AMITY LAW SCHOOL

AMITY UNIVERSITY, LUCKNOW

LABOUR LAW II

TITLE :“ FIXATION AND REVISION OF MINIMUM WAGES IN

INDIA

SUBMITTED TO Submitted by
Mrs axita Shrivastava rohit kumar singh

A8111118120

Ba.llb.(sec-b) sem 6th

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 ACKNOWLEDGEMENT

Thanks to the Almighty who gave me the strength to accomplish the project with sheer
hard work and honesty. This research venture has been made possible due to the generous
co-operation of various persons. To list them all is not practicable, even to repay them in
words is beyond the domain of my lexicon.
May I observe the protocol to show my deep gratitude to the venerated Faculty-in- charge
Mrs Axita Shrivastava, for her kind gesture in allotting me such a wonderful and
elucidating research topic. Apart from that I would like to thank my friends for their
support and suggestions during the process of making this project.

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TABLE OF CONTENTS

o ABSTRACT

o OBJECTIVE

o RESEARCH QUESTION

o RESEARCH METHODOLOGY

o INTRODUCTION

o NORMS FOR FIXING MINIMUM WAGES

 ISSUES IN WAGE POLICY
 NORMS FOR FIXING MINIMUM WAGES
 COVERAGE
 IMPLEMENTATION
 ENFORCEMENT

o 46th LABOUR CONFERENCE

o NEED FOR MEANINGFUL WAGE POLICY

o CONCLUSION

o BIBLIOGRAPHY

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Abstract

The wage and employment policies of labors in organized and unorganized sectors and in
particular the issue of minimum wages paid to them has been a subject of considerable
discussion among union leaders and labour experts in India. While minimum wage
legislation has to a large extent been effective in providing protection to workers in the
organised sector, with periodic revision, this has not been the case with the unorganised
workers, who largely remain outside the purview of minimum wage legislation. The
paper highlights the issues and concerns relating to fixation and revision of Minimum
Wages in India.

Objective

To study about the fixation and revision policies of minimum wages to the labors in an
unorganized sectors.

Research Question

1. What is the procedure to calculate the minimum wages of the workers?

2. What is the lacunae and issues observed in fixing and revision of minimum wages?

Research Methodology

The whole project is a doctrinal one, it is a Qualitative research, concerned with

qualitative phenomenon, i.e. phenomenon relating to or involving quality or kind. Unlike
quantitative research, qualitative research relies on reason behind various aspects of
behavior.

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 1. INTRODUCTION

The Indian economy is characterised by a dualism, i.e., the existence of comparatively

well organised sector along with the decentralised sector with a large population which is
self-employed1. According to reports, 422.6 (94%) million workers out of the total
workforce of 457.5 million belong to the unorganised/informal sector2 in India. These
workers contribute to more than 60 per cent to India’s GDP growth.

The Constitution of India envisages a just and humane society and accordingly gives
place to the concept of living wage in the chapter on Directive Principles of State Policy.
The Minimum Wages Act, 1948 is based on Article 43 of the Constitution of India which
states that, "The State shall endeavour to secure by suitable legislation or economic
organisation or in any other way to all workers, agricultural, industrial or otherwise,
work, a living wage (emphasis added) conditions of work ensuring a decent standard of
life and full enjoyment of leisure and social and cultural opportunities".3

The term 'Labour' is included in the 'concurrent list' of the Constitution which provides
for labour legislation both by the central and the state governments. Labour laws for most
workers in the informal sector4 are enforced by the state governments, while that for
contractors and casual workers in establishments is regulated by the central government.
All labour laws enacted by the central government directly or indirectly influence wage
level and structure of wages in the informal sector. Table 1 gives a list of legislations that
have a direct influence on wages in the informal sector.

1
http://planningcommission.nic.in/plans/planrel/fiveyr/6th/6planch24.html

2
Informal sector in India is broadly characterized as consisting of units engaged in the production of goods
and services with the primary objectives of generating employment and incomes to the persons concern.
The workers in informal sector are engaged in economic activities which are not officially regulated and
which operate outside the incentive system offered by the state and its institutions.

