India’s sustained economic growth has opened up new interests and concerns. A foreign company looking for a base here would be keen on the right opportunity to do their new investment. One of the crucial aspects in this context is the wage cost, and the determinants of wage inflation to know the short and medium-term future trends in wage inflation. This aspect will have a solid reference to the labor market rules and regulations, which were drafted to protect the workers’ interests.
We can divide the total employment in the non-agriculture sector into two broad categories namely the semi and unskilled wage labor and the educated or highly-skilled workforce. The semi-skilled and unskilled labor force consists of people performing jobs that are simple or routine in nature and do not require much judgment or knowledge. On the other hand, a highly skilled labor force is characterized by the possession of advanced education, knowledge, and skill set and has seen a rapidly growing wage rate in recent years. This happened because the technology that is used in the production processes of many manufacturing and services companies is highly skill- and capital-intensive, hence, making the skill premium grow at an increasing rate. This has pushed the Country’s real wage inflation to 4.6%, which is higher than most Asia-Pacific countries.
Going by International standards, Indian highly skilled workers are underpaid when relatively compared. Some think tanks believe that outsourced Indian R&D staff is still cheap compared to their abilities. The educated employees’ English proficiency in India is on a much higher plane compared to China. And all this would add to the line that even after having skilled labor who are paid better it remains in a profitable position for the external companies to invest when looked at globally.
The highly skilled labor force has seen a strong push in wage rate but the growth of real wages of the unskilled or semi-skilled workers in the production and service sector is still negligible, or at least much less than the labor productivity growth. The surplus labor of the country who are from low-income households have come into participation in the labor market for survival and do not hold any bargaining power for higher wages. The Imported technology which had become cheaper after the liberalization had aided substantially in the increase in labor productivity. But for a labor-surplus country like India, technological advancement has not been a great catalyst in terms of growth in wages as compared to the proportion of productivity they have brought into the system. And this had effects in various industries and one such example is in manufacturing where there was higher productivity but a low level of increase in demand for labor.
Labour Market Deregulation
Labour market deregulation is a strategy that aims to eliminate institutions of labor market regulation and reduce legal intervention in the relationships between employers and individual employees to a minimum. It is felt that the labor market in developing countries is rigid in terms of work practices, wages, hiring and firing policies, etc, and this has been attributed to prevailing rules. While there may be a case for removing labor market rigidities by discouraging political patronization of the unions and relaxing strict labor laws that prohibit employment growth, attention also needs to be given to labor welfare issues. with the unemployment rates and poverty in India, the country will always consider the interests on the labor benefits over the growth aspect in the course of deregulation.
The deregulation mostly focuses on making the flexibility of wages, to understand the same study of one of the labor-intensive sectors which is manufacturing. It looked at the elasticity of employment which shows the responsiveness of employment growth respective to the wages inflation rate. And the results have shown that in the Indian context the elasticity had not been great elasticity. In other words, forcing labor market deregulation and introducing lower wages may not lead to increase employment.
India is a low-cost economy, hence other methods, including enhancing infrastructure, must be used to increase the economy’s productive capacity. The process of contractualization has also helped to keep labour costs to a minimum. Although there hasn’t been a clear-cut deregulation of the labour market in India, businesses in the organized sector are allowed to blend regular wage workers with contract workers as they see appropriate.
MNREGS AND NREGS ALLOCATION
The Mahatma Gandhi National Rural Employment Guarantee Scheme is anticipated to request a budgetary allocation of approximately Rs 1 trillion for the upcoming fiscal (MGNREGS). The plan is anticipated to cost the coffer a comparable sum in the current fiscal year as well.
In order to fund the job guarantee program for the current fiscal year, the finance ministry has already provided 60,000 crore rupees of the anticipated 73,000 crore rupees. The Ministry of Rural Development has also asked for an additional Rs 25,000 crore from the Ministry of Finance in order to implement MGNREGS for the current fiscal year.
Rs 98,000 has been spent under this scheme for 2021-2022.
The government has spent a record Rs 1.1 trillion under this scheme in the fiscal year 2021 as it used it to tackle rural hardships caused by the pandemic. In recent years, there have been numerous additional scheme allocations in the form of supplementary demand.
Although the government has been liberal with its spending despite the program’s high cost, concerns have been expressed about governance issues that have arisen throughout implementation in several states.
Effects and Analysis
Twenty-one states and federal territories changed NREGS salaries by less than 5%.
Among the 31 states and UT where wages increased, Goa showed the largest increase (7.14%) at Rs 294 per day in 2021-2022, but Rs 294 per day in 2022-2023 Rs 315 per person. The smallest increase of 1.77% was seen in Meghalaya, where the new wage rate was set at 230 rupees per day from the previous 226 rupees per day.
Over 1.28 million young people have been trained under the Center’s ambitious Skill India Project, but just over half (56%) of candidates manage to secure a job after completing the course. shown by government data. The average salary of employees ranges from Rs 10,000 to Rs 18,000 per month. Most of those trained under these initiatives are men, and women make up less than half of those enrolled.
More than 1.08 million candidates have been trained under the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) program launched by Prime Minister on 15 July 2015. Only 450 of those trained under the initiative said they were transgender, according to official data from the Ministry of Technology Development and Entrepreneurship. Moreover, according to official statistics, about 45,000 persons with disabilities have qualified under this program. And these come as a move towards making India has become crucial and has stayed to shift the labour to be skilled. This would make the country more skilled to gain more potential to grow wages.
Way Forward
The government wants to make sure that every rupee is spent wisely and benefits the intended recipient, even while the increasing rate of rural employment justifies the increased need for the program.
With the Covid-19 outbreak, there was a significant increase in demand for jobs under the program.
As of November, the program has produced 1.94 billion person days of work for the current fiscal year. However, in contrast to the need, a household has, on average, only gotten 37.4 days of work through November, as opposed to the 50.07 days total from the previous fiscal.
It is a demand-driven program designed to increase the livelihood security of rural households by offering every household members to perform unskilled manual labour for at least 100 days for guaranteed pay employment per fiscal year. In rural communities that have been alerted to a drought or other natural disaster, there is a provision for an additional 50 days of wage work. The program gives employees the chance to take part in a range of asset-creation tasks.
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