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Raising minimum wages may cost dear to the economy

Blue chip companies may not feel the pinch much as many of them are already paying higher than the minimum wages

Published: 10th September 2016 10:00 PM  |   Last Updated: 10th September 2016 11:25 AM   |  A+A-

According to media reports, the Central as well as various state governments are propounding steep rise in minimum wages. But are the industries ready to bear the burden of increased costs? Do they have the paying capacity? These are a few key questions which governments must consider or else the move may distort the labour market apart from making India’s business much less competitive on a global scale.

An inflation in minimum wages indirectly increases various other costs and statutory benefits such as provident fund, bonus, gratuity, ESI etc. Studies reveal that such a move may make our business migrate to countries such as Indonesia, Bangladesh, Vietnam, etc., where there is cheaper labour available, apart from forcing businesses to switch to more of automation.

Minimum wages are fixed by the governments for different levels of skills, based on local conditions. Such wages, however, should not go beyond the wallets. A business exists for generating profit. If a company fails to earn that, it will cease to exist. When a business’s profit margin comes under pressure, it is forced to either increase prices or reduce expenses. Wage hike will lead to cost escalation resulting in higher priced products, making it difficult for the sectors to remain economical. This may even  result in more imports, rather than achieving the aim of  Make in India.

Blue chip companies may not feel the pinch much as many of them are already paying higher than the minimum wages.  It is the smaller units that  could be hit. Businesses which cannot afford to pay workers more may be forced to close, retrench or reduce hiring. This will also make it more difficult for low-skilled workers with little or no work experience to find jobs and coerce corporates to resort to unreasonable tactics. For instance, recent announcements of a hefty percentage increase in minimum wages in some states forced many smaller units to shift out, leading to protests by workers.

Till now, the government does not have a clear methodology to arrive at the wages for various categories. What we need are minimum wages depending upon needs of workers, cost-of-living variations, as well as paying ability and structure of industries. Moreover, the need is to create a climate that leads to greater economic growth. Greater prosperity will ultimately lead to higher wages for workers, including those at the bottom of the ladder.

While a steep increase in minimum wages in vehemently opposed, a reasonable and planned hike is the need of the hour. The goal of minimum wage law is social and economic. Its aim is to protect those who may not have the resources to depend on. Also, rather than simply making an announcement of  increase in wages, the government should devise practical ways for implementation. For instance, bank transfer of salaries should be made mandatory rather than cash payments, which still takes place  especially in remote  areas. Uploading of  compliances on the company’s websites should also be made mandatory.

A law which cannot be executed is not a good law. What is the use of formulating laws that one is forced to flout without a choice? The gap between the existence of good laws and their actual  application is one of the major reasons for our economy’s sluggishness. For real benefit to the masses, what we need is a middle path and compliance-friendly provisions rather than such which require the need of even resorting to subterfuges or camouflages.   raavibirbal@gmail.com

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