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3
http://nceus.gov.in/Report_Bill_July_2007.htm

Table 1: Labour legislations influencing wages in the informal sector in India

Labour legislation Type of intervention

The Minimum Wages Act, To provide minimum compensation for work. Workers
1948 in scheduled employment to be paid minimum wage.
To enable workers of a number of small units to form
The Trade Unions Act, 1926 unions, who can bargain wages and other condition of
work.
The Industrial Disputes Act, To enable unions to raise industrial disputes on wages
1947 and the conciliation machinery to intervene.
The Equal Remunerations Assure equal wage to women for same or similar work.
Act, 1976
The Payment of Wages Act, To regulate the manner of payment of wages and their
1936 realisation in case of non-payment.
The Contract Labours The contractor is required to pay wages and in case of
(Regulation and Abolition) failure on the part of the contractor to pay wages either
Act, 1970 in part or in full, the Principal Employer is liable to pay
the same.

Source: Das, K.S. (1998), Wage policy issues in the informal sector, The Indian Journal of Labour
Economics, V 41(4), p 896.

Minimum wage legislation is the main labour legislation for the workers in unorganized
sector. In India, the policy on wage determination had been to fix minimum wages in
sweating employments and to promote fair wage agreements in the more organised
industries. Wages in the organised sector are determined through negotiations and
settlements between employer and employees. On the other hand, in unorganised sector,
where labour is vulnerable to exploitation due to illiteracy and does not have effective
bargaining power, the intervention of the government becomes necessary.
The Minimum Wage Act, 1948 provides for fixation and enforcement of minimum wages
in respect of schedule employments to prevent sweating or exploitation of labour through
payment of low wages. The objective of the Act is to ensure a minimum subsistence wage
for workers. The Act requires the appropriate government to fix minimum rates of wages
in respect of employment specified in the schedule and review and revise the minimum
rates of wages at intervals not exceeding five years. Once a minimum wage is fixed
according to the provisions of the Act, it is not open to the employer to plead his inability

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 to pay the said wages to his employees.

The minimum wage rate may be fixed at a) time rate, b) piece rate, c) guaranteed time
rate and d) overtime rate. The Act provides that different minimum wage rate may be
fixed for a) different scheduled employments, b) different works in the same
employment, c) adult, adolescent and children, d) different locations or e) male and
female. Also, such minimum wage may be fixed by a) an hour, b) day, c) month, or d)
any other period as may be prescribed by the notified authority.
In order to protect the minimum wages against inflation, the concept of linking it to the rise
in the consumer price index was recommended at the labour ministers' conference in 1988.
Since then, the concept of Variable Dearness Allowance (VDA) 5 linked to consumer price
index has been introduced. The VDA is revised twice a year in April and October. While
the Centre has already made provision in respect of all scheduled employments in the
central sphere, 22 states and Union Territories have adopted VDA as a component of
minimum wage.

2. Norms for fixing minimum wages

The fixation of minimum wage in India, depends upon various factors like socio-
economic and agro-climatic conditions, prices of essential commodities, paying capacity
and the local factors influencing the wage rate. It is for this reason that the minimum
wages vary across the country.

In the absence of any criteria stipulated for fixing the minimum wage in the Minimum
Wages Act, the Indian Labour Conference in 1957 had said that the following norms
should be taken into account while fixing the minimum wage. The norms for fixing
minimum wage rate are (a) three consumption units per earner, (b) minimum food
requirement of 2700 calories per average Indian adult, (c) cloth requirement of 72 yards
per annum per family, (d) rent corresponding to the minimum area provided under the
government's Industrial Housing Scheme and (e) fuel, lighting and other miscellaneous
items of expenditure to constitute 20 per cent of the total minimum wage (f) Fuel, lighting
and other miscellaneous items of expenditure to constitute

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 5
While fixing or revising Minimum Wages, Dearness Allowance (D.A) linked to cost of living index called
Variable Dearness Allowance (V.D.A), in addition to basic wages so as to neutralise the cost of living.

