The government has recently approved the new Wage Code Bill which, if passed by the Parliament, will set a minimum wage of Rs 18,000 across all sectors. Labour reforms are usually welcomed by India Inc., but the latest move has created quite a stir in the corporate circles and may prove counterproductive.
According to popular opinion, it will hinder hiring, especially at the entry level, and boost lower-paid informal employment due to increased compensation costs to companies. Having a uniform wage standard in a perse country like India, where the topography and the cost of living change every 50 km, seems more in sync with a 'Licence Raj' than with the ease of doing business or furthering the cause of worker protection, says Sharanya Ranga, a corporate lawyer at Advaya Legal.
For a nation to develop, economic opportunities need to be created uniformly across all regions. However, this initiative will hinder the movement of companies to hinterlands where they seek competitive advantage in terms of labour cost. It will also add to the existing problem of job polarisation and people's migration to metros, which are already struggling to cope with the burgeoning population and deteriorating infrastructure, says Rituparna Chakraborty, Co-Founder and Senior Vice President, TeamLease.
Wages should be determined by the economics of demand and supply, says Chakraborty. "India needs more formal jobs, not protection. Setting up a minimum wage of Rs 18,000 seems to be a political move driven by populism than economics."
There is a lesson to be learnt from China, which has created avenues for jobs and since the 1970s, the wages have gone up five times compared to the wages in the US, she adds.
Incidentally, the Labour Code on Wages Bill, 2015, consolidates the Minimum Wages Act, 1948, the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976, into a single statute. It is in line with the original intent for the much-desired labour reforms as the idea is to do away with the multiplicity of acts and replace them with one comprehensive legislation that is easy to understand, implement and comply with, says Ranga of Advaya Legal.
The Bill is expected to be discussed in Parliament before August 11. As of now, it has to be wait and watch till the fine print is out, which will determine whether it is in line with promoting the ease of doing business in India.