NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

Project work – Economics I

TOPIC: Minimum Wage Rate and its role in

Regional Imbalances in India
Submitted by:- Submitted to:-
Prabhav Sharma Prof. Rajesh Kumar Gautam
2019B.A.LL.B.28
Divyesh Sharma
2019B.A.LL.B.45

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Table of Contents:- page no.
1. Introduction 3
2. Objectives 4
3. Methodology 4
4. Concept of minimum wage rate 4-7
5. Trends of minimum wage rate in India 7-10
6. Government policies for minimum wage rate 10-13
7. International labour organization policies to
regulate minimum wage rate 13-15
8. Setting of minimum wages 15-17
9. Regional imbalances and their causes 17-19
10.Solution 19-23
11.Conclusion 23-24
12.Review of literature 24-25
13.Bibliography 25

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Introduction

Minimum wage rate is an important tool for the proper functioning of the market structure as
it can help to regulate and control the efficiency of labor in the market. It is a policy measure
implemented by various governments of the world as to help the worker class who are
otherwise in many sense exploited by their employers. Minimum wage can be the lowest
amount of remuneration that an employer should pay to his workers in a particular industry
and below that amount a worker cannot sell his labor in the market. Basically, minimum
wages can help to secure a dignified status to the workers without have much negative
implications in the market if the minimum wages are set at an efficient and a proper level.

In India, the system of minimum wages has been implemented very early as compared to
other developing nations by the Minimum Wages Act, 1948. From then onwards government
is trying in various sectors to control and regulate its functioning in a proper way. And it also
is amending and bringing new rules and regulations for its proper implementation as it is a
concern for the government and also the nation’s economy.

There are also various various international organizations which are setting up general rules
for the implementation of minimum wage policy in various countries. Many such
organizations which are working at the international level for the upliftment of the conditions
of the workers are setting some guidelines to improve the conditions of workers at the global
level.

But in India, there are some issues concerning with the implantation of minimum wage
policy. India is in its own a very complex structure in cases of its diversities in various fields.
And thus to implement such a policy across the nation is a very difficult for both the central
as well as state governments because even there are disparities within a state.

Thus the concept of minimum wage is very essential to understand for the development of
our economy and also the nation and the government should put more efforts and try to find
some solution for the efficient implementation of minimum wage policy in India.

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Objectives

 To understand the basic concepts of minimum wage rate.

 To analyse the role of minimum wage rate in India.
 To understand government policies to regulate minimum wage rate in India.
 To understand causes of regional imbalance due to minimum wage rate in India
 To provide a solution to deal with the problem of minimum wage rate.

Methodology

Doctrinal Method of research is used while making this project.

Concept of minimum wage rate

Minimum wage can be defined as the lowest amount of remuneration which is required to be
paid by the employer to his workers during a particular period of time for the labor provided
by the employee and which is fixed by the government and cannot be altered by any contract
or any agreement between the employee and the employer. The minimum wage can be set by
any competent authority, a statute or any wage board or council, or by any labour tribunals or
courts. Most of the countries in the modern era have started the practice of minimum wages
by the end of the 20th century.
The primary purpose of the implementation of minimum wages is to protect the interests of
workers against the payment of unduly low wages by their employers for their labor. It will
also help providing equal treatment to all and the fruits of the labor can be disturbed equitably
and just in nature which will lead to the overall progress of the society.1 This will help for the
upliftment of the workers class and who are in a need of such protection to protect their own
rights. This policy implemented by nations will also help to overcome poverty and inequality
among the masses, and also lessening the gap of inequality of wages between men and
women as this policy will provide wages according to the value of your work which will be
just and fair in nature. Now in more than 90% countries of the world have adopted the policy
of minimum wages in their country.