20% of the total Minimum Wages, (g) children education, medical requirement,
minimum recreation including festivals/ceremonies and provision for old age, marriage
etc. should further constitute 25% of the total minimum wage. 6
In September 2007, the national minimum floor level wage7 was increased to Rs 80 per day
for all scheduled employments from Rs 66 in 2004 to Rs. 45 in 1999, Rs. 40 in 1998 and
Rs. 35 in 1996.

3. Issues in Wage Policy

Minimum wages are expected to cover the essential current costs of accommodation, food
and clothing of a small family. The Minimum Wage Act, while being very progressive
has led to specific problems. Doubts have been raised on the existence of a clear and
coherent wage policy in India particularly in unorganized sector. This is mainly due to its
poor norms of fixation, enforcement, implementation and coverage in various parts of the
country. Some of the issues and concerns faced in India regarding minimum wages are
summarized below:

a. Norms for fixing minim wages

The Act does not set out a minimum wage in rupee terms, but just stipulates that the wage
be a living wage8 which is to be decided by labour department in each state. Certain norms
have been laid out including that of calorie requirements, yards of cloth per family and so
on. The Act also stipulates that minimum wage rates are to be revised keeping in mind
inflation. Additionally, the guidelines laid down for the minimum wage by the 15th Indian
Labour Conference (ILC) and the Supreme Court suggest that a minimum wage for 8
hours of work should be high enough to cover all the basic needs of the worker, his/her
spouse and two children. However, in many states while fixing the minimum wages, they
are not linked to the payment of

6
http://labour.nic.in/wagecell/welcome.html

7
The national minimum floor level wage represents the lowest level of wage for any employment in the
country. The wage rate is applicable to all employments which are currently not covered under the Minimum

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Wage Act. The State Government has to ensure that the minimum wage fixed under MWA is not lower than the
national minimum wage rate.
8
A "living wage" is the level of income sufficient to allow workers to support their families.

dearness allowance. As a result, real wages of workers keep eroding due to inflation, pushing
them below the poverty line.

Another inadequacy is that though the MWA requires wages to be revised every five
years, this rarely happens. The MWA also has a clause which states that if wages are not
revised, the existing wages should continue. Such an arrangement has only led to greater
laziness and unaccountability on the part of state labour departments, leaving some
workers to live below poverty line. Further to overcome these inadequacies, the National
Commission on Rural Labour in 1990, recommended that the MWA should be amended
to compel timely revision of wages and it should be linked to VDA. It should also ensure
enhancement of wages every six months on the basis of the Consumer Price Index. How
far the amendment has been implemented in states is unknown. (For example, states like
Rajasthan, Orissa etc. do not have provision for VDA).

Different wages are fixed for the same work in different sectors. For instance, a
watchman in the shop or commercial establishment may be fixed higher or lower wages
than a watchman in the plastic industry or in a construction or maintenance of roads or
building operations, though a watchman’s job will be the same wherever he may work.
To overcome these deficiencies, several states like Himachal Pradesh, West Bangal,
Andhra Pradesh, etc., have rationalised all the different occupation categories into just
four categories - unskilled, semi-skilled, skilled and highly-skilled. As per this system,
only one notification is applicable to all industries, rather than the time-consuming system
of notifying wages individually for various industries. Though the system gives a clear
and detailed information of minimum wages, it has not been adopted by all states,
including the Indian Labour Ministry website, which gives the minimum rate of wage
(that is wages for unskilled workers) for each occupation.

b. Coverage

In order to have minimum wage fixed, the employment or industrial activity has to be

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included in the schedule of Employments. Currently the number of scheduled

employments in the Central government is 45 whereas in the state sphere the number is
1232. The criterion for inclusion in the list of scheduled employment is that there should
be at least 1000 workers engaged in that activity in the state. Thus, many activities are
excluded from the list. This criterion for inclusion has left a very large number of workers
in the unorganised sector outside the purview of the Minimum Wage Act.

c. Implementation

The main problem of minimum wage legislation in India is its poor implementation. The
Act empowers the appropriate government (Central, Sate or Local) to fix a minimum
wage for workers in unorganised sectors. However, often exemptions from the payment
of minimum wages have been granted to industries. In addition, minimum wage levels
have been revised only at long intervals (where the actual prescribed limit is within 5
years). Such a failure in implementation of MWA is not only due to loopholes in policy
design but is also an outcome of lapses in the administration.

