In this essay we will discuss about the wage policy for the workers in India. After reading this essay you will learn about:- 1. Historical Survey of Wage Policy before Independence 2. Wage Policy since Independence 3. Wage Policy under Sixth Plan 4. Objectives of a Growth-Oriented Wage Policy 5. National Wage Policy 6. Assessment of Wage Policy.

Essay on Wage Policy in India

Essay Contents:

  1. Essay on the Historical Survey of Wage Policy before Independence
  2. Essay on the Wage Policy since Independence
  3. Essay on the Wage Policy under Sixth Plan
  4. Essay on the Objectives of a Growth-Oriented Wage Policy
  5. Essay on National Wage Policy
  6. Essay on the Assessment of Wage Policy

Essay # 1. Historical Survey of Wage Policy before Independence:

Wage policy before Independence, was arbi­trary, conventional, customer-based following the traditional agrarian-cum-feudal systems without having any bearing on industrial society and factory system. The British rule in this respect in India followed the familiar pattern of business and commercial policy of the East India Company.

After 1918, especially under political leadership of Mahatma Gandhi and left wing communist ideological projection, a number of ad hoc enquiry committees, without statutory sanction, sought to settle wage disputes.


The Indian Trade Disputes Act, 1929 might be consi­dered an important landmark which ushered in a new era of state intervention in Indian Industrial Relations system affecting wage questions within capitalistic method of production.

The Report of Royal Commission on Labour in 1931 was the first systematic enquiry which, among other issues, focused the following aspects of wages governing a suitable wage policy:

(a) Wage levels in different industries

(b) Minimum wages


(c) Standardisation of wages

(d) Inter-sectoral wages and incentives

(e) Payment of wages

(f) Unfair deductions.


During the Second World War, war conditions resulting in high prices and diversion of consumer goods to military needs necessitated the system of payment of dearness allowance and bonus, which constituted subsequently important elements in wage policy.

The Rage Committee (Labour Investigation Committee) in 1946 later reviewed the wage questions and emphasized the following with regard to a wage policy:

(a) Wage differential of agricultural and industrial labour

(b) Statutory minimum wages in sweated industries


(c) Fair wage agreements

(d) Living wage.

Essay # 2. Wage Policy since Independence:

A Review of Wage Policy under Five Year Plans:

Immediately after Independence, two most significant events, i.e., Industrial Trade Resolution (1947) and Industrial Policy Resolu­tion (1948) shaped the Indian pattern of wage policy under the Five Year Plans.


The First Five Year Plan emphasized the fair return of labour along with capital in the national dividend keeping in view the interest of consu­mers and primary producers. The trade resolution also proposed the curb on excessive profits through rational taxation policy and at the same time emphasized the need for capital formation.

Industrial Policy Resolution emphasized the introduction of minimum wages in sweated indus­tries and fair wages. While the Minimum Wages Act, 1948 became a reality, the comprehensive analysis and recommendations of committee on fair wages lapsed due to constitutional constraints.

The Fair Wage Committee report indeed proved to be commendable efforts highlighting the concept and precept of minimum wage, fair wage» and living wage in Indian context.

Though the fair wage never became a reality in India, the report of the Committee remained a valuable document for future wage policy in India. The following important aspects of the report might be worth-noting in connection with the formulation of wage policy under the First Five Year Plan.


According to the Fair Wage Committee, a fair wage was defined as, “something more than the minimum wage but less than a living wage”. A minimum wage is intended to provide bare subsistence for preserving efficiency of the worker.

A living wage has been defined as, “bare subsistence, something to maintain health and a reasonably decent standard of living”. A fair wage may also be conceptualized as something between the two, intended to provide a reasonable amount of comfort besides subsistence, but less than a living wage.

In India, courts and tribunals have relied more on the Minimum Wage Act, 1948 and the Central Government has relied more on Fair Wage Committee Report for the definition and inter­pretation of minimum wage and living wage, the concept of fair wage being relegated to the background.