1
https://www.ilo.org/global/topics/wages/minimum-wages/definition/WCMS_439072/lang--en/index.htm

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Historically, the origin of the concept of minimum wages can be traced back to the Ordinance
of labourers in 1349 which was a decree issued by King Edward III which set a maximum
wage for workers in the medieval England.2 He issued it to control and regulate wages in the
country and also to provide a wage ceiling. After a period of time the setting up of minimum
wages for the labourers also came into action. This practice was then eventually formalized
after passing of the Act which led to the fixing of minimum wages by King James I in the
year 1604 for the textile industry.
The first modern minimum wage legislative actions were taken in 1890s by New Zealand and
Australia. It was basically done by the government as to recognize the labour unions which in
turn introduced the policies of minimum wages among its members. This policy has its initial
focus as to the stopping of sweatshops and then regulate it to a large extent because
sweatshops were such workplaces where the condition of working were socially unacceptable
and very poor and also the labourers were exploited and were underpaid. As this sweatshops
also employed a number of women and children and they were then paid substandard wages.
And then over the time the shift took place from this idea and focused more on poor and
needy people who worked in different industries , so that they can become more self
sufficient. The modern wage legislations were firstly introduced in New Zealand in 1894 and
then in Australia in 1896. Subsequently it also developed in United Kingdom in the year
1909. And then it was also introduced in The United States in the form of statutory
regulations nationally in 1938. Now most of the European nations and also different countries
of the world have implemented the policy of minimum wages for the workers.
The concept of minimum wage can be well understood with the demand and supply model of
economics. It depicts various consequences of the implementation of minimum wages. It can
be understood with the help of demand and supply graph which is shown below:-

2
https://en.wikipedia.org/wiki/Minimum_wage

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In this analysis of minimum wage by demand and supply curve is the basic example of price
floor set by the government. Here, on y-axis it shows the wages paid to the workers and on x-
axis it shows the number of workers employed. The demand curve depicts the number of
workers a firm or company would like to hire. If the wages of the workers is higher and the
company will have to pay more for it then it will prefer to hire less workers. And thus we can
see that the demand curve is sloping downwards. The supply curve represents the number of
workers who wants to work in a particular industry at a fixed wage rate. It is clear that if the
wages for a particular work increases, the more number of people will be willing to join the
particular industry and thus the supply of labour in the market increases. Therefore the supply
is sloping upwards.
In this diagram, there is an equilibrium at point e where the demand and the supply curve
intersects. At this point, the quantity of labour supplied in the market at a particular wage rate
will be equal to that way quantity of labour demanded by the company. And thus in this

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situation there is no problem of unemployment. However, when we add a minimum wage and
increase the wages of workers from w to w1, there is a shift in the demand and supply of
labour in the market. The demand for workers in the market will reduce as the employers will
not be able to pay extra wages to a large number of workers as before. And also the supply of
labour in the market will increase as more workers will be willing to work at this level of
increased wages. Therefore, such situation creates a problem of unemployment which will be
equal to Q2-Q1, that is, the extra supply of labour in the market.3
Thus, in this model to understand the concept of minimum wages, we can analyze that as we
set a minimum wage rate above the equilibrium level prevailing in the market, this will also
led to some problems in the system. We may also receive some benefit as the supply of
labour increases the employers will have a choice among them and they can select more
skilled workers for the jobs but this will led to a problem of unemployment particularly in the
unskilled and less professional sets of workers. The living conditions of the workers who will
be employed will get better by the increase in their wages and the problem of poverty among
this class will reduce to a large extent. But the problem will definitely increase for the
unemployed workers after the implementation of this policy. One more problem that will
increase for the working class could be the extra burden of taxation as we will increase the
wages of this workers and thus the income will increase.
So, we may find that the policy of minimum wage rate as we have discussed is somewhat
beneficial to the worker class but it also has some backdrops as it creates mainly the problem
of unemployment. Still, this policy is being implemented by majority of the nation states
because overall it leads to the development of the conditions of the working class.
Trends of minimum wage rate in India
The minimum wage system for labour has been a basic feature of Indian society from an
ancient time. As we can see this policy is also mentioned in one of the earliest works on
economics and politics “Arthashastra” by one of the renowned scholars of ancient India
Chanakya. This book mentions that the lowest pay for a state labour as an unskilled employee
should be 60 panas per year. Similarly the minimum wages for other kind of workers are also

3
https://econ101help.com/show-in-a-supply-and-demand-diagram-how-minimum-wage-can-increase-
unemployment/

