Other BriefingsA Guide to Minimum Wage in India in 2022
Foreign businesses in India can have a challenging time comprehending and calculating the minimum wage as they differ in every state, and are categorized under multiple criteria, such as region, industry, skills level, and nature of work.
The minimum wage has for a long time been regulated under the purview of the Minimum Wages Act, 1948. This will now be subject to the provisions of the Code on Wages Act, 2019, which was notified in August 2019.
In fact, the Code on Wages Act replaces four labor regulations – Minimum Wages Act, 1948; Payment of Wages Act, 1936; Payment of Bonus Act, 1965; and Equal Remuneration Act, 1976.
The new wage code prohibits employers from paying workers less than the stipulated minimum wage. Further, minimum wages must be revised and reviewed by the central and state government at an interval of not more than five years.
This article will address some frequently asked questions, including how minimum wages are calculated in India, what is the penalty for non-compliance, and what are some useful resources that hiring departments in foreign companies may refer to when assessing the country’s labor costs.
How is the minimum wage calculated in India?
It must be noted that India’s minimum wage and salary structure differs based on the following factors: state, area within the state based on development level (zone), industry, occupation, and skill-level. This offers foreign investors a range of options when choosing where to locate their set up.
India uses a complex method of setting minimum wages that defines nearly 2,000 different types of jobs for unskilled workers and over 400 categories of employment, with a minimum daily wage for each type of job. The monthly minimum wage calculation includes the variable dearness allowance (VDA) component, which accounts for inflationary trends, that is, the increase or decrease in the Consumer Price Index (CPI), and where applicable, the house rent allowance (HRA).
As mentioned earlier, the calculation of the minimum wage factors in the skill-level of the worker and the nature of their work. Broadly, workers in India are categorized as unskilled, semi-skilled, skilled, and highly skilled. The minimum wage rates across Indian states and union territories must therefore be regularly tracked as they are subject to periodic changes, especially for the variable and dearness allowance rates.
How to understand labor costs in India?
India offers the most competitive labor costs in Asia, with the national-level minimum wage at around INR 178 (US$2.16) per day, which works out to INR 5340 (approx.US$65) per month. This number is a floor-level wage – and the wage rate will vary depending on geographical areas and other criteria.
According to recent studies, India had an average monthly wage of INR 32,840 (approx.US$422). Tracking by e-commerce firm Picodi.com showed that India’s average minimum wage in 2021 was US$95, much lower than Southeast Asian markets such as Vietnam (US$160), Thailand (US$220), and Malaysia (US$258).
Most media report that the average Indian salary for unskilled work ranges between INR 2250 to a maximum of INR 70,000 per month, under the Minimum Wages Act. However, the median salary in India comes at around just INR 29,400 (approx.US$377.82). These rates apply very differently among the respective industries – with higher salary wages reported in skilled professional services industries like software and consultancy work as compared to manufacturing and construction.
Overall, India’s labor market size is above 471 million as per the World Bank. Consequently, several state governments, like Andhra Pradesh, offer tax breaks for companies generating local employment.
Delhi’s minimum wage: 2022 rates
The Delhi government has announced that effective from October 1, 2022, the wages of unskilled workers will be increased from INR 16,506 to INR 16,792, semi-skilled workers from INR 18,187 to INR 18,499, and skilled workers from INR 20,019 to INR 20,357.
The minimum wage rates for supervisor and clerical categories of employees have also been revised by the city government. The minimum monthly wages of employees who have not completed their Grade 10 schooling (non-matriculate) is increased from INR 18,187 to INR 18,499 and for matriculate employees from INR 20,019 to INR 20,357.
For graduates and those with higher educational qualifications, the monthly wages have been hiked from INR 21,756 to INR 22,146.
As per Delhi authorities, this would see the capital lead minimum wage standards in the country.
Also of note, the Delhi government has said that it is revising the dearness allowance every six months on account of inflation.
Is there a non-compliance penalty?
Under the new wage code, the government will appoint inspectors-cum-facilitators to carry out inspections to ensure that the companies are compliant with the code. The penalty would depend on the nature of the offense. The maximum penalty is imprisonment for three months and/or a fine of up to INR 100,000 (US$1,405).
It is important that companies are compliant with the wage norms stipulated by the respective state government and industry body. Inspections are likely to be more stringent on companies with foreign investment, especially in the event of any labor unrest.
If workers are paid less than the government declared minimum wages, then they can file a complaint with the labor inspectorate. The complaint can be filed individually by the worker, or through a lawyer, or through an official of the registered trade union.
Why India has no national minimum wage
Under the Code on Wages Act, 2019, workers from all industries are entitled to receive minimum wages fixed by their respective state governments. Matters concerning labor and its welfare come under the purview of, both, the state and central governments as per constitutional law, thereby resulting in multi-jurisdictional regulation.
Earlier, only workers from a particular set of industries (40 percent of the entire workers’ population) were entitled to receive minimum wages. Nevertheless, since passing the wage code in 2019, there has been no new development on implementing a national minimum wage for Indian workers.
The government has not prioritized the implementation of a minimum wage plan as it is highly polarizing and would adversely impact employers in the post-pandemic period.
Labor law reforms
Besides addressing wage standards in the country, key labor legislation have also been rolled out as promised by the central government in the pursuit of labor reforms. Three new labor codes were approved by India’s parliament on September 22-23, 2020, in a historic move to consolidate the country’s multiple labor legislation and compliance norms. The new codes are – Industrial Relations Code Bill, 2020; Code on Social Security Bill, 2020; and the Occupational Safety, Health and Working Conditions Code Bill, 2020.
The implementation of the labor codes are deferred until all states notify implementing rules.
The four labor codes will bring gig workers and inter-state migrant workers into the ambit of social security for the first time. This will impact minimum wage considerations, but businesses should note that they will also make it easier to be flexible in their hiring and firing decisions as well as in shutting down operations in the country.
For more analysis, read our overview India’s New Labor Codes: A Brief Note for Foreign Investors; and deep dives India’s New Industrial Relations Code and its Impact on Labor Law and India’s Occupational Safety, Health and Working Conditions Code, 2020: What is it and How Should Companies Prepare?
Seeking local expertise is important
Foreign entities doing business in India can learn more about the minimum wages in India through the Ministry of Labor and Employment database, which provides industry-wise wage norms. The new wage code can be accessed here, and the website for the chief labor commissioner can be accessed here.
Since determining wages in India is complex, and labor compliances are carefully monitored, it is recommended to seek advice from a local firm to assess costs and other liabilities. Otherwise the firm may be exposed to additional risks during times of labor unrest and strikes by workers that can lead to reputational and financial damage to the company.
For more information and advice for foreign investors on doing business in India, please feel free to email us at india@dezshira.com.
(This article was originally written on January 22, 2020. It was last updated October 13, 2022.)
About Us
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for more support on doing business in in India.
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