From minimum to living wages

It is imperative that enterprises make wage growth-inclusive and equitable
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Every business aspires to be successful, competitive and future ready. This requires prioritising not just on ‘profits’ but also the ‘planet’ and the ‘people’. While businesses in India comprehend what the focus on planet entails, the responsibility towards the people is less clear. Globally, the foundation of a sustainable and responsible workspace has expanded to include decent working, living conditions and providing opportunities for entire workforce. It needs to be also understood that 2 per cent spend on corporate social responsibility is not an offset for everyday responsibilities towards the people in their ecosystem.

Over 92 per cent of India’s workforce is informal, with over 200 million of them engaged in formal sector as contract workers lacking proper contracts/entitlements. As India aims to transition from minimum to living wages by 2025, businesses must own up the responsibility to ensure equity and dignity for these workers.

Survival wage: India today follows a minimum wage policy for all workers, linked to each state’s base wage and the variable dearness allowance (VDA), adjusted bi-annually by the government of India. State base wages cannot be lower than Rs176 per day – the last update to India’s National Floor Level Minimum Wage in 2017. The floor is based on the Consumer Price Index for Industrial Workers (CPI-IW) and is meant to just provide for basic calorific needs rather than normative and aspirational needs. 

In our work with Social Compact, a multi-stakeholder platform working on strengthening well-being for industry engaged informal workers, we discovered deep seated flaws in the wage structure. The wages are barely enough for survival and even one medical episode or exigencies puts the family into perpetual debt and miseries. 

Despite bi-annual VDA revisions, the base rate provided to workers does not change annually, resulting in stagnant wages for mere survival. Minimum wages barely keep pace with inflation, leaving unskilled and semi-skilled workers earning Rs12,000-15,000 monthly (Rs500-550 per day) as per Social Compact’s data. A worker is expected to support his family (say, 4-5 members) with this measly amount! 

Miseries get compounded as many workers do not receive the prescribed minimum wages. As much as 70 per cent of India’s casual workers
in construction did not receive prescribed minimum wages in 2022. Circumventing critical legal mandates, such as overtime payment, PF and employee state insurance is also a common practice today.

The promise of living wages: India plans to shift from the ‘minimum to living wages’ regime by 2025, aligning with ILO standards for equitable workplaces and the 2030 SDG vision of ‘leaving no one behind’. Living wages, defined by ILO, entail a decent standard of living for workers and their families, unlike minimum wages which focus on sustenance alone. Currently, the average minimum wage of Rs15,000 per month is 40 per cent less than the mean living wage of Rs24,000, calculated by the Wage Indicator Foundation (WIF), with benchmarks varying by a state’s living standards (from Rs19,000 to Rs29,000). WIF’s benchmarks are based on parameters including food, water, housing, transport, education and healthcare. These will be the benchmarks for enterprises for giving their workforce an opportunity to ‘live’ rather than just ‘stay alive’.

The myth of unaffordability: The Economic Survey of India 2023-24 highlighted that, while the profits of India Inc have nearly quadrupled between 2020 and 2023, minimum wages for workers have remained stagnant. During this period, compensation of the managerial cadre has seen increases of 20-80 per cent.

Many question the affordability of living wages. A recent unpublished study with Symbiosis School of Economics, covering more than 100 BSE companies, reveals that, for manufacturing enterprises, the total ‘people cost’ averages ~8 per cent of the company’s sales value and, within that, the cost of informal/contract workforce is less than 2 per cent of sales value. By increasing compensation for contract workers by 20 per cent would impact a company’s bottom line by less than 0.4 per cent, while making a huge difference in the lives of the workforce. Look at the irony, these very enterprises take a 3-5 per cent increase in the material cost (which constitute 50 per cent of the sales value) in their stride all the time.  Affordability is actually a perception issue – just a mindset.

At this crucial juncture, when India is staking its claim to be a ‘global industrial hub’, it is imperative that enterprises introspect and make this growth-inclusive and equitable. For far too long, this segment of our workforce has been deprived of their basic dues. 

The author is Chairperson, Social Compact and Past President, MCCIA
Business India
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