Minimum Wages Act & Organized Sector

India's Minimum Wages Act, passed in 1948, is a study in how to convolute a simple idea. Instead of a baseline norm across sectors, the Centre and the state governments both have the power to mandate wages for specific types of jobs. The piecemeal nature of the legislation means that millions of workers fall through the cracks — if their employment is not listed in the schedule to the act, they are invisible in the eyes of the law. The Centre is now proposing to change this. By adding the phrase "any other employment" to the law's schedule, the attempt is to make the Minimum Wages Act all-encompassing.

 

The other aspect of the proposed amendment is to beef up enforcement. The fine on cheating employers will be raised to Rs 5000, along with the threat of a six-month jail-term. While in itself welcome, the idea that finer laws will lead to tighter enforcement is a recurring fallacy in our labour laws. Ensuring that employers maintain registers, provide cards and pay slips is difficult even when the employer is the state (witness reports of perfidy in the payment of NREGA wages). Ensuring it for private employers will require a special kind of zeal.

 

There is also no escaping the long-term solution — reforming our stifling labour laws. Inflexible hire and fire policies has resulted in an over-regulated and over-policed "formal" labour market, causing under-regulated and under-policed "informal" labour to grow even larger. By disincentivising the hiring of new employees, our labour laws prevent the absorption of India's 34 crore unorganised workers into the formal economy. Guaranteeing minimum wages for the informal sector is a good start, if well-enforced. But real benefits to India's unorganised sector require the Centre to reform our perverse labour laws. Everything else is palliative.