Designing an Effective Minimum Wage Policy for Sustainable Development in India

Abstract

The articulated objectives of the minimum wage policy in India—specifically targeting poverty alleviation, reducing income inequality, promoting gender equity, and encouraging responsible consumption—are fundamentally aligned with the broader principles of the Sustainable Development Goals (SDGs). These policy goals, if effectively implemented, have the potential to make substantial contributions toward the achievement of multiple SDGs, particularly those related to ending poverty (SDG 1), reducing inequalities (SDG 10), promoting gender equality (SDG 5), and ensuring decent work and economic growth (SDG 8). However, the complex structure of minimum wages in India poses several challenges to achieving these outcomes. Among these challenges, we specifically discuss partial coverage, low rates of minimum wage fixation and a high incidence of noncompliance. The limited coverage undermines the effectiveness of minimum wage policies as a tool for poverty reduction and income redistribution. Noncompliance not only denies workers their rightful earnings but also perpetuates cycles of poverty and inequality. It particularly affects vulnerable groups, such as women and rural workers, who are more likely to be employed in sectors with weak enforcement of wage standards. By surveying some recent empirical literature, we identify the significance of minimum wages in mitigating poverty, income inequality and promoting gender equality and decent work. Literature from India suggests that minimum wages if implemented with full compliance would reduce poverty by 7-10 percent and gender wage gap up to 18 percent. Further, we elaborate briefly on strengthening the minimum wages. Universalising the legal coverage of minimum wages is the first step towards an effective minimum wage policy. Fixing adequate levels of minimum wages and then revising them from time to time with inflation indexing is the next important step. Lastly we argue that enabling a conducive environment for firms; compliance is the most crucial. This paper is intended to stimulate further discussion and reflection on the vital role that minimum wage policies can play in advancing the SDGs in India. By linking minimum wages more explicitly to the SDGs, policymakers can develop more integrated and effective strategies to tackle poverty, reduce inequality, and promote sustainable economic growth. The goal is to ensure that minimum wages not only provide a safety net for workers but also contribute to broader social and economic development objectives.