Making the code on minimum wage work on the ground

India’s new labour codes mark the most significant restructuring of labour regulation since Independence.

- Vharun B and Meenakshi Shekhar

At the heart of this reform is the Code on Wages, which seeks to rationalise and strengthen the minimum wage framework. The timing of these reforms is critical, as informality continues to dominate India's labour market. PLFS data indicate rising informal employment. Even within the formal sector, social security coverage remains limited, with 43.6% of workers still without benefits. Interstate disparities are stark, with Bihar, Chhattisgarh, Madhya Pradesh, Odisha, Rajasthan, and Jharkhand reporting informality levels of 85-90%. Also, there has been a persistent gap between productivity and wage growth, suggesting productivity gains need not translate into improved worker outcomes.

Against this backdrop, the new labour codes, while not an automatic solution, offer an important institutional opening for strengthening wage-setting and worker protection.

India was among the early adopters of statutory minimum wages, introducing the Minimum Wages Act in 1948, empowering states to set wage floors for selected “scheduled employments” with weak bargaining power, such as agriculture, construction, brick kilns, bakeries, automobile workshops, and others, while the Centre set wages for employments under its jurisdiction. Over time, this decentralised system produced a fragmented wage regime, with multiple floors across occupations and regions. In the absence of a national floor, large segments of workers remained uncovered. Weak enforcement and slow judicial processes diluted compliance.