Decoding the Code on Wages

Vinayak Krishnan - November 27, 2017

Presently, there are around 40 state and central laws regulating different aspects of labour, such as resolution of industrial disputes, working conditions in factories, and wage and bonus payments. Over the years, some experts have recommended that these laws should be consolidated for easier compliance.[1] Since the current laws vary in their applicability, consolidation would also allow for greater coverage.

Following these recommendations, the Code on Wages was introduced in the Lok Sabha in August 2017. The Code consolidates four laws related to minimum wages, payment of wages and bonus, and a law prohibiting discrimination between men and women during recruitment promotion and wage payment.

The Code was subsequently referred to the Standing Committee on Labour for examination. The Committee has met some experts and stakeholders to hear their views. In this context, we explain the current laws, key provisions of the Code, and some issues to consider.

Who will be entitled to minimum wages?

Currently, the Minimum Wages Act, 1948 lists the employments where employers are required to pay minimum wages to workers. The Act applies to the organised sector as well as certain workers in the unorganised sector such as agricultural workers. The centre and states may add more employments to this list and mandate that minimum wages be paid for those jobs as well.[2] At present, there are more than 1700 employments notified by the central and state governments.[3]

The Code proposes to do away with the concept of bringing specific jobs under the Act, and mandates that minimum wages be paid for all types of employment – irrespective of whether they are in the organised or the unorganised sector.

The unorganised sector comprises 92% of the total workforce in the country.¹ A large proportion of these workers are currently not covered by the Minimum Wages Act, 1948. Experts have noted that over 90% of the workers in the unorganised sector do not have a written contract, which hampers the enforcement of various labour laws.[4]

Will minimum wages be uniform across the country?

No, different states will set their respective minimum wages. In addition, the Code introduces a national minimum wage which will be set by the central government. This will act as a floor for state governments to set their respective minimum wages. The central government may set different national minimum wages for different states or regions. For example, the centre can set a national minimum wage of Rs 10,000 for Uttar Pradesh and Rs 12,000 for Tamil Nadu. Both of these states would then have to set their minimum wages either equal to or more than the national minimum wage applicable in that state.

The manner in which the Code proposes to implement the national minimum wage is different from how it has been thought about in the past. Earlier, experts had suggested that a single national minimum wage should be introduced for the entire country.¹^,[5] This would help in bringing uniformity in minimum wages across states and industries. In addition, it would ensure that workers receive a minimum income regardless of the region or sector in which they are employed.

The concept of setting a national minimum wage exists in various countries across the world. For instance, in the United Kingdom one wage rate is set by the central government for the entire country.[6] On the other hand, in the United States of America, the central government sets a single minimum wage and states are free to set a minimum wage equal to or above this floor.[7]

On what basis will the minimum wages be calculated and fixed?

Currently, the central government sets the minimum wage for certain employments, such as mines, railways or ports among others. The state governments set the minimum wage for all other employments. These minimum wages can be fixed based on the basis of different criteria such as type of industry or skill level of the worker. For example, Kerala mandates that workers in oil mills be paid minimum wages at the rate of Rs 370 per day if they are unskilled, Rs 400 if they are semi-skilled and Rs 430 if they are skilled.[8]

The Code also specifies that the centre or states will fix minimum wages taking into account factors such as skills required and difficulty of work. In addition, they will also consider price variations while determining the appropriate minimum wage. This process of fixing minimum wages is similar to the current law.

Will workers be entitled to an overtime for working beyond regular hours?

Currently, the central or state government define the number of hours that constitute a normal working day. In case an employee works beyond these hours, he is entitled to an overtime rate which is fixed by the government. As of today, the central government has fixed the overtime rate at 1.5 times normal wages in agriculture and double the normal wages for other employments.[9]

The Code proposes to fix this overtime rate at twice the prevailing wage rate. International organisations have recommended that overtime should be 1.25 times the regular wage.[10]

Does the Code prohibit gender discrimination between workers?

Currently, the Equal Remuneration Act, 1976 prohibits employers from discriminating in wage payments as well as recruitment of workers on the basis of gender. The Code subsumes the 1976 Act, and contains specific provisions which prohibit gender discrimination in matters related to wages. However, unlike in the 1976 Act, the Code does not explicitly prohibit gender discrimination at the stage of recruitment.

How is the Code going to be enforced?

The four Acts being subsumed under the Code specify that inspectors will be appointed to ensure that the laws are being enforced properly. These inspectors may carry out surprise checks, examine persons, and require them to give information.

The Code introduces the concept of a ‘facilitator’ who will carry out inspections and also provide employers and workers with information on how to improve their compliance with the law. Inspections will be carried out on the basis of a web-based inspection schedule that will be decided by the central or state government.

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[1]. Report of the National Commission on Labour, Ministry of Labour and Employment, 2002, http://www.prsindia.org/uploads/media/1237548159/NLCII-report.pdf.

[2]. Entries 22, 23 and 24, List III, Seventh Schedule, Constitution of India.

[3]. Report on the Working of the Minimum Wages Act, 1948, Ministry of Labour and Employment, 2013, http://labourbureaunew.gov.in/UserContent/MW_2013_final_revised_web.pdf.

