Why the Wage Code is inadequate

It contains numerous positive elements, such as introduction of a statutory national floor-level minimum wage for the first time in India, but it has missed an opportunity to do more

The National Democratic Alliance (NDA) government during its first stint (2014-19) took a bold decision to rationalise the numerous labour laws into four codes, of which the Code on Wages was one. The Wage Code, which replaces four laws — the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976 — was first placed in Parliament in August 2017. It was referred to the Parliamentary Standing Committee, which submitted its report on December 18, 2018. The NDA returned to power with a massive electoral mandate in May 2019 and promptly tabled the Wage Code — revised in the light of recommendations made by the Parliamentary Standing Committee — in Parliament on July 23, 2019.  

The Wage Code contains numerous positives, such as universal minimum wages and a statutory national floor-level minimum wage, both for the first time in the history of labour legislation in India, among other things. But law-makers have missed an opportunity to do more, and could have avoided several costlymistakes.  

The Preamble of the Code should state the substantive aims of the Code, such as preventing gender-based discrimination, extending universal minimum wages, and so on, rather than stating that it is to “amend [and] consolidate the laws relating to wages bonus and matters connected…”, which is a procedural act.  

The late Prof T S Papola, using National Sample Survey data for 1999-2000, had estimated that the Minimum Wages Act, which provides for coverage of workers in scheduled employments, covered 38.1 per cent of total workers, and even with this restrictive coverage, effective implementation of this law was extremely poor, to put it mildly. Now, the Code proclaims that it covers all workers in the organised and unorganised sectors (which should include agriculture also) and this would mean coverage of at least 450 million workers (excluding government employment from the 461.4 million workers estimated for 2017-18 by the Periodic Labour Force Survey).

By the way, unlike the existing law, the Code does not specifically mention inclusion of agriculture. Does the government have the wherewithal to effectively ensure realisation of minimum wages for all workers? While it does not mean that the government cannot and should not universalise minimum wage entitlement, this ruthless reality should lead to a gradual strengthening of enforcement, to avoid the risk of it degenerating into political rhetoric. 

The Code has diluted the provisions relating to gender-based equity in the labour market, contained in the existing Equal Remuneration Act, (ERA) 1976, and missed an opportunity to do more in this regard. Its original draft included only a provision prohibiting gender-based discrimination in wages, and responding to the Parliamentary Standing Committee’s recommendation, it has included prohibition of such discrimination in recruitment only in case of similar work. It has left out existing entitlements concerning conditions of service subsequent to recruitment, such as promotions, training and transfers.

Further, the ERA even conceived ways and means of increasing employment opportunities for women by consulting expert advisory committees. To conceive that gender-based discrimination pertains only to earnings and perhaps at the recruitment stage, and to ignore pernicious forms of discrimination and even deprivation in many aspects of the world of work is to adopt a narrow approach.  

By providing for a mandatory national floor-level minimum wage instead of the earlier minimum wage rate, the Wage Code will surely bring down the numerous minimum wage rates that exist currently. It propagates multiple wage rates by stipulating minimum wages at the national, zonal and state levels, and further on the basis of norms like skill (four types), arduousness and hazardous. What is worse, it empowers the government to create more norms and yet expects that the number of minimum wage rates will be kept at a minimum.

If the objective of minimum wages is to prevent exploitation or poverty alleviation, it should provide not “merely for the bare sustenance of life, but for the preservation of the efficiency of the worker”. In other words, it should provide for some measure of education, medical requirements and amenities as well. Why should there be a hierarchy of multiple minimum wage rates based on skills? Regional peculiarities could be tackled by a state-level single minimum wage, plus a universal variable cost of living allowance adjusted quarterly instead of half-yearly.  

More important is the debate on the determination of the minimum wage, and the fact that the expert committee’s “scientifically arrived at minimum wage” falls far short of the Seventh Pay Commission’s level of ~18,000. This needs urgent resolution lest labour becomes restive. Further, the existing law stipulates revision of minimum wages “within an interval of any five years”, while the Code requires revision “ordinarily at an interval not exceeding five years”, and the latter may formalise revision only after every five years, if at all it is done religiously by governments. 

The Minimum Wages Act allows representation on behalf of minimum wage-deprived workers by a legal practitioner, any authorised office-bearer of a trade union, an inspector, or any authorised person chosen by the Authority concerned, which empowers the affected workers considerably. But the Code restricts representation to the trade union of which the affected workers are members, and the inspector. Given low and declining rates of unionisation, this will hurt workers. 

Finally, the role envisaged for the curiously titled “inspector-cum-facilitator” is quite limited, as the fundamental “power of entry at any time (or even reasonable hours), any frequency and unintimated one” has been removed in the Code, which violates International Labour Organisation norms on this. The inspection system needs reform to remove harassment and corruption, but the Code is making inspectors powerless “visitors”.  

In short, the Code aims very high but is inadequate in vital respects, which may even militate against the realisation of its grand promise.    

The writer is Professor, XLRI, Xavier School of Management, Jamshedpur