Article 43 of Directive Principles of State Policy of Indian Constitution lays down the following relating to living wage: The state shall endeavour to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage.


The Fair Wage Committee recommended the following factors among others, for fixation of fair wage. Factors affecting fair wage:

(i) Level of national income

(ii) Productive capacity of industry

(iii) Current rate of wages

(iv) Efficiency and productivity of labour


(v) Degree of skill of workers

(vi) Strain and work fatigue

(vii) Training and experience of worker

(viii) Mental and physical health of worker

(ix) Disagreeableness or otherwise of work and hazards involved

(x) Fair return on capital and remuneration to management


(xi) Fair allocation of reserve and depreciation funds

(xii) Prevailing rates of wages in the same or similar occupations in the same or neighbouring localities

(xiii) Place of industry in the economy of the country.

Quite undoubtedly fair wage is desirable on humanitarian ground for Indian workers; its feasibility is to be examined in the context of some prevailing constraints of economic conditions. Introduction of fair wage may adversely affect the full employment policy, capital formation and income distribution.

Because fair wage must be in tune with a national wage policy monetary policy and fiscal policy. Fair wage may add to inflation further in the context of stagnant labour productivity and rising cost of living index.

In view of these constraints the Planning Commission made recommendations in the matter on the eve of the first plan heralding the planned economy in India. At the outset, it must be noted that wage policy during the Five Year Plans, in large measures, is the reflection of labour policy of the Central Government at macro-level.


At the state level, each state pursues its own labour policy in conformity with central labour policy according to its own expediency and regional needs capable of translating the policy at micro-level. Wage policy, therefore, follows the similar pattern. A brief review of wage policy during First to Seventh plan is given here.

The First Plan aimed that “all wage adjust­ments should conform to the broad principles of social policy and disparities of income have to be reduced to the utmost extent”. At the same time, the Plan insisted on avoiding wage increase which would raise the cost of production and set in motion a wage-price spiral leading to illusory money income without any real increase.

The Plan recommended wage increases oily under certain circumstances viz:

(i) To restore anomalies or whether the existing rates are abnormally low;

(ii) To restore the pre-war real wages, as a first step towards the living wage, through increased productivity resulting from rationalisation and renewal or modernisation of plant.

The Plan opposed an upward revision of wages without increase in productivity as it will lead to inflation. But this policy was not followed in subsequent plans as wage inflation continued to plague the country.


The Government, being aware of the limitations of the Minimum Wage Act passed in 1948, encou­raged wage determination in many industries in the process of collective bargaining, tripar­tite conciliation proceedings and adjudication.

The Second Plan elaborated the implemen­tation programmes on the basis of the points of wage policy formulated in the First Plan. It referred to the need of fair wage, living wage differentiating from minimum wage.

The Plan emphasized that earnings beyond minimum wages should be necessarily related to results, and recommended the setting up of wage boards. Emphasis was made on the workers’ participation in management as a principle. Management councils were set up and the programme of workers’ education was started.

The Third Plan added nothing new to what had already been formulated in the Second Plan. It reviewed the working of the wage policy laid down in the Second Plan; and stressed the need for better implementation of wage programmes. It, however, drew attention to the principles of the need-based wages as indicated by the Indian Labour Conference.

The Plan also suggested several steps to strengthen the machinery for the implementation of minimum wages more effec­tively. For the first time, human resources development policy was hinted laying stress on skill and quality development of labour.

The wage policy of the Third Plan stressed special emphasis code of conduct and discipline to improve labour-management relations and union rivalry. The Fourth and the Fifth Plans, other objectives being the same as in previous Plans, emphasized that labour movement should assume larger responsibilities in national production and development.


The Fourth Plan particularly expects managements in both private and public sectors to create conditions in which labour can make maximum contribution towards increased productivity.

The Fifth Plan emphasized on the need for an integrated income policy as basic to national wage policy. It although favoured linking dearness with cost of living, full neutralisation at all levels was not favoured. The standardization of wages and the narrowing down of wage differentials was the keynote of the Fifth Plan wage policy. Payment by results was to be linked with productivity.

