Boosting Demand Bottom Up

Context: India is facing a structural demand problem, one that predates the COVID-19 shock. 

Demand Generation

• Boosting domestic demand is critical for an economic revival as external demand is likely to remain muted. 
• India’s growth is driven by demand generated by those who are at the top of India’s socio-economic pyramid.
• Realising the untapped demand potential of those at the bottom of pyramid requires enhancing their incomes and earnings.
• those at the bottom of the pyramid who have a high marginal propensity to consume.

India’s Workforce is Trapped in Low Paid Informal Work

• According to Periodic Labour Force Survey (2018-19): 

• Less than 10% of the workforce is engaged in regular formal jobs, earning above minimum wage. 

• Another 14% are engaged in regular informal jobs with earnings slightly below a minimum wage. 
• The self-employed and casual workers account for 50% and 24% of the workforce respectively with earnings below a decent minimum wage.

How to Increase Earnings of Those at the Bottom of the Pyramid? 

• Enhance productivity growth in the informal economy: it will increase the incomes of low-wage workers.
• Raise the minimum wages of the worst-off workers: like casual labour.
• Complex set of minimum wages: different wages by occupation type and skill levels for certain industries or sectors.
• The Code on Wages (2019) seeks to universalise minimum wages and extend them to the unorganised sector.
• It might face enforcement challenges in a labour market.
• Ensure minimum wages for public workfare programmes too: in particular MGNREGA works, which involve the employment of unskilled labour. 
• MGNREGA wages are not covered under the Minimum Wages Act.
• Less than 4% of casual workers are employed in public works programmes

Arguments in Favour of Raising Minimum Wage for Casual Workers

• It will help in setting a higher wage floor: for others engaged in low-paid work, including regular informal workers, thereby enhancing their earnings.
• The construction sector can play a critical role in the economic revival: and can ensure employment generation. 
• A large share of casual workers are engaged in agriculture and construction work (roughly 40% each)
• Decent minimum wage framework can be leveraged to boost the consumption and demand of those at the bottom. 
• It is different from the exercise of providing unconditional cash transfers: to those at the bottom of the distribution

Way Forward

• • Minimum wage must enable a reasonable level of consumption expenditure and must not rely just on sustaining life.
  • Minimum wage must be linked to the consumption expenditure of the relatively better-off group of workers i.e formal workers.
    • This will allow for the updating of the minimum wage every year as and when the PLFS data is released.