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The Indian Constitution has defined a 'living wage' that is the level of income for a worker which will ensure a basic standard of living including good health, dignity, comfort, education and provide for any contingency. However, to keep in mind an industry's capacity to pay the constitution has defined a 'fair wage'. Fair wage is that level of wage that not just maintains a level of employment, but seeks to increase it keeping in perspective the industry’s capacity to pay. Wage policy before Independence, was arbitrary, conventional, customer-based following the traditional agrarian-cum-feudal systems without having any bearing on industrial society and factory system.After 1918, especially under political leadership of Mahatma Gandhi and left wing communist ideological projection, a number of ad hoc enquiry committees, without statutory sanction, sought to settle wage disputes.The Indian Trade Disputes Act, 1929 might be considered an important landmark which ushered in a new era of state intervention in Indian Industrial Relations system affecting wage questions within capitalistic method of production. The Report of Royal Commission on Labour in 1931 was the first systematic enquiry which, among other issues, focused the following aspects of wages governing a suitable wage policy:
(a) Wage levels in different industries (b) Minimum wages (c) Standardisation of wages (d) Inter-sectoral wages and incentives (e) Payment of wages (f) Unfair deductions.
During the Second World War, war conditions resulting in high prices and diversion of consumer goods to military needs necessitated the system of payment of dearness allowance and bonus, which constituted subsequently important elements in wage policy. The Rage Committee (Labour Investigation Committee) in 1946 later reviewed the wage questions and emphasized the following with regard to a wage policy:
(a) Wage differential of agricultural and industrial labour (b) Statutory minimum wages in sweated industries (c) Fair wage agreements (d) Living wage. Immediately after Independence, two most significant events, i.e., Industrial Trade Resolution (1947) and Industrial Policy Resolution (1948) shaped the Indian pattern of wage policy under the Five Year Plans.
The First Five Year Plan emphasized the fair return of labour along with capital in the national dividend keeping in view the interest of consumers and primary producers. The trade resolution also proposed the curb on excessive profits through rational taxation policy and at the same time emphasized the need for capital formation. Industrial Policy Resolution emphasized the introduction of minimum wages in sweated industries and fair wages. While the Minimum Wages Act, 1948 became a reality, the comprehensive analysis and recommendations of committee on fair wages lapsed due to constitutional constraints. The Fair Wage Committee report indeed proved to be commendable efforts highlighting the concept and precept of minimum wage, fair wage» and living wage in Indian context.
Though the fair wage never became a reality in India, the report of the Committee remained a valuable document for future wage policy in India. The following important aspects of the report might be worth-noting in connection with the formulation of wage policy under the First Five Year Plan.
According to the Fair Wage Committee, a fair wage was defined as, “something more than the minimum wage but less than a living wage”. A minimum wage is intended to provide bare subsistence for preserving efficiency of the worker. A living wage has been defined as, “bare subsistence, something to maintain health and a reasonably decent standard of living”. A fair wage may also be conceptualized as something between the two, intended to provide a reasonable amount of comfort besides subsistence, but less than a living wage.
In India, courts and tribunals have relied more on the Minimum Wage Act, 1948 and the Central Government has relied more on Fair Wage Committee Report for the definition and interpretation of minimum wage and living wage, the concept of fair wage being relegated to the background. Article 43 of Directive Principles of State Policy of Indian Constitution lays down the following relating to living wage: The state shall endeavour to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage. Quite undoubtedly fair wage is desirable on humanitarian ground for Indian workers; its feasibility is to be examined in the context of some prevailing constraints of economic conditions. Introduction of fair wage may adversely affect the full employment policy, capital formation and income distribution.
Because fair wage must be in tune with a national wage policy monetary policy and fiscal policy. Fair wage may add to inflation further in the context of stagnant labour productivity and rising cost of living index.
In view of these constraints the Planning Commission made recommendations in the matter on the eve of the first plan heralding the planned economy in India. At the outset, it must be noted that wage policy during the Five Year Plans, in large measures, is the reflection of labour policy of the Central Government at macro-level.
At the state level, each state pursues its own labour policy in conformity with central labour policy according to its own expediency and regional needs capable of translating the policy at micro-level. Wage policy, therefore, follows the similar pattern. A brief review of wage policy during First to Seventh plan is given here.
The First Plan aimed that “all wage adjustments should conform to the broad principles of social policy and disparities of income have to be reduced to the utmost extent”. At the same time, the Plan insisted on avoiding wage increase which would raise the cost of production and set in motion a wage-price spiral leading to illusory money income without any real increase.
