Insights into Editorial: The minimum wage solution
The government made two recent announcements at two ends of the spectrum to mitigate the economic crisis.
One concerns a new indexation of NREGA wages meant to increase rural incomes. The second is a reduction in corporate tax rate.
A committee of experts set up by the Union rural development ministry has recommended that the wages paid to unskilled agricultural labourers under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) should be the minimum wage fixed by the respective state or the current wage as per the consumer price index for agricultural labourers (CPI-AL), whichever is higher.
The panel also recommended linking the wages to the Consumer Price Index, Rural (CPI-R), for protecting MGNREGA wages against inflation.
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) of 2005
This is a rural wage employment programme in India. It provides for a legal guarantee of at least 100 days increased to 150 days now, of unskilled wage employment in a financial year to rural households whose adult members are willing to engage in unskilled manual work at a pre-determined minimum wage rate.
The objectives of the Act are:
- to enhance the livelihood security of the rural poor by generating wage employment opportunities; and
- to create a rural asset base which would enhance productive ways of employment, augment and sustain rural household income.
Now, Necessity of revising MGNREGA Wages: (CPI-AL) to(CPI-R)
Prices of commodities increase each year, so it’s important to accurately estimate how much a NREGA labourer should earn in 2020 if she earned Rs.179 (national daily average NREGA wage) in 2019.
For this, we need a good index to benchmark and revise the wages.
Indices are (weighted) averages of the prices of a basket of goods consumed and the index must be based on the main items of consumption for rural households.
NREGA daily wages are to be indexed with an updated inflation index called the Consumer Price Index-Rural (CPI-R) instead of the older Consumer Price Index-Agricultural Labourers (CPI-AL).
The calculation of CPI-AL involved more food items in the consumption basket while the calculation of CPI-R involves more non-food items such as healthcare and education. CPI-R better reflects the rural consumption basket compared to CPI-AL.
Increase base wages:
- Minimum wages are legal mandate that are arrived at by calculating the minimal nutritional requirement and basic needs of an individual.
- The current daily NREGA wages are just a quarter of the minimum daily living wage of Rs.692 as outlined in the 7th Pay Commission.
- Although this new indexation is critical, it will have a sizeable impact on increase in rural incomes only if the base NREGA wages are high.
- For example, let’s assume a 10% increase in wages due to the new indexation. Then NREGA wages in Kerala at Rs.71 per day, one of the highest, would become Rs.298.
- However, if NREGA wages were equal to the State minimum wages, the wages in Kerala would increase from Rs.490 to about Rs.540.
- A substantial increase in NREGA wages and subsequent indexation with CPI-R would be meaningful for the workers and the economy.
- But barring three States/UTs, NREGA wages are still lower than the State minimum wages elsewhere, in violation of the law.
Committees and Judgments regarding wages:
In fact, the Fair Wages Committee of the Ministry of Labour (1949) noted in a progressive report that a “living wage” should also include education, healthcare and insurance besides the bare essentials.
In Sanjit Roy v. State of Rajasthan (1983), the Supreme Court held that paying less than minimum wages is akin to “forced labour”.
In Workmen v. Management of Raptakos Brett (1991), it said that the aforementioned provisions must be added to arrive at a moral “living wage” to ensure basic dignity of life.
Yet, the current daily NREGA wages are just a quarter of the minimum daily living wage of Rs.692 as outlined in the 7th Pay Commission.
The current corporate tax cut will only widen economic inequality.
According to the Oxfam Inequality Report 2018, in one year, the wealth of the richest 1% in India grew by ₹20.91 lakh crore, which is equivalent to the 2017-18 Budget.
According to estimates by CRISIL, due to the recent tax cut, 1,000 companies would have annual savings of around ₹37,000 crore. In comparison, the last annual NREGA budget is ₹60,000 crore.
So, the estimated gains of just 1,000 companies would be equivalent to the annual earnings of around 7.2 crore NREGA labourers.
Government needs to pay more attention to the poor in economic, ethical, and legal ways:
- The budget allocation for NREGA gets exhausted by October of each financial year, leading to delays in payment of wages.
- While corporate tax cuts and lower interest rates would give corporations some liquidity, it is unlikely that rural demand will increase.
- On the contrary, without a substantial increase in NREGA wages, the wages would barely match inflation levels leading to wage stagnation in real terms.
- In circumstances of unsustainable wages, the poor would be forced to become part of the migrant labour force and industries would benefit by absorbing them at throwaway daily wages leaving no alternatives.
- It is economically prudent to substantially increase the budget for public programmes such as NREGA.
- This would lead to higher disposable income for the poor which in turn would have positive multiplier effects in the economy.
Minimum wages are neither a dole nor an act of charity. They are a legal mandate that are arrived at by calculating the minimal nutritional requirement and basic needs of an individual.
The issue of wages has been another issue that needs attention till now. There is a wide spread corruption while disbursing wages.
Problems like fake bank accounts, offering fewer wages, delayed wages etc. This needs to be addressed properly for effective implementation of the Act.