Poor implementation of MWA does not affect organised workers as much as it does to
workers in unorganized sectors. Unorganised workers are employed with millions of
employers (generally small trade, enterprise, sole proprietor or household) who are
scattered and hence becomes difficult to cover them under law. This diversity in locations
and nature of work has left them vulnerable to exploitation in the absence of a broad legal
standard. Also, many workers for the fear of losing their jobs do not report about
payments lower than the minimum wage rate. At times, these workers are even forced by
their employers to certify payments below minimum wages.

d. Enforcement

Poor enforcement of the Act is another issue prevalent in most of the states in India. The
issue arises mainly due to lack of awareness amongst the workers about minimum wage

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provisions and their entitlement under the labour laws. Surveys have shown that almost
80 per cent of the workers in unorganized sector earn less than 20

rupees a day, or less than half the government-stipulated rural minimum wage of 49
rupees a day and urban wage of 67 rupees9. This is particularly true in remote areas and in
areas where workers are not unionized or otherwise organised. As a result their wages
have long since failed to keep pace with rising costs and continue to diminish in real
value over time.
4. 46th Labour Conference
Similarly, the 15th ILC had, in 1957, provided a formula for calculating minimum wages
and the 44th ILC had endorsed it. But the government, instead of accepting the formula,
hit upon a floor-level wage of Rs.160 a day, which is much less than the demand of the
trade unions that Rs.15,000 should be the minimum/floor-level wage. “What is the
meaning of this Rs.160? It is less than one-third of what all the unions are asking. In fact,
as per the 15th ILC’s criteria, it should be not less than Rs.20,000 a month going by
current prices and inflation. Now there will be a basement wage as well,” said a trade
union representative.
The unions have been justifiably cynical about the whole exercise. For instance, at the
end of the two-day session, the committee on the implementation of the conclusions of
the previous three ILCs (43rd, 44th and 45th) on contract labour, minimum wages,
scheme workers and tripartite mechanism expressed its concern over the non-
implementation of the conclusions in these areas. It unanimously recommended that
“concrete measures be undertaken to expeditiously implement the recommendations in
letter and spirit and periodic reviews to be taken up by the stakeholders”.
There was no consensus on the amendments to the Payment of Bonus Act, where the
trade unions held the position that all ceilings under the Act, the eligibility ceiling, the
calculation ceiling and the maximum per cent of bonus payable, needed to be removed
while employer representatives did not agree to this, arguing that this would lead to a
spurt in industrial relations issues. According to them, while making any changes to the
Payment of Bonus Act, 1965, the productivity of workers and paying capacity of the
employers should be taken into account. They were not even in favour of the indexation

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of cost of living for the purpose of fixing the ceiling and calculation of bonus. They said
that the term “employee” should be substituted with “workman” as defined under the
Industrial Disputes Act (IDA).

9
March 11, 2008, Rising labour concerns for Indian government, Business Standard.

The 46th ILC ended with limited consensus and the usual homilies. There was little
assurance from the Union Labour Minister at the concluding session about the centrality
of the role of the government in implementing the spirit of tripartite dialogue and
decisions arrived at forums like the ILC.

1. Need for meaningful minimum wage policy

In spite of vast number of workers in unorganized sector, and their substantial

contribution to the national economy, they are amongst the poorest sections of India’s
population. It is therefore imperative that urgent steps are taken to improve their
condition. Infrequent revisions and inadequate cost of living adjustments have been a
marked feature of minimum wages in India. The rates of minimum wages so fixed in few
states, is not enough even for two times meal in a day, leave aside the needs of health,
education and shelter. In specific terms, the issues and problems of the wage policy in
both organised and unorganised sector, relate to the elements like need based minimum
wage, protection of the real wages through compensation for rise in the cost of living,
incentives for increases in productivity, allowances for hazards of occupation, wage
differentials for skills, etc.

