MGNREGA AND MINIMUM WAGE DEBATE - A fight for the right

to get minimum wage

The Government of India has introduced several social security schemes, but the Mahatma
Gandhi National Rural Employment Guarantee (MGNREG) scheme is a landmark in itself. It
is a flagship program of the UPA (United Progressive Alliance) government that directly
touches the lives of the poor. The scheme is subsidized by a legislation that offers a
commitment to rural poor, that even they can ‘earn’ a minimum standard of living. It aims at
ensuring livelihood security to people in rural areas by guaranteeing 100 days of wage
employment in a financial year. The benefits are open to any rural household whose adult
members volunteer to do manual work. MGNREG Act, 2005 is the first ever law,
internationally, that assures wage employment to the poor and it is a centrally funded
program. The entire wage cost of unskilled workers and 75% for the skilled and semi-skilled
workers is borne by the Centre. Since its inception, the scheme has become the largest
employment generation program in India. In 2009-10, it generated employment for more than

50 million men and women and has spent ` 25,579 crores as wages paid to MGNREG

workers1 (see table 1).

Table 1: Financial statement of MGNREG scheme

Year Budgetary Allocation Expenditure on Wages Employment generated

(in Rs crores) (in Rs. crores) (in Rs. crores)
2008-09 30,000 18,200 4.51
2009-10 39,100 25,579 5.25
2010-11 30,100 15,924 4.36

But even MGNREG, a successful employment generation program is not free of criticisms. In
the past few months, media has reported on local level corruption, irregularities in allotment
of work, delay in wage payments and improper maintenance of records under the MGNREG
scheme. However, lately the scheme attracted political, economic and legal attention on
account of the formula adopted to pay wages.

1
Refer Implementation Status Report (2009-10) & Financial Progress Report (2009-10)
The wage policy of the MGNREG scheme has been regulated under Section 6 of the
MGNREG Act, 2005. A section has been alleging that the government itself has been
violating the provisions of Minimum Wages Act, 1948 and Article 23 of the Indian
Constitution - both of which gives a worker the right to get paid a legal minimum wage.

Section 6 of MGNREG Act provides following methods of wage rate fixation:

1. Notwithstanding anything contained in the Minimum Wages Act, 1948, the Central
Government may, by notification, specify the wage rate for the purpose of this Act:
a. Provided that different rates of wages may be specified for different areas
b. Provided further that the wage rate specified from time to time under any such
notification, shall not be at a rate less than sixty rupees per day.
2. Until such time as a wage rate is fixed by the Central Government in respect of any
area in a state, the minimum wage fixed by the State Government under section 3 of
the Minimum Wages Act, 1948 for agricultural labourers, shall be considered as the
wage rate applicable to that area. ”

THE DEBATE

It is clear that the scheme’s wage policy provide for two distinct methods of wage fixation.
Till 2008, MGNREG workers were paid the same “minimum wages” as notified by the state
governments under the Minimum Wages Act, 1948. They were paid minimum wages
applicable for agricultural labourers. But during 2007-08 and 2008-09, frequent upward
revision of minimum wage rates by some states, particularly Uttar Pradesh, Rajasthan and
Madhya Pradesh had significant financial implications on Centre’s budget, thereby increasing
its volatility2. Therefore in January 2009, the Central Government delinked Minimum Wages
Act with MGNREG Act, by exercising its power under section 6(1) and froze the wage rates
applicable to MGNREG workers in different states. But this action attracted public and
political criticism and allegations about violation of decent work conditions because in
swapping from section 6(2) to 6(1) of the Act, the Centre Government was undermining the
Minimum Wages Act, an important central legislation. MGNREG Act, in its current

framework guarantees not only 100 days of employment but also a real wage of Rs. 100, as

promised by the Finance Minister in the budget speech of July 2009. While in 19 states

2
Refer Ministry of Rural Development notification no. J-11011/5/2008-NREGA
MGNREG wage rates were less than the respective states minimum wage rates and in 5 states
they were even below the National Floor level of minimum wage (before price indexation,
see table 2)

Table 2: Wage rates (in rupees) for different states under MGNREG Act
and Minimum wages Act