[4]. Report on Conditions of Work and Promotions of Livelihood in the Unorganised Sector, National Commission for Enterprises in the Unorganised Sector, 2007, http://nceuis.nic.in/Condition_of_workers_sep_2007.pdf.

[5]. Report of the Working Group on Labour Laws and other regulations for the Twelfth five-year plan, Ministry of Labour and Employment, 2011, http://planningcommission.gov.in/aboutus/committee/wrkgrp12/wg_labour_laws.pdf.

[6]. Section 1(3), National Minimum Wage Act, 1998, http://www.legislation.gov.uk/ukpga/1998/39/pdfs/ukpga_19980039_en.pdf.

[7]. Section 206(a)(1), The Fair Labour Standards Act, 1938, https://www.dol.gov/whd/regs/statutes/FairLaborStandAct.pdf.

[8]. G.O. (P) No.36/2017/LBR, Labour and Skills Department, Government of Kerala, 2017, https://kerala.gov.in/documents/10180/547ca516-c104-4b31-8ce7-f55c2de8b7ec.

[9]. Section 25(1), Minimum Wages (Central) Rules, 1950

[10]. C030-Hours of Work (Commerce and Offices) Convention (No. 30), 1930,http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_INSTRUMENT_ID:312175.

Parliament

Union Budget 2020-21: Are the fiscal targets realistic?

Gayatri Mann , Suyash Tiwari - February 6, 2020

Today, a general discussion on the Union Budget 2020-21 is being held in both Houses of Parliament. In the budget, the government presented the estimates of the money it expects to spend on various ministries, and how much money will be raised from different sources such as levy of taxes and dividends from public enterprises in 2020-21. In addition, the budget presented the revised estimates made by the government for the year 2019-20 in comparison to the estimates it had given to Parliament in the previous year’s budget. The budget also gave an account of how much money the government actually raised and spent in 2018-19.

What are revised estimates?

Some of the estimates made by the government might change during the course of the year. For instance, once the year gets underway, some ministries may need more funds than what was actually allocated to them in the budget, or the receipts expected from certain sources might change. Such deviations from the budget estimates get reflected in the figures released by the government at later stages as part of the subsequent budgets. Once the year ends, the actual numbers are audited by the Comptroller and Auditor General of India (CAG), post which they are presented to Parliament with the upcoming budget, i.e. two years after the estimates are made.

For instance, estimates for the year 2019-20 were presented as part of the 2019-20 budget in July 2019. In the 2020-21 budget (February 2020), the government presented 2019-20’s revised estimates based on the actual receipts and expenditure accounted so far during the year and estimations made for the remaining 2-3 months.

Is there a way to find out the government’s actual receipts or expenditure mid-year?

The actual receipts and expenditure accounts of the central government are maintained by the Controller General of Accounts (CGA), Ministry of Finance on a monthly basis. On January 31, 2020, the CGA updated the accounts figures for the period April to December 2019. Thus, we have unaudited actuals for the first nine months of the financial year.

How do the actual figures for the year 2019-20 so far compare with the revised estimates?

Table 1 gives the revised estimates presented by the central government for the year 2019-20 and the monthly account figures maintained by the CGA for the nine-month period April to December 2019. The difference between these two figures gives us the three-month target that the government will have to meet by March 2020 to reach its revised estimates.

Till December 2019, the government has spent Rs 21.1 lakh crore, which is 78% of the revised estimates for 2019-20. While the expenditure has reached 78% of the target, so far, the government has been able to generate only Rs 11.8 lakh crore or 61% of the receipts (excluding borrowings) for the year 2019-20. This implies that the receipts will have to grow at a rate of 41% in the three-month period January-March 2020 to meet the revised estimates of Rs 19.3 lakh crore. So far, receipts have grown at a rate of 4%.

Table 1: Budget at a Glance – Comparison of 2019-20 revised estimates with Apr-Dec 2019 figures (Rs crore)

Budget at a Glance	Actuals	Revised	Nine-month period	Three-month target	Growth rate so far	Growth target
Budget at a Glance	2018-19	2019-20	Apr-Dec 2019	Jan-Mar 2020	% change (Apr-Dec 2018 to Apr-Dec 2019)	% change (Jan-Mar 2019 to Jan-Mar 2020)
Revenue Expenditure	20,07,399	23,49,645	18,54,125	4,95,520	14%	28%
Capital Expenditure	3,07,714	3,48,907	2,55,522	93,385	21%	-3%
Total Expenditure	23,15,113	26,98,552	21,09,647	5,88,905	15%	22%
Revenue Receipts	15,52,916	18,50,101	11,46,897	7,03,204	6%	50%
Capital Receipts	1,12,779	81,605	31,025	50,580	-33%	-24%
of which Disinvestment	94,727	65,000	18,100	46,900	-47%	-22%
Total Receipts (without borrowings)	16,65,695	19,31,706	11,77,922	7,53,784	4%	41%
Revenue Deficit	4,54,483	4,99,544	7,07,228	-2,07,684
Fiscal Deficit	6,49,418	7,66,846	9,31,725	-1,64,879
Primary Deficit	66,770	1,41,741	5,07,411	-3,65,670

Sources: Union Budget 2020-21; Controller General of Accounts, Ministry of Finance; PRS.

