Impact of Minimum Wages Revision in Delhi

minimum wages Delhi

Posted by on August 23, 2016

Delhi Government on August 15, 2016 announced its decision to revise minimum wages by over 46% for workers in Delhi. While many may argue that minimum wage revisions are mandatory and logical as long as it is done in lines with inflation and within the socioeconomic paradigm. Delhi Government’s decision has not gone well with the traders and many businesses operating out of Delhi.

Current Scenario

The minimum wages which were already higher in Delhi as compared to the neighbouring states will be now close to 150% higher. The current wage rate in the national capital for an unskilled worker is ₹ 9,568, which is higher than that of Haryana (₹ 7,976), Punjab (₹ 7,221), Uttar Pradesh (₹ 7,108) and Rajasthan (₹ 5,486). The Delhi government has now proposed to increase this to ₹ 14,052. Similarly, for semi-skilled the wage will be revised from ₹ 10,582 to ₹ 15,471, and for skilled workers it will be increased from ₹ 11,622 to ₹ 17,033.

Intent

The real intent of the decision may be more than just socioeconomic welfare of the workers. Given the timing of the announcements and the quantum of the revisions the intentions of the AAP Government is being questioned by many. With Punjab & Goa Elections coming in a few months and AAP Government’s constant tussle with the Center Government, this seems more of political decision for electoral gains in Punjab and Goa.

Politics aside, this decision will lead to a great imbalance in the NCR and instead of benefiting the workers it might turn out to be counter-productive. Several business (small, medium and large) rely heavily of unskilled and semi-skilled workers and their revenue model, pricing strategy and support model is driven based on the minimum wages. While most of the business keep sufficient margins to handle minor/regular revisions to the minimum wages, such major revisions are going to drive most of these models unviable. The small businesses and startups are more likely to be affected (the real Aam Admi) as they haven’t been able to create sufficient economies of scale to handle such external factors.

 

Impact

  • Businesses may switch to neighboring cities where the labor will be cheaper
  • Businesses may end up reducing manpower to contain costs
  • Prices of several services might go up or quality might be compromised to maintain the same price
  • Overall employment rate might go down
  • Price and quality imbalance against Delhi in favoring of neighboring states

 

It will complicate the matters with ESI where the wage limit is 15000 per month requiring further revisions in ESI limits which in turn will be counterproductive for the businesses.

Whether or not there will be any political gain for AAP the economic loss to Delhi seems imminent. It’s high time that Delhi Government start putting the economy ahead of politics else its economy will shrink beyond repair.

Courtesy

Editor,

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