Wage Code and Rules – Will They Improve the Effectiveness of Minimum Wage Policy in India?

Abstract

Minimum wage policy is regarded as an essential policy tool for improving the welfare of low-paid workers, reducing working poverty and inequality within the labour market. The Government of India recently undertook reform in the country’s wage policy and enacted the Code on Wages in August 2019. The reform measures include the establishment of a statutory floor wage and the extension of the legal coverage of minimum wage to include all wage earners, apart from the simplification of minimum wage structure in the country. To give effect to the wage code, the Government has now outlined the implementation mechanism by notifying the draft Code on Wages (Central) Rules in July 2020. This paper examines how some of the key reform measures undertaken in the wage code could potentially revive minimum wage policy as a redistributive tool targeting low-paid workers. Workers’ welfare is contingent upon an effective minimum wage policy that addresses the extent of legal coverage as well as the level at which the floor and minimum wages are set and the degree of compliance. Therefore, the paper examines the proposed implementation mechanism related to these three aspects in the draft wage rules, identifies shortcomings therein and provides suggestions for improvement.