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mentioned in the book. In the past few years, the minimum wage policy is strengthened by
various nations as to lift the position of workers and take them out of poverty and also to
reduce inequality. As mostly it is seen that the application of this policy mainly promotes
social justice and it also does not have any major negative implication if the minimum wage
level is set adequately. In the recent years the important growth story for India’s development
is from private sector. And as around more than 90% of the workers are involved in the
informal economy a proper implantation of minimum wage will help to curb poverty and
equality and will also strengthen the overall development of the nation. However the system
of minimum wages in India is very complex as there are plethora of minimum wages in
different parts of the country.
The Indian wage system has always been quite a dynamic and a debatable issue. India was
among one of the first developing nations to implement the policy of minimum wage in the
year 1948 by the enactment of the Minimum Wages Act, 1948. Minimum wages under the
act are set by both the central and the state governments and it is set for the employees
working in some selected ‘scheduled employment’. Scheduled employments are those
employments which are notified under the Minimum Wages Act, 1948 by the centre or
different states. The act protects both the casual and regular workers in different industries.
The minimum wages under the Act have been set for different categories of labourers
according to their skills, location and their occupation. The Act in particularly do not set any
fixed norms for determining and fixing of minimum wages. Still, it provides for a system of
advisory bodies formed by various employees and employers and also some independent
persons which can advise the government for fixing of minimum wages in different sectors.
The Indian constitution does provide for the concept of minimum wage but defines the term
‘living wage’ for the workers. Living wage denotes and ensures for all the workers a basic
standard of pay for their sustainability and living, which includes some basic services like
dignity, comfort, good health and also education.
Then in the year 1957, the Indian labour conference (ILC) recommended some measures to
determine minimum wages and it based mainly on the principles of household’s needs. In
1988 the conference of labour ministry proposed for the linking of minimum wage to that of
the cost of living index, so that minimum wages can be implemented more effectively. And

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then in the year 1991, this recommendation given by the labour ministry was accepted by the
government and thus the government made it mandatory for the linking of minimum wage to
the cost of living index. After a year, in 1992, the Supreme court of India in one of its
judgements also ruled that the policy of minimum wage for its implementation should also be
linked with some other aspects, other than that of cost of living index, such as medical
requirements, children’s education, etc. Indian Supreme court in some of the other cases like
PUDR v Union of India and Sanjit Roy v State of Rajasthan, has stated that any wage to the
worker below the prescribed rate will be a violation of Article 23 of the Indian Constitution.
Therefore, such rulings implies that any worker cannot be forced to work at a wage which is
less than certain minimum wage which should be paid to the worker. And if any of the
employer forced a worker to work at a certainly less wage than the minimum wage then it
shall be considered as forced labor as laid under the Article 23 of the constitution of India.
The concept of implementation of a national wage policy across the country is being widely
debated since the enactment of the Minimum Wages Act, 1948. The most important argument
against the implementation of a national minimum wage has been that in India there is the
existence of wide disparities in economic development of different sectors and large
variations in the cost of living between different regions and also states. The implantation of
national wage is being analyzed by the government of India at various stages. Firstly, as in
the year 1969 the National commission on labour was set up which recommended that at that
time the implementation of national wage was neither desirable nor was it feasible to be
implanted. Then in 1978, a committee named Bhoothalingam committee was set up. It
recommended to ensure a system of uniform wage for all the workers and enhance the
protection for the most vulnerable workers and eliminate inconsistencies in the determination
of level of minimum wages by different States for different occupations. But the
recommendations were mainly made for the organized sector. And the unorganized and the
agriculture sector were left out. In the year 1991 some recommendations were made out by
the National commission on rural labour. It recommended for the setting of a National Floor
Level Minimum Wage as wide disparities were prevalent in the rates of minimum wages
across different States.4 According to the recommendations made by the National