How do the actual tax receipts fare in comparison to the revised estimates of 2019-20?

A lower than estimated growth in nominal GDP has also affected the tax receipts of the government during the year. The 2019-20 budget estimated the nominal GDP to grow at 12% over the previous year, whereas the latest estimates suggest this growth rate to be 7.5% in 2019-20. The revised estimates for 2019-20 show gross tax receipts of Rs 21.6 lakh crore (includes states’ share). Till December 2019, tax receipts of Rs 13.8 lakh crore has been collected, which is 64% of the target. The tax receipts will have to grow at 19% in the three-month period January-March 2020 to meet the target. Table 2 shows similar comparison for the various taxes and also for the tax receipts devolved to states. While the budget estimated a growth in receipts from all major taxes, receipts from taxes such as corporation tax (-14%), union excise duties (-2%), and customs (-12%) have declined during the period Apr-Dec 2019.

Table 2: Tax receipts – Comparison of 2019-20 revised estimates with Apr-Dec 2019 figures (Rs crore)

Revenue Receipts	Actuals	Revised	Nine-month period	Three-month target	Growth rate so far	Growth target
Revenue Receipts	2018-19	2019-20	Apr-Dec 2019	Jan-Mar 2020	% change (Apr-Dec 2018 to Apr-Dec 2019)	% change (Jan-Mar 2019 to Jan-Mar 2020)
Gross Tax Revenue	20,80,465	21,63,423	13,83,035	7,80,388	-3%	19%
Devolution to States	7,61,454	6,56,046	4,76,113	1,79,933	-2%	-34%
Net Tax Revenue	13,17,211	15,04,587	9,04,944	5,99,643	-3%	57%
Dividend and Profits	1,13,420	1,99,893	1,61,979	37,914	175%	-30%
Other Non-tax Revenue	1,22,284	1,45,620	79,974	65,646	-10%	96%
Revenue Receipts	15,52,916	18,50,101	11,46,897	7,03,204	6%	50%

Note: Figures for income tax exclude receipts from the Securities Transaction Tax.

Sources: Receipts Budget, Union Budget 2019-20; Controller General of Accounts, Ministry of Finance; PRS.

If we look at sources of receipts other than taxes, non-tax revenue during Apr-Dec 2019 is Rs 2.4 lakh crore, i.e. 69% of the estimated Rs 3.5 lakh crore. Disinvestment receipts till date amounted to Rs 18,100 crore, i.e. 17% of the budget target of Rs 1.05 lakh crore. Though the investment target has been revised down to Rs 65,000 crore, it implies that Rs 47,000 crore would need to be raised in the next two months.

How does this impact the borrowings of the government?

When the expenditure planned by the government is more than its receipts, the government finances this gap through borrowings. This gap is known as fiscal deficit and equals the borrowings required to be made for that year. Given lower than expected receipts, the government has had to borrow more money than it had planned for. Borrowings or fiscal deficit of the government, till December 2019, stands at Rs 9.3 lakh crore, which is 22% higher than the revised estimate of Rs 7.7 lakh crore. Note that with three months still remaining in the financial year, fiscal deficit may further increase, in case receipts are less than expenditure.

When we look at fiscal deficit as a percentage of GDP, the 2019-20 budget estimated the fiscal deficit to be at 3.3% of GDP. This has been revised upward to 3.8% of GDP. However, till December 2019, fiscal deficit for the year 2019-20 stands at 4.6% of GDP (taking the latest available GDP figures into account, i.e. the First Advance Estimates for 2019-20 released in January 2020). This increase in fiscal deficit as a percentage of GDP is because of two reasons: (i) an increase in borrowings as compared to the budget estimates, and (ii) a decrease in GDP as compared to the estimate made in the budget. The latter is due to a lower than estimated growth in nominal GDP for the year 2019-20. The 2019-20 budget estimated the nominal GDP to grow at 12% over the previous year, whereas the latest estimates suggest this growth rate to be 7.5% in 2019-20.

Note that, in addition to the expenditure shown in the budget, the government also spends through extra budgetary resources. These resources are raised by issuing bonds and through loans from the National Small Savings Fund (NSSF). The revised estimates for 2019-20 show an expenditure of Rs 1,72,699 crore through such extra-budgetary resources. This includes an expenditure of Rs 1,10,000 crore by the Food Corporation of India financed through loans from NSSF. Since funds borrowed for such expenditure remain outside the budget, they do not get factored in the deficit and debt figures. If borrowings made in the form of extra-budgetary resources are also taken into account, the fiscal deficit estimated for the year 2019-20 would increase from 3.8% of GDP to 4.6% of GDP due to extra-budgetary borrowings of Rs 1,72,699 crore. This does not account for further slippage if the targeted revenue does not materialise.

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Decoding the Code on Wages

Union Budget 2020-21: Are the fiscal targets realistic?

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