The idea of a living wage is gaining traction in India’s policy debates, propelled by global advocacy campaigns and sections of civil society and academia. This includes official discussions within the Ministry of Labour about the feasibility of implementing living wages instead of minimum wages as a legal entitlement, organizations like the International Labour Organization (ILO) pushing for living wage frameworks, and media and expert commentary distinguishing living wages from statutory minimum wages.

Worker protests and union campaigns for living wages also echo living wage concerns beyond statutory minima. This debate, however, is unfolding at a time when a large share of India’s micro, small and medium enterprises — employing the bulk of the workforce — continue to struggle with compliance even with existing minimum wage requirements.

Unlike minimum wages, which are explicitly linked to the nature of work, skill levels and hours performed, living wage frameworks are typically anchored in household consumption needs and do not explicitly account for the quantity or productivity of work.

As a result, they may generate wage benchmarks that appear arbitrary from the perspective of firms’ productivity and economic capacity, particularly for small enterprises operating with low productivity and thin margins. Yet in India’s labor market, an increasing focus on living wages risks diverting attention from a more immediate and consequential task of enforcing the wage laws India already has.

Living wages and developed vs developing economies

Living wage frameworks have largely emerged in developed economies, where per capita incomes are often more than ten to 20 times that of India, informality is limited and most employment is in high-productivity sectors. In such contexts, governments and employers have the fiscal and economic capacity to absorb consumption-based wage benchmarks.

India, however, remains a developing economy with low average productivity, widespread informality and nearly 90% of enterprises classified as micro or small units. Policy instruments suited to rich economies cannot be mechanically transplanted into a labor market with fundamentally different structural realities.

At its core, the living wage approach shifts wage determination away from work performed towards household consumption. Wages are benchmarked against food baskets, housing costs, education choices and lifestyle expectations.

This departs from a principle long embedded in Indian labor law and trade union practice — and more broadly in India’s civilizational ethos — where work itself is accorded dignity, the belief that labor, skill and effort (karma) deserve fair reward. By tying pay to household needs rather than work, the living wage framework disconnects remuneration from productivity, effort and skill acquisition.

This shift raises practical contradictions. Should two workers performing the same job earn different wages because one has a larger family? In a country as diverse as India, with sharp regional price differences and household structures ranging from single migrants to joint families, a consumption-based wage formula quickly becomes arbitrary, inequitable and administratively complex.

More importantly, such an approach weakens incentives for skill formation and productivity enhancement — the levers India must strengthen if it is to realize its ambition of becoming a developed country by 2047. For an economy still climbing the income ladder, linking wages explicitly to the quantity and quality of work performed remains important for aligning remuneration with productivity.

Since productivity is shaped not only by effort but also by workers’ skills and working conditions, wage-setting mechanisms that recognize these factors can promote efficiency as well as fairness. When embedded within a framework of statutory minimum wages, skill-linked wage systems are therefore not merely pro-employer; they can also be pro-employee, as they encourage skill acquisition by linking wage rates directly to employees’ skill sets.

Laws on the book: a failure to enforce

India’s real wage crisis lies elsewhere. It is not the absence of a living wage benchmark, but the failure to enforce minimum wages already notified under law. Across agriculture, construction, domestic work and small manufacturing, many workers continue to be paid below statutory minimum wages. Revisions are often delayed, inspection capacity is limited and compliance remains weak. For many workers, minimum wages remain a legal entitlement rather than a lived reality.

It was precisely to address these shortcomings that Parliament enacted the Code on Wages, 2019. By consolidating four earlier laws covering minimum wages, wage payments, bonuses and equal remuneration, the Code seeks to simplify compliance while strengthening worker protection. Its most significant reform is universal coverage.

Although its predecessor, the Minimum Wages Act, 1948, existed for decades, its application was limited to “scheduled employments” notified by governments, leaving large segments of India’s informal and service sector workforce (like housemaids, cooks, caregivers, workers in small eateries like dhabas and roadside restaurants) outside its legal ambit.

The Code on Wages, 2019, removes this occupational filter, making minimum wages protected for the first time. Now, minimum wages have become a statutory right for all workers across organized and unorganized sectors.

The Code also introduces a statutory floor wage to be fixed by the central government, based on minimum living standards, with scope for regional variation. States cannot set minimum wages below this floor. This creates a national baseline of wage protection without abandoning the principle that wages remain linked to work and skill. Minimum wages are to be fixed using transparent criteria, including skill categories, geographic conditions and the nature of work, such as exposure to heat or hazardous environments.

Beyond wage levels, the Code strengthens core labor protections. It prohibits gender-based discrimination in recruitment and wages for similar work. It extends provisions on timely wage payment and restrictions on unauthorized deductions to all employees by removing earlier wage ceilings. Overtime wages at twice the normal rate are mandated, and responsibility for wage payment is clearly assigned to employers.

Equally important is the rethinking of enforcement. Inspectors are now designated as “Inspector-cum-Facilitators”, combining oversight with guidance to improve compliance. First-time, nonserious offenses can be compounded through monetary penalties, while repeat violations attract stricter sanctions. This compliance-oriented framework recognizes India’s enforcement constraints while retaining legal accountability.

Searching for a just marketplace

Taken together, the Code on Wages, 2019 already incorporates many objectives advanced by living wage advocates: universality, adequacy, equity and enforceability. What it deliberately avoids is anchoring wages to individual household consumption patterns. Introducing a parallel living wage framework alongside the Code would blur legal clarity, complicate enforcement and weaken the incentive structure needed in a developing economy.

The economic risks of such a shift are significant. Most Indian enterprises operate on thin margins and have limited access to capital. They can plan for and comply with clearly defined, work-linked minimum wages. But wages are tied to evolving consumption baskets, often devised without adequate sensitivity to the capacity to pay unpredictable labor costs. The likely outcomes are reduced hiring, greater informality and weaker compliance.

India’s labor market faces structural challenges: informality, low productivity and limited enforcement capacity. The Code on Wages, 2019, offers a pragmatic, Indian response aligned with the country’s development stage and long-term aspirations. The priority now is implementation through regular revision of minimum wages, stronger enforcement and universal compliance.

The debate, ultimately, is not between compassion and growth. It is between a wage system anchored in work, skills and productivity and one anchored in consumption. If India is serious about becoming a developed nation by 2047, the task is clear: make the Wage Code work, and ensure that the minimum wage promised by law is paid in practice.

[Casey Herrmann edited this piece]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.