth. In the fiscal year 2023-2024, GDP growth is expected to rise to 7.6 per cent, in the light of a better-than-expected performance in the third quarter. The October-December quarter showed a growth of 8.4 per cent, considerably higher than earlier anticipated. The accelerated growth path has emboldened the government to move towards a new approach, as the economy is considered strong enough now to bear the higher burden of enhanced wages.

In case the policy does shift, it will come as a bonanza to India’s roughly 550 million workforce. According to the labour ministry, 93 per cent of these workers are in the unorganised sector. The benefits will only accrue to them, however, if it is possible to enforce rules so that all categories of employers provide the enhanced wages. The issue of affordability especially in small businesses is bound to be raised but the improved economic environment should enable even such enterprises to absorb higher labour costs. Ultimately, the purpose of employment must be to ensure workers live with dignity rather than survive at just subsistence levels.

(Sushma Ramachandran is a senior journalist.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.