ometime this month, Justice NRamamohana Rao of theAndhra Pradesh High Courtwill deliver a verdict that willdirectly impact earnings of the114 million people who workunder the National Rural

Employment Guarantee Scheme(NREGS) — the Central govern-ment’s work guarantee programme.The verdict will also indirectly im-pact earnings of the 400 millionworkers and labourers who toil inIndia’s factories and fields for ‘mini-mum wages’.

The question Justice Rao will try toanswer is this: can the Centre fixNREGS wages in isolation, or shouldit set it at the minimum wage rateprevailing in each state? The first op-tion confers power on the Centre andallows it to pay less than the mini-mum figure set by a state for itsworkers. In doing so, it goes againstthe Minimum Wages Act, 1948 — thelaw that sets the baseline for workerearnings. The second option makesit toe that law.

The five-year experience ofNREGs, and what it has done toworker empowerment and mini-mum wages in India, shows that thisis a complex question. Interwoveninto it are livelihood issues, workerrights, Centre-state relations andpolitics.

STATES SPOT AN OPPORTUNITY

The NREGs is one of the largeststate interventions in India’s labourmarket. In 2009-10, NREGS put Rs39,100 crore in the hands of 52 mil-lion households in 619 districts, ac-cording to the Ministry of RuralDevelopment, which oversees theprogramme. Sure, some of this mon-ey never reached these households,but let’s leave that aside for now.

When it started, in 2005, the Centreset the NREGS rate at Rs 60 per dayor the minimum wage rate set by astate, whichever was higher. So, ifthe minimum wage rate of a statewas below Rs 60, the Centre paid Rs60. If it was above Rs 60, it paid thehigher rate.

Back in 2005-06, according to dataavailable from the ministry, the min-imum wage rate in six out of 25states was less than Rs 60. Gujarat,one of the most economically pro-gressive states, was the lowest: Rs 50.The minimum rate in another 10states was between Rs 60 and Rs 70.The remaining nine were above Rs70, led by Kerala with Rs 125.

The arrival of the NREGS startedpushing up minimum wages. “Stategovernments began realising thatthe NREGS, which puts cash directlyin the hands of the poor, was a greatway to build political capital,” says ajoint secretary in the ministry of ru-ral development, not wanting to beidentified. “Better still, the Centrepaid for it.” In the initial months, thejoint secretary says, states took one

of two approaches. The first approach was to increase

minimum wages. Like UttarPradesh, which then had a mini-mum wage rate of Rs 58. UnderMulayam Singh Yadav, who presidedover the state from 2003 to 2007, UPhad not revised minimum wages forfive years. After Mayawati took overin 2007, she increased it to Rs 100.“Yadav’s support base are the landedelite, Mayawati’s are the landless,”explains the joint secretary.

The second approach, followed byGujarat among others, was to leavethe minimum wage rate untouched.Instead, for NREGS alone, Gujaratdiluted its schedule of rates (SOR),which define the amount of work aworker needs to do for a full day’swage. Effectively, an NREGS workerreceived more money for the sameamount of work. The idea was to notdraw the ire of industry and largefarmers, while passing on the bene-fits to NREGS workers. Between 2006and mid-2007, SORs were liberalisedheavily.

THE CENTRE RESPONDS

Thus began a game of cat and mousebetween the Centre and the states.The Centre cracked down on SOR re-visions. In response, states began toraise minimum wages, first to ap-pease their people by using theCentre’s money, then to score overadjoining states.

After UP increased minimumwages, Rajasthan found its labourmigrating to UP. So, it also increasedits minimum wage rate from Rs 73 toRs 100. Bihar and MP followed.“States were raising minimum

wages not based oninflation or localeconomic trends,but in competitionwith each other,”says the joint secre-tary.

The impact ofNREGS was deepand wide. Whileworkers began de-manding — and of-ten received — morewages, industry and

large farmers saw their wage billshoot up. “It’s getting harder to findlabour at a reasonable price,” says SSundaresan, a large farmer inThanjavur district of Tamil Nadu:“At this rate, after two years, no pad-dy will be grown here.”

Kaustav Bannerjee, a professor atJawaharlal Nehru University in NewDelhi, says NREGS has reduced mi-gration. In a paper titled ‘Rights inTheory and Practice: A Case Study ofthe NREGA’, Bannerjee, who studiedNREGA implementation for his PhD,wrote: “In 2006, around 421,000 mi-grant workers came from UttarPradesh and Bihar alone to work inPunjab. In 2008, the figure could havereduced to 250,000.”