The main objective to be considered while fixing or revising the minimum wage rate
should be two fold - 1) Social objective: that is, by providing sufficient purchasing power
to the worker, enable him/her to have a basic standard of living. In long run such a step
would help in abolishing labour exploitation and poverty. 2) Economic objective: The
rate of minimum wage should be fixed at such a level which would motivate workers and
enable them to enjoy the benefits of economic growth, and thereby contribute to the
economy.10 For example, the Sixth Central Pay Commission (CPC) has fixed the
minimum wage of Central Government employees at Rs 5740. The first four scales of pay
suggested by the Fifth CPC for the Group D Employees of the government have now

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 been removed, under the Sixth CPC. The existing employees in these grades are to be
moved to Group C cadres through a process of training thereby indicating that the
unskilled functions in the governmental sector would be contracted or outsourced.

10
http://www.amrc.org.hk

On the other hand, Social Security scheme covers health (hospitalisation for self and
family) and maternity, life and disability and old age security in the form of state pension
for those belonging to poor households and a provident fund for others. The scheme is
based on contributions from workers, employers and government in the ratio of 1:1:1.

Minimum Wage legislation in India requires the active support of workers, trade unions,
and labour associations. It would also require sincerity on part of the labour departments
in each state to determine minimum wage rate on the basis of ethical and humanitarian
concerns in order to ensure basic subsistence to workers in unorganized sectors.
Implementation of government policies and legislations is the main problem
in the unorganized sector. Also, low productivity in unorganised sectors, limitation of
avenues for gainful employment, lack of organisation on the part of workers, affects
their bargaining capacity, accounting for their vulnerable situation. Hence,
involvement of non government organizations and trade unions can play an important
role in better enforcement of minimum wages act. For example, Self Employed
Women Association (SEWA) in Ahmedabad.

SEWA is the 7th largest trade union organisation in India working towards organising
women workers (mainly in informal sector) for full employment, which means
employment whereby workers obtain work security, income security, food security

and social security (at least health care, child care and shelter). SEWA has been
organising workers in the dyeing, chemical and screen-printing industry, agarbatti rollers,
ragpickers, street vendors, etc for many years now. Involvement of such organisations
gives a voice to workers in unorganised sectors in collective bargaining. Ignorance and
illiteracy are the main reasons for exploitation of workers in unorganized sectors. Trade

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 unions and NGOs can help by making the workers aware of the legal provisions of the
minimum wage rate and the benefits to which they are entitled.

Also, minimum wage data is not readily available. Only limited official data is available
from national labour ministry website which may or may not be updated on regularly
basis. The information available does not permit extensive comparison on wages in
formal and informal sector due to different formats of reporting or recording of wage rate
in each state. Minimum Wage Checker on Paycheck website provides the information on
minimum wages in each Indian state. The minimum wage data collected from labour
department in each state is uploaded on the website in a detailed format enabling inter-
state comparison easy.

1. Conclusion
There is an urgent need to define the principles for fixation of minimum wage and the
method and periodicity for its increase. The need of the hour is not only to increase the
basic rates of minimum wages but the basic approach towards the whole issue also needs
to be changed. The prevailing system of minimum wages, instead of abolishing the
poverty, is in fact increasing it. Initiatives like strengthening the enforcement machinery,
simplifying the procedure relating to coverage and revisions of minimum wage rate,
linking the rates with the Consumer Price Index Numbers (CPI), and increasing the
involvement of various workers' organisations in the implementation of the Minimum
Wages Act, are some of the steps advocated to improve the situation.
The provincial governments must remove the lacunae and complexities in the existing
minimum wage-setting system and carry out amendments through tripartite consultation.
The conditions for minimum wage indexing to inflation and regular annual revisions must
be made statutory and applicability extended to agricultural workers. It will be best to
leave the fixing of minimum wage to state governments, who may “fix this as per local
conditions and economic dynamics.”

BIBLIOGRAPHY

Primary sources

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  Minimum Wages Act, 1948

Secondary sources:
 Textbook on Labour and Industrial law by Dr.H.K.Saharay
 Labour and Industrial Laws by Prof. K.M.Pillai

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