A new law is in the works called the Code on Wages, 2017. It was introduced in the Lok Sabha in August this year and immediately referred to a standing committee for analysis. While on paper, this bill sounds all noble and all, the real effects of it might turn out to be catastrophic.

Here is one perfect example of the Delhi Ivory Tower style of ‘ruling’, where Delhi feels it is the whole and sole authority to make laws and states can bugger off. Basically. Let’s take a peek into what this new shiny bill intends to do and why we should be paying attention to what is happening on that front.

God save federalism

When our democracy was conceived by our forefathers who wrote the Constitution, it was based on one simple idea: Since India is so diverse, each state and its government should have fundamental law-making powers of their own. The more power is given to the lowest level of government, the more effective their laws will be, the better they’ll be implemented.

The concept is quite obvious. Your neighbourhood’s elected representatives will understand you and your needs better than someone sitting in Delhi. Especially if you live far away from the Capital, say in Sikkim. Your local MLA knows more about how roads need to be maintained and how landslides can be prevented than the Minister of Road Transport sitting in Delhi and getting advice from experts. Your local leader acts based on personal experiences, both her and of her own people.

Labour is one such thing which has been a subject of much debate. At the moment, both Centre and state can make their own laws on labour. That makes sense because the Rajasthan government knows more about on-ground situation in the Jaipur apparel industry than anyone else. So their laws will be tinkered to fit the people it is being implemented on.

But this power equation between the state and the Centre is always in a constant flux. Especially when the party forming the government in Delhi is different from the one that forms the government in the state. And when a particular party gets a majority mandate in Delhi, well, expect fireworks!

Like now.

Delhi will decide minimum wage

The Code on Wages, 2017 is an attempt to smoothen out our wage laws. Currently, four major laws look at remuneration for employees: the Minimum Wages Act of 1948, the Payment of Wages Act of 1936, the Payment of Bonus Act of 1965 and the Equal Remuneration Act of 1976. This law is consolidating all of that and making a singular law which will deal with all issues related.

One major thing this proposed law does is to give the Central government power to fix the minimum wage across the country.

It will have the power to set different ‘national wage’ for separate states and no state can set their own minimum wage below the prescribed central rate. What’s more, it also says that no government (both Centre and state) will be allowed to reduce the minimum wage once it’s fixed.

This is a messed up thing to do. Think about it for a second, if Delhi gets the power to decide how much wages will be paid across the country in different states, it might effectively be able to control the labour market. One state might have cheaper minimum wage than another, attracting more labour to migrate to the state with the higher wage while the other state will see a labour shortage.

India, quite obviously, is a human resource rich country. A lot of foreign investors are inclined to set up industries here because labour is cheap and in high supply. The profits of a business are totally dependent on how much remuneration they are paying the workers, so are the prices of the commodities they produce.

If the Central government decides to favour one state over the other, raising the minimum wage in one and keeping it lower in another, they would effectively be able to manipulate where investors throw their money! What might follow is a major appeasement race to praise the Lord Ruler who is in power.

Implementation woes

Anyone who knows anything about the labour market will tell you that owners prefer to keep their employees ‘off the books’ so that they don’t have to adhere to labour laws and pay minimum wage. Gormint inspectors drop by at manufacturing plants, collect their monthly bribes and look away while the labourers get exploited and live in general squalor. This is a reality which we live by and there’s no point hiding it.

The effect of setting a minimum wage, imposing high penalty on those who don’t pay up (3 years imprisonment or fine of Rs 1 lakh under this law) and effectively setting different standards for different states, would only encourage more business owners to keep their workers in the informal sector or ‘off the books’. This is obviously an unintended consequence of a law that is supposed to improve the lives of employees. Why? Well, people who ensure this Wage Code is implemented properly are not exactly the best people around town. Also… uhh… Human Greed.

Think about the fact that those who keep labour off the books will be able to produce goods more cheaply, increase their profits manifold while those who obey the law might actually find themselves disadvantaged! This law seems to be another case of ‘good intentions, bad implementation’. Remember Demonetisation?

Another factor to consider here is the fact that the proposed law gives the government power to decide which sectors wages will be paid only through digital means, by bank transfers or through cheque.

That is not going to make business owners happy.

Speaking of the informal sector, the whole point of bringing in Goods and Services Tax and demonetisation was to formalise the economy. Most of our economy is currently in the informal sector and works on cash, off the books. The main reason is that laws are not business friendly, owners are often harassed by officers if they don’t obey and the only way to get away is to bribe them. Keeping operations off the books is just… easier.

Some might be doing it for tax evasion purposes but a lot of them are doing as their own bizarre version of ‘ease of doing business’. Formalisation must be encouraged in an economy that would ensure more people do legit business. But there needs to be a simplification of laws and implementation happening in tandem. This is the opposite of that.

Oh well.

Mechanisation and lobbying

Let us assume that giant companies with giant multi-state operations would have no option but to obey this law. What is the next best thing to maximise their profits by reducing wage pay?

Machines!

via GIPHY

Mechanisation of the manufacturing process would ensure that they can continue producing faster, continuously and cheaper (in the long term). They also don’t have to deal with human tantrums because machines don’t throw any tantrums! Except when they make weird noises if they aren’t being oiled properly. Heh.

If a minimum wage is fixed that is not agreeable to a large company, they will just hasten the process of replacing humans with machines. It would lead to an even higher level of unemployment than what we are seeing right now.

A law which is supposed to protect employees, ensure higher pay, might end up doing the exact opposite and compel industries to lay off human resources. Only highly skilled workers will find a place in the industry and will be tasked with doing a job which was handled erstwhile by multiple people.

The other thing a large company can do is lobby. They might lobby with the Central and state governments to fix the minimum wage rate to levels which are acceptable to them. Since they would already employ a large number of people, their seat at the table would be warmer than other smaller companies that would not have the access or ability to do the same.

Reports indicate that there is heavy lobbying happening when it comes to fixing GST rates for products. The basic issue here would be the same: varied rates, one point control by Central government to set those rates and flexibility to change them whenever they want.

A perfect recipe for cracking them backroom deals. Yazz!

Politics will be the death of us all

It’s healthy to be suspicious of any government in power. By their very nature, every political party will try to consolidate power to itself in whatever way they can, by passing laws that would enable them to centralise, control the market and influence people. It’s inevitable and that’s how stuff works. But what we should be wary about is the fact that the Central government might try and try really hard to kill the very concept of federalism. Not officially, but subtly, by taking away one power after the other from states and forcing the regional parties in power to lose their relevance.

What can you do about it?

Well, luckily for us, the Standing Committee on Labour is just about to begin its deliberations on the Code on Wages, 2017. Email them your concerns about the proposed law on comm.labour-lss@sansad.nic.in. Alternatively, contact any of the members in the committee and relay your concerns through them.

End-note: If you don’t know what Committees are and how awesome they are, do watch this.

The author can be contacted on Twitter @memeghnad.