Essay # 3. Wage Policy under Sixth Plan:

The following were the basic principles of wage policy during the Sixth Plan:

(i) The real wages of workers in the lower income brackets should not be allowed to fall. For other workers excepting supervisory and managerial personnel, graded compensation for significant increases in the cost of living should be granted.

(ii) Real wages should also change in some relation to the change in real productivity of workers.

(iii) Money wages in an industry should be related to the change in cost of living and change in real average productivity per worker in the industry.

(iv) Coverage of minimum wages should be further extended provided enforcement or exten­sion does not cause shrinkage of employment opportunities and harassment in very large number of un-organised informal units.

(v) The possibility of enforcement of minimum wages in informal sectors should be considered when such units are better organised as economi­cally viable units.

(vi) Minimum wages should be extended taking into consideration the capacity of pay and also minimum wages should be frequently revised to allow for change in the cost of living.

(vii) Notwithstanding the need for inter-state differences in minimum wages on account of wage levels, prices and productivity, excessive differences should be reduced to leave the way for standardisation of wages.

(viii) A long term wage policy should be adopted ensuring similar wage for similar work. But historical interest anomalies in the pre­vailing wage structure in different industries should be removed thereby paving the way for wage negotiations and collective agreements.

(ix) Undue wage differentials should be removed gradually over time through training and continuous upgradation of skills at various levels.

(x) Effective measures should be taken to limit property incomes and to guarantee employ­ment to the poor at a minimum subsistence level for the purpose of coordinating wage policy and income policy.

Essay # 4. Objectives of a Growth-Oriented Wage Policy:

No Specific Wage Policy in Later Plans:

The subsequent Five Year Plans did not lay down any specific wage policy. In the context of the performance of India’s Five Year Plans and the need for economic growth under planned economy, the following may be discussed as objectives of a growth-oriented wage policy.

Objectives: Management Viewpoints:

(i) Industrial wages should have relationship with agricultural wages and average per capita national income.

(ii) Beyond basic minimum wage, there should be a linkage between productivity and industrial wage.

(iii) Subsistence minimum wage being statu­torily compulsory, minimum wage must have some relationship with capacity to pay as defined by the Committee on Fair Wage.

(iv) Price rise neutralisation policy and present arrangement by dearness allowance linked with consumer price index having adverse effects on industry’s needs for capital formation should be reviewed.

(v) A flexible wage policy consistent with industry’s need to raise resources out of its own surplus to meet some cost of expansion programme should be adopted.

Objectives: Union Viewpoints:

(i) Wage policy consistent with continuous improvement of real wages and standard of living of workers as well as productivity should be incorporated in national wage policy.

(ii) Fair wages should be the main objective which must be ensured to labour for capital formation and development of industry.

(iii) Despite so many Five Year Plans, supply and price position of consumer goods have not. Improved and this has corroded real earnings of workers. Demand for capital formation of industry should be as important as demand for labour’s consumer goods which should be the important objective of wage policy.

(iv) Ever-increasing income disparities necessitate reform of established social and economic relationship, and to achieve this progressive wage policy should incorporate changing moods of established social order.

(v) Wage policy should aim at achieving national unity planning and administrative reform ensuring gains of labour legislation.

Objective: Government Viewpoints:

(i) While recognising the need for a change in wage policy, the Central and State Governments emphasised the need for looking after the interest of consumers as well.

(ii) The main objective should be the better implementation of the existing wage policy instead of initiating a new one.

(iii) The government also accepted union viewpoints of wage policy regarding the removal of income disparities and fair distribution of wealth, but emphasized the greater importance of higher employment and standard of living.

(iv) The Planning Commission felt the limi­tation of resources as the most serious inhibiting factor for achieving the above objective, and as such resource mobilisation should be given the top priority in any future growth-oriented wage policy.