The Plan recommended wage increases only under certain circumstances viz:
(i) To restore anomalies or whether the existing rates are abnormally low;
(ii) To restore the pre-war real wages, as a first step towards the living wage, through increased productivity resulting from rationalisation and renewal or modernisation of plant.
The Plan opposed an upward revision of wages without increase in productivity as it will lead to inflation. But this policy was not followed in subsequent plans as wage inflation continued to plague the country.
The Government, being aware of the limitations of the Minimum Wage Act passed in 1948, encouraged wage determination in many industries in the process of collective bargaining, tripartite conciliation proceedings and adjudication.
The Second Plan elaborated the implementation programmes on the basis of the points of wage policy formulated in the First Plan. It referred to the need of fair wage, living wage differentiating from minimum wage.
The Plan emphasized that earnings beyond minimum wages should be necessarily related to results, and recommended the setting up of wage boards. Emphasis was made on the workers’ participation in management as a principle. Management councils were set up and the programme of workers’ education was started.
The Third Plan added nothing new to what had already been formulated in the Second Plan. It reviewed the working of the wage policy laid down in the Second Plan; and stressed the need for better implementation of wage programmes. It, however, drew attention to the principles of the need-based wages as indicated by the Indian Labour Conference.
The Plan also suggested several steps to strengthen the machinery for the implementation of minimum wages more effectively. For the first time, human resources development policy was hinted laying stress on skill and quality development of labour.
The wage policy of the Third Plan stressed special emphasis code of conduct and discipline to improve labour-management relations and union rivalry. The Fourth and the Fifth Plans, other objectives being the same as in previous Plans, emphasized that labour movement should assume larger responsibilities in national production and development.
The Fourth Plan particularly expects managements in both private and public sectors to create conditions in which labour can make maximum contribution towards increased productivity.
The Fifth Plan emphasized on the need for an integrated income policy as basic to national wage policy. It although favoured linking dearness with cost of living, full neutralisation at all levels was not favoured. The standardization of wages and the narrowing down of wage differentials was the keynote of the Fifth Plan wage policy. Payment by results was to be linked with productivity.
The following were the basic principles of wage policy during the Sixth Plan:
(i) The real wages of workers in the lower income brackets should not be allowed to fall. For other workers excepting supervisory and managerial personnel, graded compensation for significant increases in the cost of living should be granted.
(ii) Real wages should also change in some relation to the change in real productivity of workers.
(iii) Money wages in an industry should be related to the change in cost of living and change in real average productivity per worker in the industry.
(iv) Coverage of minimum wages should be further extended provided enforcement or extension does not cause shrinkage of employment opportunities and harassment in very large number of un-organised informal units.
(v) The possibility of enforcement of minimum wages in informal sectors should be considered when such units are better organised as economically viable units.
(vi) Minimum wages should be extended taking into consideration the capacity of pay and also minimum wages should be frequently revised to allow for change in the cost of living.
(vii) Notwithstanding the need for inter-state differences in minimum wages on account of wage levels, prices and productivity, excessive differences should be reduced to leave the way for standardisation of wages.
(viii) A long term wage policy should be adopted ensuring similar wage for similar work. But historical interest anomalies in the prevailing wage structure in different industries should be removed thereby paving the way for wage negotiations and collective agreements.
(ix) Undue wage differentials should be removed gradually over time through training and continuous upgradation of skills at various levels.
(x) Effective measures should be taken to limit property incomes and to guarantee employment to the poor at a minimum subsistence level for the purpose of coordinating wage policy and income policy.
The subsequent Five Year Plans did not lay down any specific wage policy. In the context of the performance of India’s Five Year Plans and the need for economic growth under planned economy, the following may be discussed as objectives of a growth-oriented wage policy.There seemed to be wide controversy on the various determinants of a rational wage policy in India as suggested by different quarters. Perhaps, it would be more appropriate to characterize the determinants as factors or issues of wage policy.
In 2012, Mazdoor Kisan Shakti Sangathan urged the Supreme Court to withdraw the SLP to the PM to rediscuss Karnataka High Court and Andhra Pradesh high Court's judgments. Supreme Court asked the Central Government to consider respective states' minimum wages to bring parity between them. The Labour Department decided to make revisions in minimum wage rates mandatory within three years. From 1 July 2015 the National Floor Level of Minimum Wage was raised to Rs 160 per day. On 1 September 2015 labours in unorgainsed sector extended their support to one-day nationwide general strike called by central trade unions (CTUs). Later than Shri Bandaru Dattatreya, the Minister of State(IC) for Labour and Employment, elaborated on the initiatives and continuing efforts of the Government to address the issues and concerns of the Trade Unions for the welfare of workers. If the norms are implemented then the minimum wage would be not less than Rs 273 per day which is currently Rs 160 per day.