4
https://www.indiabudget.gov.in/economicsurvey/doc/vol1chapter/echap11_Vol1.pdf

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commission on rural labour the central government has adopted the policy of non-statutory
National Floor Level Minimum (NFLMW). Then the NFLMW is regularly updated as per the
CPI(consumer price index).
Over the past 70 years, the system of minimum wages in India has expanded rapidly and has
also become very complex. There are some of the issues relating to its coverage and its
efficient implementation. Today as we see, there are nearly 429 scheduled employments and
more than 1,915 scheduled job categories under the unskilled workers category. This massive
expansion in job categories in various sectors and wage rates has led to major variations in
the level of minimum wages not only across different states but also within states. There is
also problem with the lack of a uniform criteria for the implementation of minimum wages in
different regions. And also that the Minimum Wages Act do not cover all kind of workers.
Thus the government is trying to implement some coherent solution for this issues and then
properly and efficiently implement the minimum wage rate for the overall development of the
country.
Government policies for minimum wage rate
In India minimum wage rates are fixed under The Minimum Wages Act, 1948. Minimum
wages are determined both by the central government and the state governments as labor is a
concurrent subject under the Indian Constitution. In India, Minimum wage rates are basically
declared at the national, state, sectoral and occupational levels. Minimum wages can be
established for any particular region, occupation or sector. Also, minimum wage is
determined for trainees, youth and workers.  Minimum wage is determined by the
consideration of the cost of living.
While revising or fixing the structure of minimum rates of wages, different minimum rates of
wages are fixed for different scheduled employments; different classes of work classified in
the same scheduled employment; and different localities. The minimum wages are mainly
fixed by hour, day, month or any other larger wage period as it can be prescribed. Under the
Minimum Wages Act 1948, both of the Central and State Governments are capable to notify
the scheduled employments and then fixing or revising the minimum wage rates for such
scheduled employments. The scheduled employments mainly includes both the agricultural
as well as the non-agricultural employments. Both the Central government and the State

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Governments are fully empowered to notify any of the employment in the schedule in which
the number of employees are 1000 or more in number and can fix the minimum wage rates in
respect of the workers employed.
Minimum wage rates are determined for 45 scheduled employments in the Central area while
the minimum wages at the state level are determined by each and every state by keeping in
view the industrial sectors which are more dominant in the State. Minimum wages are revised
while considering basic five elements: three consumption units per earner of a family;
minimum food requirement which is 2700 calories per average adult; cloth requirement
which are considered as 72 yards per annum per family; house rent which is corresponding to
the minimum area provided under the Industrial Housing Scheme of the government; fuel,
lighting and some other miscellaneous items to constitute 20% of the total minimum wage of
a worker; and education of children, medical requirement, some minimum recreational
activities including festivals and provision for old age people, marriage ceremonies etc.
should constitute 25% of the total minimum wage of a worker.5 Minimum wage rates can be
reviewed at different intervals as no particular time is fixed however such intervals should not
exceed a period of five years.
The Minimum Wages Act has provided two basic methods of fixation or revision of
minimum wage rates. First, Under the Committee Method, some of the committees and sub-
committees are set up by the Government to inquire and then make some recommendations in
reference to the fixation and revision of minimum wage rates. Second, Under the Notification
method, the proposals made by the government are published in the Official Gazette to
inform the persons who will be likely to be affected and then specify a particular date on
which those proposals shall be taken into the consideration by the government.
After the consideration of the advice by the Committees or Sub-committees formed under the
Committee method and all the representations which are received till the specified date under
the Notification method, the Government then, by issuing a notification in the Official
Gazette, fixes or revises the minimum wage rate with respect to the concerned scheduled
employment which had came into action on the expiry of three months from the date of
when it is issued.

5
https://paycheck.in/labour-law-india/work-and-wages

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The Compliance with labour laws which includes the payment of minimum wages to the
workers is ensured particularly by the labour inspectors, who are appointed as under section
19 of the Minimum Wages Act, 1948. If there is a non- compliance of such regulations, fines,
imprisonment can be applied as per the law. Section 22 of the Minimum Wages Act states
that the persons who are in violation of such rules can be punished by fine or imprisonment,
or both. The magistrate has also a power to ask the violators to require payment of arrears to
the workers along with the compensation for the delay in payment of wages. And If a worker
receives his wages, less than the wages which are officially declared by the government, he
can file a complaint to the labour inspector.  The complaint may be filed by the worker
himself or a legal practitioner as his representative, or any official of a particular registered
trade union. The claims for any such unpaid wages should be filed within a period of 6
months since when it became due.
The Code basically proposes that the central government has the right to fix a floor wage,
considering the living standards of the workers of different classes.  The central government
has the power to set different floor level of wages concerning with different geographical
locations. The power of the central government can also be to obtain the advice from the
Central Advisory Board and then may also consult with concerned state governments.
However, 33% of the total number of members on both the central as well as the state Boards
should be women.  The Boards are also having the mandate that it can advise the respective
governments on various issues such as:

(i) fixation of minimum wages for the workers,

(ii) increasing some employment opportunities for the women in various sectors.