States (as on 25 MGNREG wage rate

January 2011) in comparison to MW
rate

Before After
indexation indexati
on

Andaman 130 196 170 Lower Lower

Andhra Pradesh 100 Lowest 112 - 121 Lower -

119

Highest 118 -
261

Arunachal Area I - 80 Area I - 80 Area I - 118 - Higher

Pradesh
Area II - 80 Area II - 90 Area II -
118

Assam 100 100 130 - Higher

Bihar 100 109 - 151.34 120 Lower -

Chandigarh 140 176.98 174 Lower Lower

Chhattisgarh 100 100 122 - Higher

Dadar & Nagar 108.2 130.4 138 Lower Higher

Haveli

Daman & Diu 102 - 126 - -

Delhi 203 - -

Goa 110 157 138 Lower Lower

Gujarat 100 100 100 - -

Haryana 141.2 167.23 179 Lower Higher

Himachal Non-scheduled 120 Non- Lower -
Pradesh area - 100 scheduled
area - 120

Scheduled area Scheduled Higher Higher

- 125 area - 150

Jammu & 100 110 121 Lower Higher

Kashmir

Jharkhand 99 144.43 120 Lower Lower

Karnataka 100 133.8 125 Lower Lower

Kerala 125 Light work - 150 Lower -

150

Hard work - Lower

200

Lakshadweep 115 - 138 - -

Madhya 100 141.81 122 Lower Lower

Pradesh

Maharashtra 100 100 - 120 127 - Higher

Manipur 81.4 81.4 126 - Higher

Meghalaya 100 100 117 - Higher

Mizoram 110 132 129 Lower Lower

Nagaland 100 80 118 Higher Higher

Nicobar 139 207 181 Lower Lower

Orissa 90 90 125 - Higher

Puducherry 100 Light work - 119 Higher Higher

80

Hard work - Lower Lower

150

Punjab 100 - 105 141.98 124 - 130 Lower Lower

Rajasthan 100 135 119 Lower Lower

Tamil Nadu 100 80 119 Higher Higher

Tripura 100 100 118 - Higher

Uttarakhand 100 117.02 120 Lower Higher

Uttar Pradesh 100 100 120 - Higher

West Bengal 100 127 130 Lower Higher

Source: (Data as on April 10, 2010, from www.paycheck.in)

The new wage policy conflict created discontent in some sections of society. A writ petition
(WP no 11848 of 2009) was filed by some labour groups on the issue of non-payment of
minimum wages, based on which Andhra Pradesh High Court suspended the operation of
section 6(1) under MGNREG Act stating that minimum wage is the constitutional right of a
worker and the Government being the agency for implementing minimum wages, itself
cannot violate minimum wages. Article 23 of the Constitution of India implies that any
remuneration less than minimum wage paid to a worker would be equivalent to “forced
labour”3. The Court also ordered Ministry of Rural Development to make payment for the
differential amount of wages paid since 3.07.2009 to wage seekers. The Chief Minister of
Andhra Pradesh also wrote a letter to the Prime Minister of India requesting for compliance
with the High Court’s judgment.

In Rajasthan also, some social activists (including Ms. Aruna Roy a member of the National
Advisory Council (NAC) to UPA and founder of Mazdoor Kisan Shakti Sang (MKSS)) along
with thousands of labourers from various districts and MKSS activists protested continuously
for 47 days against the Central Government’s freezing of MGNREG wage rate at Rs. 100.
The protest was provoked by the case in Tonk district where around 99 workers were paid
only Rs. 1 per day for 11 days of work4. One of the motivations for this protest was also the
announcement by the state government to increase statutory minimum wage rate for unskilled

agricultural labourers to Rs. 135 per day w.e.f. 1st Jan, 2011 while MGNREGA wages were

expected to remain the same. The Chief Minister of Rajasthan also wrote to the Prime
Minister of India, justifying the demands of workers and requesting to link state’s minimum

3
As interpreted in Supreme Court’s Judgment under cases: People’s Union for Democratic Rights V. Union of
India (1982) and Sanjit Ray V. State of Rajasthan (1983)
4
“Why NREGA workers got Re 1 per day!” (August 24, 2011) Rediff. com
wage rates as notified under Minimum Wages Act with the MGNREG wage rates. The
additional financial implications for the same had to be borne by the Central government.