It is more difficult and controversial to analyse what should determine a wage policy. The following study, therefore, is evaluative in this respect, taking cognizance of some important issues though controversial. It is suggested from many quarters, that, wage policy in a country like India should take into consideration per capita national income, agricultural wages and wages in small scale sector and self-employed sector as well as productivity. This contention, however, is subject to several limitations. For example, Indian economy being conditioned by wide regional and sectoral disparities on account of skill, productivity and economic level, wages cannot be equalised with any national average income. Wage differentials are the natural traits of Indian economy.
Further, marginal productivity of other types of labour, if measurable, cannot be identified with industrial labour. Different conditions, particularly living standard and nature of employment in those categories under reference are also not comparable. Mixed economy of India has posed many problems and projected new horizon of hopes and prospects. In the context of the performance of the public sector and Five Year Plans, several new issues have emerged which can be examined briefly.
Generally speaking, the most important contemporary issues like wage rate and wage differentials in India are interlinked with broader economic decisions of social goals. The price of labour as input on factor of production influencing prices and allocation of other factors of production has both inflationary and deflationary tendencies which are related to incomes and price policy as well. In countries like Netherlands, Norway, Sweden, France and U.K. Wage policy is closely linked with incomes and prices policy. Although economic conditions in India are different from these countries, wage policy should be so framed as to recognise interdependence of wage, price, income, employment and real output both at micro and macro level. Closely related to this approach, wage policy should be consistent with economic planning, growth, social goals and capital formation. These issues have emerged in greater complexity in our country if compared with advanced countries like, USA, UK, Germany and Japan. For, in these advanced countries, share of labour in national incomes has remained stable. Further, certain issues like savings, investment, and consumption pattern in India are greatly different, rather low as compared with these advanced countries. In India, it is to be decided if wage policy should be consumption oriented or investment (savings) oriented.
We face a great dilemma of the technique of growth with regard to the problem of choice between growth and stability. Wage policy must simultaneously confront with the need for both investment and consumption, as India requires both at the present moment. Workers necessarily are also entitled to the gains of growth in having better consumption of goods for higher standard of living. At the same time, savings are necessary for capital formation and higher investment. But, with limited resource mobilization, the two are difficult to achieve. Wage policy should find an answer to this dilemma. There exists other issue concerning wages and employment. While wage cut on Keynesian reasoning may be possible, prescription for higher employment in certain sectors of economy is not conducive for higher effective demand and employment.
Under Five Year Plans, both labour intensive and capital intensive wage policy is a sine qua non of dualism in mixed economy. There is also wage-profit relationship which must be considered in a national wage policy.
In subsequent pages, a more detailed study of wage-employment, wage-profit relations in wage policy is to be made besides relevance of income policy. Certain amount of wage-differentials is necessary for growth, incentive as well as productivity. This also necessitates standardisation of wages and uniformity in wage level and wage structure requiring the application of minimum wage in classified industries. Consideration of wage structure is also to be examined in greater details. Because, a study of wage structure as a crucial issue of wage policy is relevant because of the following factors:
(a) Fair return to labour and capital
(b) Labour efficiency and productivity
(c) Wage level
(d) Surplus to industry for capital formation
(e) Public revenues
(f) Need of the economy for resources
(g) Supply of consumer goods at stable and fair price.
Price policy must also be related to wage policy. Continuous rise in cost of living and neutralisation of real wages by linking dearness allowance with basic pay cannot be a permanent solution to the real problem of growth.
Full neutralisation effect to dearness allowance resulting in demand-pull and cost-push inflation is hardly conducive to economic growth. What is urgently needed is the holding of price line commensurate with productivity.
Compensatory payment for protecting real wages of workers generally do not lead to increase in overall purchasing power as the feedback must taper off after a certain level; and also the elasticity of compensatory payments to changes in cost of living is generally less than unity.
Wage determination, methods of wage payment must also find an important place in wage policy. Also a national wage policy must be formulated and implemented as early as possible incorporating the foregoing issues in appropriate manner, and in conformity with India’s need for quick economic growth and employment as well as declared social objectives.
By: Abhishek Sharma ProfileResourcesReport error
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