The minimum wage rates which are notified by the central as well as the state governments
must always be higher than the set floor level wage. In case if the existing rates of minimum
wages are already higher than the set floor wage, then these cannot be reduced to any extent.

The Wage Code in this regard prohibits the employers from paying their workers less than
the minimum wages that should be given. The Minimum wage rates which are notified by
the government are either time based in nature or according to per piece. The minimum wage

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rates are to be revised and then reviewed by the central or the state governments at an
interval of time which should not have exceeded more than a period of 5 years.  While the
fixing of minimum wage rates, the central or the respective state governments may always
take into account a number of various factors such as: (i) the worker’s skills, and (ii)the
nature of work in different industries.

The Code on Wages Bill, 2019 was passed by the Lok Sabha on July 30, 2019 and then in the
Rajya Sabha on 02 August 2019. This Wage Code has generally the regulation on wages and
the payment of bonus in all employment.  The Code combines the provision of the mainly
following four laws: (i) the Payment of Wages Act, 1936, (ii) the Minimum Wages Act,
1948, (iii) the Payment of Bonus Act, 1965, and (iv) the Equal Remuneration Act, 1976. The
Wage Code thus repealed the above mentioned 4 laws.6

Thus, we can note that the government in its various economic policies is trying for the
proper implementation of minimum wage rates in the country. Since the enactment of the
Minimum Wages Act, 1948 the point of minimum wage rate is a concerning issue for the
government. By implementing its various policies in concern to the issue it is always trying to
regulate the issue which can thereby benefit the workers class and then will led to the
development of the whole nation.

International Labour Organization policies to regulate minimum wage rate

According to International labour organization " Minimum wages have been defined as the
minimum amount of remuneration that an employer is required to pay wage earners for the
work performed during a given period, which cannot be reduced by collective agreement or
an individual contract." In defining minimum wage it is important to be specific that what
components can come under preview of minimum wage rate , the extent under which
payment in kind is allowed , how minimum wage is calculated and what is formula to

6
https://economictimes.indiatimes.com/news/economy/policy/code-on-wages-2019-becomes-a-reality-
minimum-wage-for-50-crore-workers-on-the-anvil/articleshow/70807439.cms

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calculate minimum wage rate and what all are the components of formula and weather
minimum wage rate amount is according to wage/hours or wage/month .
Purpose of minimum wage rate is to protect worker against unduly low pay , it ensures that
profit is shared justly with everyone and no one is enriched of on the expense of others and a
minimum wage to all who are employed and in need of such production . This type of
policies help lower strata of society and offer them protection and try to secure minimum
amount of payment to give these workers a sense of protection uplift them from clutches of
poverty and reduce inequality , between all pre formed social classes and indifference
between men and women .
Minimum wage rate should be defined in such a way to provide support or help to other
social uplift mentioned policies , including collective bargaining which are contract
comprising clauses of working hours, pay and working conditions.

Minimum wage rate evolution through conferences ---

 The Minimum Wage Fixing Machinery Convention, 1928
Encouraged all countries to implement policy of minimum wage rate.
"where there is no efficient regulation to provide minimum wage rate through rule or
regulation and have exceptional low wages .
 the Minimum Wage Fixing Convention, 1970 (No. 131)
Coverage of all group of wage earners whose term of employment is such that this
coverage would be appropriate . Main issue of convention was full consultation with all
social partners . 7

According to different countries and their different policies minimum wage rate are diverse
all around the world , there are many approaches which are possible to calculate depending
on needs and policies of various countries.

