Govt hikes minimum wages; central sector workers’ pay to rise by up to 60%

Central-sector workers will now see their wages go up by upwards of 40% — and in some cases even close to 60% — with implications not only for Union government entities but also states and sections of the corporate sector and small industries, as their labour costs will rise. However, trade unions except the RSS-affiliated BMS refused to call off their planned all-India strike on September 2, saying their charter of demand is much larger.

Finance minister Arun Jaitley, flanked by power and coal minister Piyush Goyal and labour minister Bandaru Dattatreya, said on Tuesday that with the government accepting the Minimum Wages Advisory Board’s recommendations, the unskilled non-agriculture worker in non-urban areas will get at least Rs. 350 for a day’s work, up 42% from what she is paid now.

To placate the agitating unions, the government also announced a doubling of the calculation ceiling to Rs.7,000 per month for payment of productivity-linked bonus (PLB) and ad-hoc bonus for 2014-15 and 2015-16, a move that would mean an outgo of about Rs.3,000 crore and benefit about 40 lakh non-gazetted central government employees and, possibly, such employees of central PSUs as well.

Although Jaitley did not reveal the exact quantum of minimum wage increases for workers of different skill levels in urban and other areas in all the 45 scheduled job categories, FE has learnt that all of them would see similar wage hikes. Currently, the wage difference between an unskilled worker and a highly skilled one ranges from 16.5% in the case of agriculture to 65% in the construction sector; also, wages in metros and other large cities are higher than in non-urban agglomerations by 10-50%. These differences will more or less be retained. The minimum wages for various scheduled employments were last hiked 5-10 years ago. Centre’s and railways’ annual outgo from the doubling the calculation ceiling for bonus.

While the wage increases proposed by the labour ministry in a draft prepared earlier was in the range of 60-90% for unskilled workers and unions demanded the lowest wage level to nearly treble, industry sources said the impact of the Centre’s decision will be felt the most in the mining, agricultural and construction sectors. Large corporates won’t feel the pinch much as they “are anyway paying higher than the minimum wages”, as Maruti Suzuki India chairman RC Bhargava put it. Small-scale units, especially in labour-intensive areas like leather manufacturing, weaving and textile processing, could be hit as their actual wages in many parts of the country are at par with the minimum wages prescribed.

Mining industry sources said that the wage hike will lead to cost escalation, making it difficult for the sector to remain competitive. “This might result in more imports. Again, with this kind of hike, India is gradually moving towards being a high-cost economy and, thus, will lose its competitive edge over others,” said an industry official, asking not to be named. JSW Steel’s joint MD and group CFO MVS Seshagiri Rao said: “When the cost is increasing at this magnitude, it will be good if it is linked to productivity improvement.” He added that the company always pays the prescribed minimum wage to its contract workers. “However, with the hike, there would be more money in the hands of the people, which will stimulate demand,” he added.

A senior official at state-run NMDC said: “We may not feel much impact on the mining space since most of the job there is done by our own employees (rather than workers hired on a temporary basis). However, the ongoing construction work will definitely get delayed as the appointed contractor will employ less number of workers for the job. Future construction works will be costlier, though.” NMDC is setting up a 3 million tonnes per annum steel plant at Nagarnar in Chhattisgarh at an investment of Rs 15,525 crore.

Coming close on the heels of the 23.5% increase in the Centre’s pay and pension bill from the Seventh Pay Commission — the additional outflow in the current fiscal is R85,000 crore — an across-the-board increase in minimum wages for central-sector workers could boost demand for food, clothes and mobile phones. It could also stoke inflation. In its bimonthly policy review on August 9, the Reserve Bank of India had said the risks to its March 2017 target of 5% retail inflation continued to be on upside on factors like food inflation, services and the effect of the pay panel. It, however, added that strong sowing and the positive progress of the monsoon augured well for food inflation.

After the pay panel hike, the monthly starting pay for central government staff is Rs.18,000, while the monthly minimum wage demanded by trade unions for temporary workers in the central sector is Rs. 15,000. As against the minimum wage for the lowest paid central-sector worker — unskilled agricultural labourer in non-urban areas — will now get R300 per day, up 42%. The Delhi government recently raised minimum wages by around 50% across categories, making the minimum wage for an unskilled worker Rs.14,052 per month.

Meanwhile, listing out the assurances by the Centre on meeting many of their demands and “productive and result-oriented” discussions, BMS said it won’t participate in the strike on September 2.

This article originally appeared in the The Financial Express on August 31, 2016.

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