Events & Issues

New Delhi, 17 January 2018

Labour Reforms

ENSURING BASIC WAGES, INCOME

By Dhurjati Mukherjee

It is indeed heartening that the Government plans to introduce a pan India minimum wage that would cover all sectors of the economy. Labour reforms have been a long standing issue and adequate attention needs to be given in this regard. More so because labour productivity has increased during the past two decades and better facilities would further gear this up. 

The Labour Code on Wages Bill, introduced in Lok Sabha last year and sent to a select Committee, is likely to be pushed by the Government this Budget session. It seeks to empower the Centre to fix a universal minimum wage for workers across the country and is expected to benefit over 40 crore employees. The Code will cover employees who draw more than Rs 18,000 a month who are currently outside the ambit of the Minimum Wages Act. The Indian code would consolidate four different wage related laws -- the Minimum Wages Act, 1948, the Payment of Wages Act, 1936, Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976.  

Whether Dearness Allowance would be included is not known, but the Bill would revise the national minimum wage every two years. This is indeed an important step as it would go a long way in correcting disparities in income, though industry captions are not quite happy as they feel that minimum wages in metropolis and cities cannot be the same as in rural areas.

It is a well known fact that certain States have not revised the minimum wage for several years and it would be difficult for them to implement the code. There are people who are not quite optimistic and feel the implementation of the universal minimum wage may not be easy. At present, employers across different sectors have to grapple with at least a dozen definitions of wage related terms strewn across various Acts. 

While many welcome the government’s initiative on GST aimed at “one nation one tax”, they would profess the necessity for a common minimum wage too. Though States may initially have some difficulty in implementing this code due to financial and other factors, this has to be done across the country in different sectors like construction, BPO and IT, manufacturing, jewellery, plantation etc. Though the labourers’ right to get equal wages in various sectors cannot be denied, there would definitely be different wages for skilled, semi-skilled and unskilled workers as is there presently. 

While basic minimum wage would cater to workers in the formal sector, those in the informal sector would benefit if the present talk of bringing in Universal Basic Income (UBI) is implemented. The idea of UBI is aimed at paying everybody a uniform amount as part of welfare, which is getting some credence in political discourse worldwide as a simple antidote to poverty. It may also be viewed as a means to demolish complex welfare bureaucracies while meeting some social transfer obligations without weakening work incentives significantly.

In India, anti-poverty programmes are very important and need to be taken up judiciously. This strategy can also be a substantial measure to improve autonomy (say, of adult women, three-quarters of whom do not earn income) and dignity by giving workers an escape ladder from socially despised occupations (scavenging, waste-carrying, prostitution, etc).

A major section is favourably disposed to the idea of UBI. However, some fiscal bureaucrats and economists say the country cannot afford it due the additional burden since vested interests are against replacing existing welfare programmes. Moreover, social activists, come from the opposite end, think that UBI is a ploy to politically undermine some of the existing welfare programmes which are working reasonably well.

According to well known economists, Prof. Pranab Bardhan and others, recent estimates (made at the National Institute of Public Finance and Policy) suggest that (Central plus State) subsidies that mainly go to better-off people (‘non-merit subsidies’) amount to about 5 per cent of GDP. In addition the Central budget alone shows ‘revenues foregone’ (primarily tax concessions to companies) coming to a little over 6 per cent of GDP.

Even if one-third of these revenues foregone are made available for this purpose, added to the non-merit subsidies, it comes to around 7 per cent of GDP potentially available for UBI, which is a substantial sum, more than twice the total amount currently spent on all anti-poverty programmes.

This could be easily raised from more taxation or ensuring that taxes are paid properly by those who are supposed to do so. The tax-GDP ratio in India is substantially lower than in China, Brazil and some other developing countries. Moreover, real estate and property tax assessments in the country are absurdly low compared to their market value. Added to this is the current endeavour to ensure that the rich and the high salaried class give up subsidies that are normally meant for the lower middle, lower income groups and economically weaker sections. There is also zero taxation of agricultural income, long-term capital gains in equity markets, and of wealth and inheritance.   

It is thus necessary to divert some of the subsidies (and revenues foregone) from their current better-off recipients and introduce significant fresh taxation of the rich to make UBI a reality. Some resources may also be released by terminating some of the particularly wasteful welfare programmes, but UBI should not replace programmes like ICDS, mid-day meals and MGNREGA.

The Economic Survey last year admitted that UBI, based on the principles of universality and unconditionality, rightly pointed out is no mere anti-poverty measure, but rather “gives concrete expression to the idea that we have a right to a minimum income, merely by virtue of being citizens. It is the acknowledgment of the economy as a common project.”

Obviously, there are a number of implementation challenges. There was speculation about the Finance Minister announcing a UBI-like scheme in some form in his budget after the Jammu and Kashmir government became the first State to commit to UBI for all citizens living below the poverty line. But the Finance Minister did not do so.

Along with uniform minimum wages in all parts of the country, UBI should also be implemented as early as possible, at least for the poorer sections. This should be a first step towards labour reform and engaging youth in the right direction through productive work in various sectors. 

If we are to reduce disparities in income and ensure equality in society, simultaneously with skill development there is need to assure at least one member of every family some sort of work and income. This would indeed be a pioneering initiative of our government for which economists and planners should be asked to find the right path of implementation. The earlier it is done, the better for the country. ---INFA

(Copyright, India News & Feature Alliance)