Essay # 5. National Wage Policy:

Issues in Formulating a National Wage Policy:

There seemed to be wide controversy on the various determinants of a rational wage policy in India as suggested by different quarters. Perhaps, it would be more appropriate to characterize the determinants as factors or issues of wage policy.

It is more difficult and controversial to analyse what should determine a wage policy. The following study, therefore, is evaluative in this respect, taking cognizance of some important issues though controversial.

It is suggested from many quarters, that, wage policy in a country like India should take into consideration per capita national income, agricultural wages and wages in small scale sector and self-employed sector as well as productivity.

This contention, however, is subject to several limitations. For example, Indian economy being conditioned by wide regional and sectoral dis­parities on account of skill, productivity and economic level, wages cannot be equalised with any national average income. Wage differentials are the natural traits of Indian economy.

Further, marginal productivity of other types of labour, if measurable, cannot be identified with industrial labour. Different conditions, particularly living standard and nature of employment in those categories under reference are also not comparable.

Mixed economy of India has posed many problems and projected new horizon of hopes and prospects. In the context of the performance of the public sector and Five Year Plans, several new issues have emerged which can be examined briefly.

Generally speaking, the most important contemporary issues like wage rate and wage differentials in India are interlinked with broader economic decisions of social goals. The price of labour as input on factor of production influencing prices and allocation of other factors of production has both inflationary and deflationary tendencies which are related to incomes and price policy as well.

In countries like Netherlands, Norway, Sweden, France and U.K. Wage policy is closely linked with incomes and prices policy. Although economic conditions in India are different from these countries, wage policy should be so framed as to recognise interdependence of wage, price, income, employ­ment and real output both at micro and macro level.

Closely related to this approach, wage policy should be consistent with economic planning, growth, social goals and capital formation.

These issues have emerged in greater comple­xity in our country if compared with advanced countries like, USA, UK, Germany and Japan. For, in these advanced countries, share of labour in national incomes has remained stable.

Further, certain issues like savings, invest­ment, and consumption pattern in India are greatly different, rather low as compared with these advanced countries. In India, it is to be decided if wage policy should be consumption oriented or investment (savings) oriented.

We face a great dilemma of the technique of growth with regard to the problem of choice between growth and stability. Wage policy must simultane­ously confront with the need for both investment and consumption, as India requires both at the present moment.

Workers necessarily are also entitled to the gains of growth in having better consumption of goods for higher standard of living. At the same time, savings are necessary for capital formation and higher investment. But, with limited resource mobilization, the two are difficult to achieve. Wage policy should find an answer to this dilemma.

There exists other issue concerning wages and employment. While wage cut on Keynesian reasoning may be possible, prescription for higher employment in certain sectors of economy is not conducive for higher effective demand and employment.

Under Five Year Plans, both labour intensive and capital intensive wage policy is a sine qua non of dualism in mixed economy. There is also wage-profit relationship which must be considered in a national wage policy.

In subsequent pages, a more detailed study of wage-employment, wage-profit relations in wage policy is to be made besides relevance of income policy. Certain amount of wage-differen­tials is necessary for growth, incentive as well as productivity. This also necessitates standardisation of wages and uniformity in wage level and wage structure requiring the application of minimum wage in classified industries.

Consideration of wage structure is also to be examined in greater details.

Because, a study of wage structure as a crucial issue of wage policy is relevant because of the following factors:

(a) Fair return to labour and capital

(b) Labour efficiency and productivity

(c) Wage level

(d) Surplus to industry for capital formation

(e) Public revenues

(f) Need of the economy for resources

(g) Supply of consumer goods at stable and fair price.

Price policy must also be related to wage policy. Continuous rise in cost of living and neutralisation of real wages by linking dearness allowance with basic pay cannot be a permanent solution to the real problem of growth.

Full neutralisation effect to dearness allowance resulting in demand-pull and cost-push inflation is hardly conducive to economic growth. What is urgently needed is the holding of price line commensurate with productivity.