7
https://www.ilo.org/global/topics/wages/minimum-wages/definition/WCMS_439072/lang--en/index.htm

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Some counties like United Kingdom have one fixed minimum wage rate across whole
country but some countries like Canada, India have minimum wage rate for different regions
of that country.
 In counties like united Kingdom it is easy to operate , communicate and enforce but
offer less scope account to operate and change it for various regions and various
sectors of country according to special needs of that particular that sector . It upheld
principle of equity above else .
 In countries like Canada and India there is more complex system and it is tailored at
the circumstances prevailing in various regions of that country depending on various
ideology of that region . This type of system does not have effectiveness and often
lead to confusion and disagreement between workers and sellers .
Some tomes minimum wage rate lead to imbalances between various sectors and influx and
deflux of workers from one region to other . There is also a link between equal pay for equal
value of that work which can be less for low experienced workers , set a view to stop their
entry on that sector .
Within country it is expected from a country to have a balance between complex and simple
for of policies for minimum wage rate . Minimum wage rate should also leave some space to
determine wages from bargaining between employer and worker .

Setting of Minimum Wages

Setting of minimum wages is a critical and time consuming process if minimum wages are
low it will not have any considerable effect on the lives of vulnerable people but it is too high
these is certain risk that rule will not be compliance and there is certain risk of black market
or payment given below minimum wage rate . Balanced minimum wage will not only provide
support to people working minimum wages but also increase economy in a country .
It is evident that government should make laws which take care of both the part and should
be revised time to time to increase their validity in current time . It is also essential that effect
of minimum wage rate should be monitored closely and if is not in consonance with what
government intended it should be amended to provide proper support to people 8.
8
https://www.ilo.org/global/topics/wages/minimum-wages/beneficiaries/lang--en/index.htm

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There are various ways of setting or fixing of minimum wage rate --
COLLECTIVE BARGAINING
Countries rely on employer and worker to agree on condition between them . For example
amount of wage , work conditions the role of government is to provide framework for these
type of negotiations . There are only few countries that rely on collective bargaining for
fixing of minimum wage rate . In most countries collective bargaining are insufficient in
protecting interest of workers and their protection from bad working condition and low
wage . Therefore in many countries governments have therefore adopted statutory minimum
wages in addition to those set through collective agreements.
STATUTORY REGULATION
In statutory regulations government makes every effort , ensure full consultation and have
direct participation on basis of equality in establishment of minimum wage rate and operation
of system .
To keep freedom of various companies in sector consultation is cried out in a context of open
social dialogue are to be held be for any harsh decision taken by authorities . It provides
policymakers with important information for effective policy design, improves the chances
and therefore effective implementation of policies and and advances social and industrial
peace and stability by minimizing misunderstandings and tensions.

BENEFICIARIES
Minimum wage rate should be for every worker in every sector Whether he is women ,man,
worker of industrial sector or worker of textile sector . Exclusion should be kept at minimum
especially on the cases of workers of vulnerable sector .
Generally workers from domestic , informal sectors or workers from non standardized form
of government or worker from agriculture sector are excluded from minimum wage rate .
To uplift the conditions of domestic workers ILO Domestic Workers Convention, 2011 was
held, where member was requested to ensure domestic worker enjoy minimum wage
coverage , where such coverage should be given out of preview of any sort of discrimination .
Transition from the Informal to the Formal Economy Recommendation, 2015

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In this conference it was held that countries should first maintain and then expand the
coverage of minimum wage rate for people of informal wages. It should also be extended to
people working in non standard forms , people working in part time etc . Lower wages that
are giving to these workers due to short working hours should not be below than minimum
wage rate .

REGIONAL IMBALANCES AND THEIR CAUSES

After 1990 India 's gdp has witnessed a sharp growth due to LPG (LIBRALIZATION
GLOBALISATION AND PRIVATISATION ) but there is a doubt weather this growth lead
to further inequality between various regional disparities like it is among States, and regions
within States, between urban and rural areas, and between various sections of the community,
9
have been steadily increasing in the past few years and that the gains of the. Rapid growth
witnessed in this period have not reached all parts of the country and all sections of the
people in an equitable manner or this is a widespread

9
https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---
publ/documents/publication/wcms_570376.pdf

17
perception all over the country.