At the same time, with little atten-tion on implementation, NREGSprojects were not meeting deliver-ables. For instance, according to theministry of rural development, just8.2% of NREGS projects were com-pleted in 2007-08 and 12.1% in 2008-09.Says the joint secretary: “TheNREGS was becoming a dole pro-gramme creating poor assets insteadof a rural safety net that also builtgood assets.”

In 2008, the Centre decided NREGSwages would no longer be automati-cally revised every time a stateupped its minimum wage. Instead,the Centre would approve it on acase-to-case basis. In 2009, whenIndia went for general elections, theCongress promised “at least 100 daysof work at a real wage of Rs 100 a dayfor everyone as an entitlement underthe NREGA”.

When it returned to power, the UPAdelivered on this promise: Rs 100 be-came the new NREGS minimum,against Rs 60 earlier. But it remainedlinked to the Minimum Wages Act.So, in states where the minimumwage rate was higher than Rs 100,the Centre was till paying the higherrate to NREGS workers.

RIGHTS AND WRONGS

This changed in January 2009. Aministry of rural development noti-fication delinked NREGS wagesfrom the Minimum Wages Act. It setthe NREGS wage rate at Rs 100 or thestate’s minimum wage rate then,whichever was higher. Further, thatrate would be increased for inflationevery year. If a state whose mini-mum wage rate was higher wantedto pay more, it could do so, but theCentre would contribute only Rs 100;the balance would have to be met bythe state.

The Centre, worried by the tenden-cy of states to increase minimumwages, was effectively capping itsNREGS obligation. “States were re-alising the potential of NREGS, andthere was a possibility that thismight start spinning out of control,”says another senior bureaucrat inthe ministry of rural development,not wanting to be identified. “What ifa state increased its minimum wagesto Rs 300? Will the centre have topay?”

The Centre’s delinking of NREGAwages from the Minimum Wages Acthas become an issue in states whoseminimum wages are above Rs 100.NREGA workers in those states areeffectively being paid below mini-mum wages. In Andhra Pradesh,Ajay Kumar of VyavasayaVruthidarula Union and four otherworkers of Visakhapatnam district,where the minimum wage is Rs 119,have filed a case against the Centrein the Andhra Pradesh High Court.

Lawyer Prashant Bhushan is repre-senting them and a verdict in thecase is expected later this month.

“We are arguing that the Centre hasto pay the state minimum wage,”says Reddy Subramanyam, rural de-velopment secretary of AndhraPradesh.

Activists say the issue goes beyondthe squabble between the Centreand the states on who should pay.Nikhil Dey, an activist with theMazdoor Kisan Shakti Sangathan(MKSS), says the delinking weakensboth the NREGA and the MinimumWages Act. “NREGA is supportedby two rights. It directly confersupon all citizens the right to at least100 days of work. And, because ofits link to the Minimum Wages Act,it confers the right to get a mini-mum wage,” he says. “The delink-ing reduces the NREGA wage froma right to an amount set by the gov-ernment.”

Aruna Roy, NAC member and oneof the founders of the MKSS, saysit’s a question of worker rights. “Aright is being taken away and beingreplaced with a higher wage,” shesays. “But what if they take thatwage away later? A right is funda-mental. We cannot lose that right.”

CORRECTIONS OR DISTORTIONS?

The senior bureaucrat in the min-istry of rural development saysNREGA, by its very nature, is not thebenchmark for minimum wages.“NREGS is supposed to be the em-ployer of last resort, a safety net.Only when people do not find workanywhere else should they come toNREGA. For that reason, it cannotbe the minimum wage,” he says.“What that will otherwise do is com-pete with business and others forlabour, and take people away fromproductive employment.”

This is also the position taken bythe finance ministry while drawingup NREGA. Ian MacAuslan writes ina paper on the drafting of the Act:“The ministry of finance arguedthat the state minimums are de-signed to support market wages, butthe NREGA provides employment oflast resort. Its wage rates should,therefore, be designed to meet target-ing objectives. The NREGA wage is adifferent issue from state mini-mums.”

However, the experience of the pastfive years shows that in linking itselfto the minimum wage rate, theNREGS wage rate did more for work-er earnings than all state diktats puttogether. “Minimum wages began tobe enforced only after NREGS waspegged to it,” says Dey. “I fear delink-ing will again reduce the MinimumWage Act to a well-meaning, butpoorly-enforced, law.”