Compensatory payment for protecting real wages of workers generally do not lead to increase in overall purchasing power as the feedback must taper off after a certain level; and also the elasticity of compensatory payments to changes in cost of living is generally less than unity.

Wage determination, methods of wage payment must also find an important place in wage policy. Also a national wage policy must be formulated and implemented as early as possible incorpo­rating the foregoing issues in appropriate mariner, and in conformity with India’s need for quick economic growth and employment as well as declared social objectives.

Trends in Formulating a National Wage Policy: Some Recent :

Increasingly rising inflationary price levels eroding real wages and leading to wide wage distortions in the wage structures have been responsible for lack of uniformity in the interpretation of the concept of minimum wage, living wage and need-based wage.

Methods of calculation and payment of dearness allowance, bonus and overtime have further led to wage distortions. The critical magnitude of overtime has distorted wage structures to the extent of 36 per cent of the total remuneration.

Union Government’s income policy especially in nationalized banking, life insurance, shipping, airlines and other public sector undertakings has given rise to wider wage distortions as between superior and subordinate staff in a most irrational manner.

Militant trade unionism of white-collar employees has forced management to resort to coercive collective bargaining in the above industries by which in many cases clerks enjoy higher earnings than officers without reference to productivity and responsibility.

In recent years, amendments of wage legisla­tions and also other labour laws have converted ‘ ‘workmen’ to ’employees’ in so far as wages are concerned. In future, the term “worker” and the “wage” may turn into “personnel” and “salary” giving rise to serious problems of wage policy.

Most irrational wage disparities exist as between public sector and private sector, and even within various establishments in public sector. In the absence of fair comparison and uniformity in private and state owned industries, profit-making monopolies and loss-making public enterprises pay different grades of pay, some­times same pay scale without reference to the capacity of industry to pay.

According to occupational wage survey of the Labour Bureau, Government of India, during 1958-75 difference between the earnings of men and women workers in tea plantations rose from 11 paise to 98 paise, in coffee plantations it registered a rise from 46 paise to 117 paise, and in rubber plantations the difference was between 48 paise and 142 paise.

A wide variety of wage differentials, i.e. skill differentials, sex differentials being considered normal, other extra-ordinary types of differential like, inter-plant, inter-industry, regional (geographic), executive, clerical, supervisory, professional (technical, managerial), and fringe benefits pose almost insuperable difficulties evolving a national wage policy.

From the standpoint of industrial wages, inter-industry wage differentials being mainly conditioned by capital-labour intensively, productivity and capacity to pay, are cognizable constraints of national wage policy especially in the context of foreign and multinational firms.

Recommendations of a number of important expert committees’ reports were not seriously taken into consideration.

Mention may be made of the following:

(a) Group Report 1967 set up by Reserve Bank of India;

(b) Recommendations of Egelund International Symposium on “Wage Issues in Economic Deve­lopment” (ILO) 1967;

(c) National Commission on Labour 1967;

(d) Committee on Wage Policy Report 1973-74;

(e) Bhoothalingan Committee Report on Wages, Incomes and Prices 1978.

There are, however, some encouraging favorable developments indicative of prospects for evolving a national wage policy.

Mention may be made of the following:

(1) Some statutory provision with regard to uniformity, standardization and social justice in the matter of defining wages and streamli­ning wage structures can be found in Payment of Wages Act, 1936; Minimum Wages Act, 1948; Payment of Bonus Act, 1965; Payment of Gratuity Act, 1974; Equal Remuneration Act, 1978 and Miscellaneous Provisions Act, 1955.

(2) Recommendations of various Wage Boards, Pay Commissions, recommendations of Indian Labour Conference, and awards of Industrial Tribunals’ and Court rulings have gone a long way in favouring a national wage policy, though sometimes the recommendation were modified by the Government.

(3) Collective bargaining at industry and Federation level resulting in collective agree­ments have considerably favoured the emergence of a pattern of wage policy at national level.