Redressing regional imbalances has indeed been a vital objective of the planning process.
However, despite the efforts made, regional disparities have continued to grow and the gaps
have been accentuated as the benefits
of economic growth have been largely confined to the better developed areas. Paradoxically,
it is the natural resource-rich areas which continue to lag behind. This has in turn tightened
the stranglehold of the Naxalite movement and demands for division of States in these areas.
With the removal of controls and the opening up of the economy to external forces, the
pressure of market forces may tend to exacerbate inter- and intra-State disparities. The role of

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the Centre in promoting equity among States and regions, therefore, has assumed added
importance in the post liberalization era.

Redressing regional disparities is not only a gaoling itself but is essential for maintaining the
integrated social and economic fabric of the country without which the country may be faced
with a situation of discontent ,anarchy and breakdown of law and order.
There is probably no easy answer to the question of what really drives the growth process in
the States. In the early years of planning, attempts were made to control a large part of the
key drivers of growth and to make
them fit into an overall consistency framework. This covered not only fiscal variables, but
also other areas such as credit and financial markets, physical investments,locational
decisions, and the like. However, this approach
has now long since been given up for reasons that are not required to be discussed here. Over
the past several years, the share of public investment in the overall investment made in the
country has been steadily declining. In recent years, public investment has been a little over
20% in the
aggregate.

SOLUTION
There is, therefore, a very great limitation on the influence that fiscal quantities, allocations
and strategy can directly exert on growth rates, especially at the State level. States have,
therefore, to focus on providing
the necessary policy framework and supporting environment that makes economic activity
possible and attractive enough for private sector investment.10 This would include the entire
gamut of services provided by
the State Governments, right from maintaining law and order, providing quick and effective
dispute resolution through an efficient adjudication system, avoiding an extortionate and
distortionary tax system to enabling and empowering the general mass of the population to

10
https://clc.gov.in/clc/min-wages

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take advantage of economic activity.

GENERAL PURPOSE RESOURCE TRANSFER

In the system of division of powers between the central and state government the most
productive sources of revenue have been assigned to the central from the point of view of
administrative convenience, uniformity and efficiency. At the same time, the major
responsibility forth delivery of social services to the population has been vested with the
States, and has now been devolved further downward to the PRIs. Given this situation,
therefore, a

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very substantial responsibility falls on the Central Government to ensure that the overall
flows of resources from the Centre to the States is such that the relatively backward States are
enabled to achieve a level of service delivery at par with the more advanced States.
This involves issues of the fiscal capacity available to States to raise revenues, the extent to
which such capacity is actually being utilized and the specific difficulties that the States face
which result in increased unit costs of
service delivery.
Part of the Centre’s responsibility in this regards fulfilled through transfers under the Plan
process. At the same time, significant volume of transfers takes place through the mechanism
of the Finance Commissions. For a proper appreciation of the extent to which Central
transfers help in mitigating inter-
State disparities, it is necessary to look at transfers by the Finance Commissions also.
The finance commission has used the following criteria and weights for transfers of Central
taxes to the States. These have been applied uniformly across all States, both in the Special
Category as well as others.

It is seen that the Income Distance criterion (which measures the extent to which the per
capita of a State is below that of the State with the highest per capita income) is given a
weight of 50%. This has had
the effect of making transfers of the share of Central taxes steeply progressive. The formula
for inter se distribution of share of Central taxes is now generally more progressive than the
formula used for the distribution of NCA among
the States (Gadgil Mukherjee Formula). Under the NCA Gadgil Mukherjee Formula, the
following criteria and weights are used.
The Gadgil Mukherjee formula applies only to States that are not in the Special Category. In
the case of the Special Category States, 30% of the total NCA is earmarked, and this amount
has been apportioned among them in a constant ratio over the years.