In areas where labour is in abun-dance, or power dynamics areskewed, wages can fall to ridiculousdepths. Says B Rajshekhar, whoheads Society for Elimination ofRural Poverty (SERP), AndhraPradesh: “For the longest time,

wages in the state’s coastal districtsranged from Rs 60-70 and Rs 30-40 inthe interiors. Women got even lessthan that.” NREGA, linked with theMinimum Wages Act, has shown theability to bring about market correc-tions. “Only in the last two yearshave wages increased,” adds

Rajshekhar.While there have

been much-neededcorrections in partsof the country, thereare still largeswathes of industryand agriculturewhere labourers arestill paid less thanthe prescribed mini-mum wage.“Minimum wagesare hardly everpaid,” says

Subramanyam of the Andhra gov-ernment. “Even the process of deter-mining minimum wages is not inplace. It’s just a paper exercise at thebest of times.”

A workshop in New Delhi inJanuary organised by the MKSS andthe Bandhua Mukti Morcha, whichworks against bonded labour, high-lighted the flaws in the minimum

wage policy. There were bondedlabourers who were being paid lessthan Rs 400 a month. Speaking at theworkshop, retired Delhi ChiefJustice AP Shah, who delivered thelandmark verdict on Section 377 le-galising same sex relationships,said: “Minimum wage is defined asthe bare minimum a person needs tosurvive...the Centre cannot take astand that it will pay less than theminimum wage.”

The senior bureaucrat says the gapbetween the two wages is a short-term problem, which will be re-solved in the next round of NREGSwage revision in January 2012. Atpresent, there are eight states whereNREGS wages are lower than itsminimum wage (See table). “Theywill see their NREGS wage ratemove closer to their minimum wagerate. In states where NREGS wagesare higher, states will increase mini-mum wages to bring them in linewith the NREGS wage,” he says.“There will be convergence and theNREGS wage rate will become thenew de facto minimum wage.”

In effect, the Centre will decidewhat the minimum wage for a stateshould be. And that’s another reasonwhy this might not be desirable.

NREGS

pushed up

minimum

wages. State

governments

realised that

the NREGS,

was a great

way to build

political

capital

NREGA

workers in 7

states are

being paid

below base

wages. In AP,

five workers

have filed a

case against

the Centre in

the high

court

Dilbert by S Adams

The Crossword 4919

Special Feature WWW.ECONOMICTIMES.COM 15Minimum Wages

A Question of Rights

SDEEP ROOTED: In areas where labour is in abundance or power dynamics are skewed, wages can fall to ridiculous depths. An NREGA-minimum wages link was able to correct that.

From Convergence to Divergence When it was linked to each state’s minimum wage rate, NREGA set

the floor for labour earnings and lifted wages. Now that it is delinked,

NREGA wages are lower than minimum wages in seven states.

SOURCE: MINISTRY OF RURAL DEVELOPMENT

MIN. AGRICULTURAL

WAGE RATE

NREGA WAGE RATE

2006-07 2009-10

States are arranged in their respective sets in increasing order of 2006-07 wages

NREGA Above Minimum Wages

Maharashtra 47 127

Gujarat 50 124

Orissa 55 125

Arunachal Pradesh 55-57 118

Uttar Pradesh 58 120

Tripura 60 118

Chhattisgarh 63 122

Madhya Pradesh 63 122

Assam 66 130

Nagaland 66 118

Bihar 68 120

West Bengal 69 130

Jammu & Kashmir 70 121

Meghalaya 70 117

Manipur 72 126

Uttranchal 73 120

Himachal Pradesh 75 120-150

Jharkhand 77 120

Tamil Nadu 80 119

Sikkim 85 118

Haryana 99 179

NREGA Below Minimum Wages

Karnataka 69 125

Rajasthan 73 119

Andhra Pradesh 80 121

Mizoram 91 129

Punjab 93-105 124-130

Kerala 125 150

Goa NA 138

110-120

100

90

80

100

100

122

110

87

80

109

96

110

100

81

114

110

111

85-100

100

167

134

135

125

132

143

200

157

“Minimum wages began to be

enforced only after NREGS was

pegged to it. I fear delinking will

again reduce the Minimum Wage

Act to a well-meaning, but

poorly-enforced, law.”

“The Centre is arguing that if a

state’s minimum wage is higher

than the NREGS wage rate, the state

should pay. We are arguing the

Centre has to pay the state’s

minimum wage rate.”

NIKHIL DEYActivist, Mazdoor Kisan Shakti

Sangathan

REDDY SUBRAMANYAMRural Development Secretary,

Andhra Pradesh

By linking itself to the ‘minimum wage’ rate, the NREGS wage rate did more for worker earnings than all state diktats put together.Now that the two are delinked, both states and civil society are up in arms, for their own reasons, reports M Rajshekhar