This wage dispute intensified when despite the High Court’s order and large scale protests,
Ministry of Rural Development stuck to its decision of not paying minimum wages to
MGNREG workers. Even the academic experts working on social security schemes
questioned the government. Prof. Jean Dreze,5 promoter of the idea of NREG scheme and
Chairman of (Central Employment Guarantee Council) CEGC’s Working Group on Wages,
also openly criticized the government policy of freezing the nominal wage rates at Rs. 100,
which is not only lesser than minimum wages in many states but is also deteriorating the real
value of wages with every single point increase in inflation. However, the working group on
wages, chaired by Dreze, under Central Employment Guarantee Council offered the
recommendation of linking MGNREG wage rates to prices using Consumer Price Index for
Agricultural Workers (CPI-AL), as an immediate measure to calm the ongoing wage debate
and later think of reconciling both the Acts. But Ministry rejected the recommendations.

POLITICS OF WAGES

The minimum wage conflict had turned into a political issue. After various meetings and
inter-ministerial discussions, the Chairperson of NAC, arrived at a general consensus that,
workers under MGNREG Act need to be paid minimum wages. NAC Chairperson
recommended that MGNREG scheme should be notified as a scheduled employment under
Schedule II6 of the Minimum Wage Act, 1948 and as an immediate resolution to the issues of
payment of wages to MGNREG workers minimum wages may be indexed to CPI-AL.

The Prime Minister announced his verdict on the wage conflict through a letter written to
Chairperson of NAC dated 31.12.2010. Though PM accepted recommendation of indexing
wage rates under MGNREG Act to CPI-AL (from 1 st Jan 2011), till a satisfactory index was
proposed by the expert committee7, chaired by Pronab Sen, but he choose to maintain the
distinction between MGNREG wages and wages rates notified under Minimum Wages Act.

5
Refer to page 55-58 of Minimum Wages and Mazdoor Haq Satyagrah booklet.
6
Schedule I and II enlists various occupations which are entitled to legal minimum wages under the Minimum
Wages Act, 1948.
7
The committee was formed by Ministry of Rural Development Ministry of Statistics and Programme
Implementation to link NREGA wages with real wages.
As per the new wage policy, wages under MGNREG Act will be revised annually but the
base wage, i.e. the real wage of Rs. 100 will be revised only after 5 years.

Though there has been increasing pressure on the government to link the MGNREG wages to
Minimum Wages Act, the fear that the state governments may arbitrarily raise minimum
wages thereby affecting the Union budget countered that. However, the new wage policy has

also put an additional budgetary burden of Rs. 3,500 crores since MGNREG wages have

increased around 17-30% (varying from state to state). The largest welfare program will now

also be one of the most costly programs, (the budget allocation went up from Rs. 40,100

crore during 2010-11 to t Rs. 48,000 crore, for 2011-12.8) Moreover, when food inflation is

high in the country, this policy has also raised the risk of creating a ‘wage-price spiral’ in the
economy because CPI-AL gives heavy weight to food products. Thus instead of framing a
sustainable wage policy for MGNREG Act that respects the Minimum Wages Act, 1948 the
Government has added a risk to the economy.

TWO LAWS & DECENT WORK

It is impractical to provide an opportunity of work unless the work quality or basic work
rights are assured. Though under the new policy MGNREG wages increased, but still in 10
states it is less than the notified minimum wages (see table 2 above), and here workers are
denied their constitutional right. The debate illustrates a case where the lawmaker itself is
violating the law, by disrespecting a Court order. It is not a fight between two wage policies,
but rather two legislations both created to protect workers’ rights. Linking MGNREG wages
to price index was definitely required to protect the poor rural households from rising
inflation. At the same time the government should also realize that though it has the power to
amend the law and facilitate social upliftment and rule of law, but it should not challenge the
law for narrow political gains.

8
FM’s Budget speech 2011. (28 February 2011) Times of India.

Written by: Prof. Biju Varkkey and Priya Arora