21
While there could be different points of view about whether relative backwardness should be
assigned as much weight as it has been under the TFC’s award, or otherwise, it would also
appear that there does not seem
to be any reason any more for continuing with two different formulae for apportionment of
share of Central taxes and NCA among the States. Elsewhere in the Plan, the need to do away
with the distinction between Plan and non-Plan in expenditure has been emphasized. This
would logically imply that the need for two different formulae for resource transfers would
not exist any more.
Two components of resource flows being distributed tithe States on the basis of the same
formula could continue. One portion, namely, the share of Central taxes, would be entirely
untied; while the second could be earmarked for being spent on specific development sectors,
with considerable flexibility to States about how exactly to spend the amounts. It needs to be
remembered that, infact, the significance of the NCA amount has got substantially reduced
since 2005–06, the year from which the Central Government ceased to provide the loan
component of NCA. This revised procedure would have the added advantage of providing for
a fresh examination of the formula, criteria and weights by an impartial, professional body
once every five years, unlike in the case of the Gadgil formula and its variants, where the
process
of adapting to change is very time consuming.

Transfers under Centrally Sponsored Schemes and Additional Central

Assistance

Apart from the above, the Central Government also transfers substantial resources to the
States in the form of CSS and ACA for State Plan schemes. These transfers have an in-built
mechanism for progressiveness since they
are directed at filling gaps in the provision of basic services in the most backward areas. The
instruments being used by the Central Government to channelize funds into sectors and areas
which need special attention include
the Flagship Programmes, particularly Bharat Nirman,BRGF, and the NREGP.

22
Most of the schemes for rural development and poverty alleviation use poverty as a criterion
for distribution of funds and therefore people and areas with low income benefit
automatically. The NREGP is self targeting as it is expected that only the unemployed with
no other source of income for that period would opt for a programme of wage employment.
11
Also, NREGP provides an opportunity to States and districts to plan and execute
programmes that provide employment and create rural assets that would support further
economic activity. The availability of funds on demand distinguishes NREGP from other
schemes. The SGSY is targeted at BPL families and has in-built safeguards for the weaker
sections with
50% benefits reserved for SCs/STs.

11
https://labour.gov.in/gazette-notification

23
Conclusion

In contrast to many claims that location does not matter in a globalized and highly connected
world with decreasing transport costs and improved communication technologies, this
dissertation provides evidence that rather the opposite seems to be true, particularly in a
knowledge-based economy. Regional differences in economic activity are largely due to an
innovation sector that is gaining in importance and that tends to be more concentrated
geographically compared to traditional industries. This is causing a polarization between
regions. Whereas innovation hubs are increasingly able to attract innovative firms and high
skill concentrations, other regions are left with economically depressed industries and a low-

24
educated workforce. Overall, this thesis demonstrates that the well-being in a knowledge-
based economy increasingly depends on where you live rather than your personal
characteristics. More generally, inequality in advanced economies to a large extent reflects a
geographical divide.

In India some states growth and development is more advanced than other states which
causes imbalance as people , factories , and investor are more interstellar in those areas than
under developed areas this could be stopped with proper imposition of law made by
government of India in accordance with law that of ILO. Government has to make a uniform
minimum wage rate or wage rate with less difference between various region to harmonize
the distribution of workers all around the country.

REVIEW OF LITERATURE

India Wage Report by international labour organization : Indian wage report

by ILO is comprehensive study made by ILO shows that India high economic growth rate is
This high rate of economic growth has-been accompanied by a substantial decline in India’s
poverty rate and changes unemployment patterns, with a growing proportion of jobs in
services and industry and a declining share of employment in agriculture. The Indian labour
market, however, remains characterized by high levels of segmentation and informality. Of
the total employed in 2011–12, more than half were self-employed, and of the 195 million
wage earners, 62 per cent were employed as casual workers. Employment in the organized
sector has grown, but even in this sector many jobs have been casual or informal.

Spatial Development and Regional Imbalances by ministry of commerce

This report was presented by ministry of commerce to present as to why there have been
more economic growth than we think about as there is wide spread perception all over the
country is that disparities among States, and regions within States, between urban and rural
areas, and between various sections of the community, have been steadily increasing in the
past few years and that the gains of the rapid growth witnessed in this period have not
reached all parts of the country and all sections of the people in an equitable manner. That

25
this perception is well founded is borne by available statistics on a number of indicators.
Though there is some evidence to indicate a movement towards convergence on human
development indicators across States, one of the reasons for this convergence could also be
that most human development indicators have a value cap

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