23 August 2005

Employment Guarantee: Minimum wage must be treated as sacrosanct

The guarantee of employment at a wage rate less than the statutory minimum — as the draft EGA stipulates — will undermine the broad purpose of the law and set a bad precedent.

23 August 2005
The Hindu

Minimum wage must be treated as sacrosanct

Siddharth Varadarajan

ON THE very eve of legislating an employment guarantee with the potential of transforming the face of rural India, Parliament is poised to undermine the Minimum Wages Act — a law whose role in the empowerment of unorganised workers has been no less salutary.

Though the Employment Guarantee Act (EGA) as originally conceived by the National Advisory Council had said that "in no circumstance shall labourers be paid less than the statutory minimum wage of agricultural labourers applicable in the State," the Bill as tabled now stipulates that "notwithstanding anything contained in the Minimum Wages Act 1948," the wage payable to those working under the EGA will be fixed at Rs. 60. There is no explanation for why the wage is to be fixed at this rate or even any suggestion of automatic indexing.

To give the Government's drafters the benefit of the doubt, the question of what wage rate is payable is a highly complex one. There is, first of all, tremendous variation in the statutory minimum wage rate across States, with Kerala heading the list at Rs. 126 and Meghalaya at the bottom with Rs. 26. Many States with a large number of rural poor — such as Jharkhand, Chhattisgarh and Bihar — have a minimum wage that is less than Rs. 60. Others, such as Rajasthan, have a rate that is a little higher.

Second, under the terms of the fiscal bargain that has been struck over the provisioning of funds for the EGA, it is the Centre which will bear the entire burden of the wage bill while the States are liable only for 25 per cent of the cost of work material. The Centre, perhaps anticipating unwarranted increases in the State-specific minimum wage, might want to protect itself by stipulating a wage ceiling. Third, the overall cost of the scheme is so closely linked to the wage rate that pegging wages at a lower level is seen by the Centre as an easy way to keep its fiscal commitments to a minimum.

Attractive though these fisc-oriented arguments might be, there are solid legal, political and economic reasons to revert to the NAC draft's proposal that workers participating in the EGA must be paid nothing less than the minimum wage in force in their State.

Legally, indeed, there is absolutely no scope for ambiguity. In Sanjit Roy vs. State of Rajasthan (1983, SCC (1) 525), the Supreme Court ruled that the payment of wages at less than the statutory minimum rate — even for famine relief — violated the ban on forced labour stipulated by Article 23 of the Constitution. As such, any law which sought to derogate from the payment of minimum wages was ultra vires. "Whenever any labour or service is taken by the State from any person, whether he be affected by drought and scarcity conditions or not, the State must pay, at the least, minimum wage to such person on pain of violation of Article 23," Justices P.N. Bhagwati and R.S. Pathak ruled. They added: "The State cannot be permitted to take advantage of the helpless condition of the affected persons and extract labour or service from them on payment of less than the minimum wage."

The judges drew on an earlier judgment (Peoples Union for Democratic Rights and Ors. vs. Union of India and Ors., 1982), in which the apex court expanded the definition of "forced labour" to include "compulsion arising from hunger and poverty, want and destitution." Clearly, then, employing an indigent woman or man under the EGA in a State where the minimum wage is more than Rs. 60 would constitute forced labour and fall foul of Article 23.

In economic and political terms, too, the proposed compromise on the question of minimum wages would have a disastrous effect on the rural poor and all unorganised workers.

Unlike populist promises such as free water and electricity to farmers, the minimum wage is not a sop or a concession — it is supposed to be the minimum required for a worker to keep himself and his family afloat. Under the norms adopted by the Indian Labour Conference in 1957, minimum wages are meant to be "need based," where needs are defined with reference to a certain minimum calorific intake, clothing requirement etc. The Supreme Court later amplified this (in Workmen of Reptakos Brett & Co. Ltd. Vs. Management, 1991) by adding, inter alia, children's education, medical requirements and provision for old age. It is a different matter that perhaps no State Government has put in place a genuine "needs based" minimum wage, let alone bothered to enforce whatever inadequate rate it has notified as statutory.

