Minimum Wage or Living Wage?

India is preparing for a major shift in its labour policy by aiming to replace the minimum wage framework with a living wage system by 2025. This move reflects the government’s intent to strengthen worker welfare, reduce poverty, and align national wage standards with global recommendations. The shift, reported by ET, is backed by the International Labour Organisation, which has agreed to support India in several technical capacities.

The government has approached the ILO to assist with capacity building, comprehensive data collection, and evidence generation on the long term benefits of living wages. These benefits include improved productivity, greater worker retention, better health outcomes, and stronger household resilience. The ILO has long advocated for living wages, which are defined as income levels that enable individuals and families to meet essential needs, such as nutritious food, adequate housing, accessible healthcare, quality education, and appropriate clothing. Given this definition, living wages inevitably surpass the existing minimum wage structures.

A senior government official noted that India could move beyond minimum wages within a year, given adequate institutional preparation and legislative follow through. The recent ILO governing body meeting in Geneva endorsed India’s move towards living wages, marking a significant step for the country, which has been an ILO member since 1922. The endorsement signifies confidence in India’s efforts to update labour standards in line with contemporary socio-economic expectations and sustainable development goals.

India’s workforce numbers more than 500 million, with nearly 90 per cent employed in the unorganised sector. Many of these workers depend on wages that are often inconsistent and insufficient to cover basic needs. Current minimum wages vary across states and sectors, and although some regions offer higher rates, the national wage floor remains only around 176 rupees per day. This floor has not been revised since 2017 and is not legally binding on states. As a result, wage practices remain uneven, leaving large segments of workers vulnerable to economic insecurity.

The Code on Wages, passed in 2019, was intended to streamline wage regulations and introduce a universal wage floor applicable across all states. However, the Code has yet to come into force. Once implemented, it is expected to provide a legal basis for the government to establish and enforce a national living wage, ensuring more consistent protection for workers regardless of location or industry.

The shift towards a living wage is closely tied to India’s commitment to the United Nations Sustainable Development Goals, which the country aims to fulfil by 2030. Reducing poverty and enhancing decent work conditions are central components of these goals. A living wage framework is viewed as a more comprehensive and humane approach to wage policy, as it accounts for the actual cost of living rather than relying on a basic subsistence benchmark.

Labour secretary Sumita Dawra has stressed that defining a living wage for a developing country like India requires a multidimensional lens. She highlighted that factors such as health, education, and standard of living must be central to the calculation. This approach aligns with India’s national poverty assessments, which increasingly incorporate multidimensional indicators rather than relying solely on income based measures. Dawra also emphasised the importance of considering the social, economic, and demographic context in determining what constitutes a fair and adequate wage. Such a perspective ensures that the living wage reflects not just survival needs but the conditions for a dignified life.

The adoption of living wages also has wider economic implications. International evidence suggests that adequately compensated workers are more productive, more committed to their work, and less likely to seek employment elsewhere. Higher wages can stimulate consumer spending, which in turn supports economic growth. These effects could be particularly beneficial in India’s vast informal sector, where low wages often limit household purchasing power.

Despite these potential advantages, the transition will require careful planning. Policymakers must balance wage increases with the capacity of small and medium enterprises to absorb higher labour costs. Strengthening enforcement mechanisms will be crucial to ensure compliance, especially in the informal sector. At the same time, effective communication will be needed so that employers understand the long term benefits of fair wages.

If successfully implemented, the shift from minimum to living wages represents a significant step towards building a more equitable and economically resilient India. It reflects a broader vision of development that recognises workers as central to national progress and acknowledges that fair compensation is essential for both economic productivity and social well being.