Indian policy wonks and politicians have been having a love affair with the concept of a universal basic income (UBI). This refers to a targeted transfer of a given quantum of money—either universally or to an identified group. The Prime Minister’s Kisan Samman Nidhi scheme, or PM-KISAN, where 6,000 will be transferred to small and marginal farmers, is the latest example of this. Telangana’s Ryuthu Bandhu scheme, characterized as an agricultural investment support scheme, first popularized this idea. With election season in full swing, political parties are vying with each other to propose a targeted, unconditional cash transfer in their manifestos.

As transfers to the agricultural sector gain speed and traction, there will inevitably arise a clamour from other sectors of the economy—industry and services—to better their lot. While the casual urban worker still earns more per day than a casual rural worker, the real wage of a casual rural worker has risen at a rate of 3.9% per annum for two decades since reforms were set in place in the early 1990s. This is a nearly full percentage point higher than it is for services and industry, as estimated by the International Labour Organization (ILO) using National Sample Survey Office (NSSO) data through 2011-12. The (relative) real increase in wages of the agricultural sector has narrowed the differential in earnings between the rural and urban worker. Granting further unconditional transfers to rural households will bridge this gap further and stoke demands from urban workers.

Given that India is unlikely to be able to afford a truly universal basic income, the most likely mechanism for urban workers to demand their pound of flesh is through an increase in the minimum wage. In the same way that UBI is capturing the imagination of policymakers now, minimum wage used to be the topic of discussion in the post-war developed world. India was the first emerging market to adopt a minimum-wage policy. The Minimum Wages Act of 1948 is still the basic statute that guides Indian policy today. The Act directs that “the state shall endeavour to secure, by suitable legislation or economic organization or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of works ensuring a decent standard of life, and full enjoyment of leisure and social and cultural opportunities in particular". For this purpose, a tripartite committee was constituted, with representation from employers, employees and the government.

The role of a minimum wage in an economy is much debated. Critics argue that minimum wages, contrary to their objective, force businesses to shed workers and over time substitute human labour with machines. Believers say that there is no empirical evidence of any such effect, and that increases in minimum wages do end up helping society by increasing incomes and improving the living standards of workers. My take is that within a reasonable band, it does more good than harm.

The government has been working on unifying labour regulation under a “Code on Wages Bill". Even though the Bill has lapsed with the ending of the 16th Lok Sabha, it could form the basis of a new bill after elections. A central element of the new code is a binding national minimum wage. An expert committee recently submitted its report on “Determining the methodology for fixation of the national minimum wage". This panel has recommended a need-based national minimum wage of 375 a day for a family comprising 3.6 consumption units. For estimating national minimum wage at the regional level, the committee has recommended using a nationally representative food basket for all regions instead of estimating and using regional representative food baskets. “This will help dissociate the consumption pattern from the level of poverty and ability to pay in a region, while maintaining the palatability of the food basket," it said. It recommends indexing this number to consumer inflation. This national minimum wage is expected to serve as a floor for state-based minimum wages since it is covered as a concurrent subject under Seventh Schedule of the Constitution.

The committee’s recommendations are based on rigorous empirical analysis and appear to reflect the reality of the labour market today. Its codification through a bill will be a welcome addition to the balance between the wages of rural and urban workers.

Much will need to be done beyond this as well. Most particularly, on unemployment insurance. The design of unemployment insurance in India, with nearly 75% of its employment in the informal sector, is non-trivial. The disposition towards work captured as “willingness to work" needs to be collected at an economy-wide level so as to pay unemployment insurance for a finite period. A willing but unemployed worker needs pathways to employment that suit employers and employees, and if necessary, facilities to retrain for value-added work.

Even beyond the obvious fiscal implications, India’s current obsession with debt waivers and unconditional transfers will have second-order effects that will impact work and wages for the coming decades. A more holistic approach to work, income and social security will be needed to balance the hopes and aspirations of all types of households. A binding national minimum wage is a small but important first step.

As Mahatma Gandhi said,“Without action you aren’t going anywhere."

Narayan Ramachandran is chairman, InKlude Labs. Read Narayan’s mint columns at www.livemint.com/avisiblehand

Close