April 4, 2024


Is a “living wage” feasible for India?

In his seminal book Wealth of Nations, economist Adam Smith wrote that a man’s wages must at least be sufficient to maintain him. He argued for wages that would be enough for people to live fulfilling lives. Otherwise, it could affect a country’s growth. In essence, a ‘living wage’.

India is reportedly considering adopting a living wage instead of a minimum wage. The government has approached the International Labour Organisation (ILO) to help draw out a framework to see how living wages could be applied. Is it wise to replace the minimum wage? Would a living wage even be feasible?


Earlier last month, the ILO endorsed the concept of a living wage after an agreement was reached at a Meeting of Experts on wage policies in February. Last month, the ILO’s governing body formally endorsed it.

Here’s the very basic employment scenario in India. We’ve got over 500 million workers, and the vast majority are in the unorganised sector. Based on the state they work in, they earn a minimum wage of at least ₹176 per day. The national wage floor has remained stagnant since 2017 and isn’t implemented uniformly across states. That means there are discrepancies in wage payments.

According to the ILO, a living wage can’t be a one-size-fits-all approach. The ILO defines a living wage as a level of remuneration necessary to afford a decent standard of living and takes into account the country’s circumstances and the work performed during normal working hours. A decent standard of living means access to water, food, housing, education, healthcare, etc.

The concept of a minimum wage goes back to 1919 when the ILO adopted it. In India, it was first discussed in 1929 by the Royal Commission on Labour. It was again discussed at subsequent meetings of the Standing Labour Committee in the early 1940s. In 1946, a minimum wage Bill was introduced and included in the statute book in 1948.

In 2017, the government approved the Code on Wages Bill to subsume four Acts, including the 1948 Minimum Wages Act. The Bill proposed a minimum wage set across the country and binding on all states.

Putting the merits and demerits of such a move aside, the government now seems interested in moving away from the minimum wage concept. The UN Global Compact encourages companies to promote and provide a living wage for all employees. According to UN data, over 170 countries have one or more minimum wage laws. In 2021, the Compact supported living wage and living income economies. The German, Dutch, and Belgian governments were among the ones that signed a joint statement in 2021 supporting living wages and incomes.

From India’s point of view, the goal of adopting a living wage is to fast-track efforts to pull millions out of poverty. Is this possible in India?

VIEW: It can and should be

While a minimum wage has been essential for India for decades, it hasn’t been all that successful. As stated earlier, there’s no fixed minimum wage rate across all states. In fact, a 2018 ILO report pointed out flaws in India’s approach to calculating minimum wages. The ILO’s own adoption of a living wage points to a global shift toward lifting millions out of poverty. Without a living wage, employees might be forced to work multiple jobs, send their kids to work, and not have enough to withstand an emergency.

A living wage is considered much higher than the minimum wage since it accounts for spending on education, healthcare, transport, etc. This means people have enough money to sustain themselves and their families if they’ve got one, and ensure they don’t fall back below the poverty line. Given the number of people working in the unorganised sector without union representation and collective bargaining power, they’ve been deprived of even a minimum wage.

Minimum wages in India are still seen as an unfulfilled goal. This is where a living wage could come in. Some might conflate a living wage with some sort of guaranteed or universal basic income. However, a living wage is superior; there are no free lunches here since employment is the basic standard. With a less skewed distribution of income, overall demand for goods will increase. There’ll be a knock-on effect on the economy.

COUNTERVIEW: Tough to implement

If you’re a company, the concept of a living wage might seem daunting. Companies focus on their bottom lines. Providing people with more money might affect that. This could affect their hiring and expansion prospects. If a living wage is introduced, that would mean creating a wage floor. That could be bad news for businesses, especially those that can’t afford to pay higher salaries.

Without addressing the gaps in how minimum wages are calculated and implemented, the concept of a living wage, generally understood to be higher, as stated before, would be unfeasible. While the ILO talks about an incremental progression from minimum wages to living wages, there’s no collective bargaining even in the implementation of minimum wage in India. If we’re struggling to even effectively pay people minimum wages, living wages, which includes more things, will be nearly impossible.

There are a couple of other things to take note of. Who would be mandated to pay a living wage? Would it be the government? Can the government mandate private companies to adopt and pay living wages? Suppose a person loses employment, then they would no longer get a living wage. In such a circumstance, their personal savings should be enough. That means there should be a robust social safety net, which isn’t the case in India.

Reference Links:

  • India plans to replace minimum wage with living wage by 2025; Know the difference between two – CNBC TV18
  • India may replace minimum wage with living wage: What does it mean? – Firstpost
  • Good idea: Editorial on living wage for workers – The Telegraph
  • Can India Ensure Living Wages at a Time When Workers Struggle for Minimum Wage? – The Quint
  • India to shift from minimum wage to living wage system by 2025: Know what it means for the country – Mint

What is your opinion on this?
(Only subscribers can participate in polls)

a) A living wage is feasible in India.

b) A living wage isn’t feasible in India.


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