(4) Recommendations of the Chakraborthy Committee on Wage Policy especially on national wage structure should be considered as important steps for formulating national wage policy. This report is of particular significance as it specifically lays emphasis on skill differential and growth dividend.

The Committee has suggested setting up of National Wage Board and National Wage Commission and for the first time job eva­luation in order to rationalise wage structures in different industries.

(5) The committee has also emphasized the need for replacing market mechanism by adminis­tered wage system. It has recommended measures for the formulation of income policy as supplement to wage policy and suggested integration of bonus with social security benefits.


The Chakraborthy Committees recommendations evoked severe criticism from employers and trade unions. And ultimately the Government shelved the Committee’s recommendations. It seems, in India, the absence of appropriate market mecha­nism and rational administered wage system has rendered the formulation of national wage policy an extremely difficult task.

Moreover, job evaluation system at micro and macro level conforming to standard wage fixation through collective bargaining, as adopted in advanced countries, is seldom found in this country.

On the top of it, a suitable income policy as adjunct to wage policy is also lacking which has given scope to wage boards, labour courts, tribunals as wage setting machineries. And unfortunately, co-existence of all these bodies have resulted in irrational wage structures, wage differentials and wide varieties of wage determination methods.

In foreseeable future, wages may be grouped with salary and labour productivity may be synonymous with managerial productivity. As inflation, especially stagflation, is likely to persist, the concept of money wages, real wages, national minimum wage may undergo changes through the amendments of relevant wage laws. Furthermore, the concept and practice of dearness allowance, and bonus may also change.

It may be better that manufacturer’ organisations and trade unions evolve a national wage policy mutually through productivity agreements sharing the gains of productivity. If the state fails to formulate a national wage policy, the task may be better entrusted with the parties concerned at voluntary bipartite level.

Essay # 6. Assessment of Wage Policy:

National Commission’s approach to wage policy assessment centered on principal indicators viz:

(i) Industrial harmony

(ii) Workers’ level of living

(iii) Labour productivity

(iv) Wage-price relation

(v) Share of wages in the value added by manufacture.

The Commission reviewed the import and nature of these indicators during 1947-1967. With regard to industrial harmony, it was pointed out, that industrial relations situation as manifested in the incidence of man-days loss due to strikes and lock outs was in the worst form between 1947 and 1950.

The total absence of any wage policy during the British rule and low-level of earnings below 1939 level, might be accountable to such situation of industrial relations. The improvement of earn­ings of workers since the First Plan continued to improve industrial relations till it dete­riorated during 1967.

The trends of money wages and real wages exerted profound influence on industrial harmony during subsequent Five Year Plans.

In India, wage factors continued to be the dominant causes of industrial disputes and, therefore, were policy conducive to workers’ better standard of living must be given the top priority. Regarding workers’ level of living, the trends of real wages and money wages are the most objective indicators of wage policy.

The wage-increasing effects of industrial awards and collective bargaining and also wage restra­ints following delayed methods of governments wage settlement machinery acted in two opposite directions. This seemed to be the great paradox as well as dilemma in wage policy.

Changes in labour productivity, though very useful index, are difficult to measure. Notwith­standing good researches in this area, output per man-hour, as the accepted concept of labour productivity is not comprehensive as labour productivity is not the sole contribution of labour alone, as a factor of production; output is the conjoint product of four factors of production.

However, during the first three plan period, (1952-64) production per worker increased by about 63 per cent though real earnings of labour remained constant.

Wage-price relation, during 1960-64, showed a decline from 10.9 to 9.7, variation being very wide in different industries. Share of wages in value added in manufacture also dec­lined from about 40 per cent in 1960 to 36.5 per cent in 1964.

The commission concluded:

“To sum up, we note that increases in money wages of industrial workers since Independence have not been asso­ciated with a rise in real wages, nor have wage increases been commensurate with improvements in productivity. Simultaneously wage costs as a proportion of total costs of manufacture have registered a decline and the same is true about workers’ share in value added by manufacturers. Wage disputes under these conditions have continued to be the single most important cause of all industrial disputes”.