Poor people need an employment guarantee act not only because they do not have proper jobs but because the "work" they are currently doing earns them a pittance. Every person who is poor in India labours extremely hard in a variety of ways but there is no administrative or legal mechanism to ensure she or he receives her or his legal entitlement. That is why India has such unpardonable levels of malnutrition, stunting and wasting among its children.

The attraction of an officially-backed EGA lies precisely in the possibility of bundling together — in one revolutionary package — a set of legally enforceable employment norms that could end food insecurity, empower village communities, and create useful public assets in rural areas. In other words, a properly structured EGA would not only help its direct beneficiaries, it would also generate positive externalities throughout the rural economy. And it would help States actualise the statutory minimum wage for all unorganised workers.

By bringing an EGA which dilutes the minimum wage protection, however, the Manmohan Singh Government will open the doors to a broader assault on the wages of the unorganised sector and make it that much more difficult for the Minimum Wages Act to be enforced across the country.

Having come this far in accepting the Government's responsibility to ensure a citizen's right to a dignified life, the United Progressive Alliance should not develop cold feet at the eleventh hour. Revolutions do not come in half measures. If there is to be a new deal for India's poor, the promise of employment must come together with enforcement of statutory minimum wages. The Government should ensure there is no inconsistency between these two objectives and pass the EGA without any further delay. One way out would be for Rs. 60 to be considered a Centrally-funded "floor" wage with the States topping this up in a manner consistent with their obligations under the 1948 Minimum Wages Act.

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Further reading: Click here for the website of the Right to Food campaign.


Anonymous said...

The argument is valid that EGA contradicts minimum floor wage. I wonder how is it done in other countries. For example, as far as I know in USA there is nationally mandated minimum wage. I do not hear about state differences. The funny part is States in India are classic example of what is wrong - cannot afford a dime but want to put a posture of Big Wealthy Brother.

Related to states, one thing which I am curious to know is how the scheme is proposed to be implemented? Are they talking any new mechanism or the same old state machinery? If it is latter, the fear is lot of money will be wasted. Do we know that implementation issues are taken care? Or the cynical view point that - yet another "Gabribi Hatao" which removes poverty of state officials only - is still valid. One is unable to find more information on this point.


Anonymous said...

Minimum wage does two thing very well: keep people un-employed (business are unwilling to pay inflated wages), and create a black market for labor (business will pay what they want they just wont report this to the govt).

Both of these cases are harmful to the overall economy, and it is the common laborer who suffers the most.

The un-organized sector (a euphamism for black market) is huge in India, these business don't follow the rules, and don't pay any taxes. In every socialist regime, there is a huge black market, it is inevitable.

The way to improve the conditions of the poor is to attract more investment, especially FDI. China gets $60 billion a year in FDI. The employment gurantee program will require an investment of $6 billion.

Compare these two things and ask: is it better to get $60 billion from foreigners, or pay $6 billion from your own pocket?

Anonymous said...

States and Local governments must be, to put it in the words of Milton Friedman, "Free to choose" whether they want a minimum wage or not. If they don't then the national government has no right to impose a statuatory minimum wage. This is part of what is wrong with India. Decentralize planning and administration to the local governements and let them set the rules. Only then will the citizens be truely 'free'

Anonymous said...

government does not makes the rules just to cover as many as it can. the stautory provision which leaves no choice to choose-to demand or not to demand minimum wages, is becuse no poor who works and is covered in the catagory of min wages entitlment would ever freely agree to work on less then min wages.... and if he agrees its due to other pressing things.. such a contract which is between two different classes of people-- chances of exploitation are very high. if such a consent one thinks is free consent then surely we do not need the minimum wages act at all.