India’s growth has been fuelled by demand which has dampened owing to various factors. One untapped source of demand could be the group which lies at the bottom of income pyramid. This article suggests the ways to increase the income of this group.

Structural demand problem

• India’s structural demand problem predates the COVID-19 shock.
• This problem has been compounded after lockdown as jobs have been lost and incomes have collapsed.
• Boosting domestic demand is critical for an economic revival as external demand is likely to remain muted.
• It is argued that India’s growth story has been driven by demand generated by those who are at the top of India’s socio-economic pyramid
• But the demand from that section has now plateaued.

So, where the demand is going to come from?

•  Turn to those at the bottom of the pyramid.
• Those at the bottom of pyramid have a high marginal propensity to consume.
• But realising the untapped demand potential of this group requires enhancing their incomes and earnings.

Division of India’s workforce

• Periodic Labour Force Survey (2018-19) tells us that less than 10 per cent of the workforce is engaged in regular formal jobs.
• Another 14 per cent are engaged in regular informal jobs with average monthly earnings (Rs 9,500), which is roughly equivalent to or slightly below a minimum wage.
• The self-employed and casual workers account for 50 per cent and 24 per cent of the workforce respectively and report average earnings that are considerably below a decent minimum amount.
• Casual workers, who are unlikely to receive work on every day of the month, are at the bottom of the employment structure.

How to increase the earning of those at the bottom of employment structure

• Devising strategies that enhance productivity growth in the informal economy could increase their income.
• Raising the minimum wages of the worst-off workers.
• At present, under the Minimum Wage Act,  India has a complex set of minimum wages which offer different wages by occupation type and skill levels.
• The Code on Wages (2019) seeks to universalise minimum wages and extend them to the unorganised sector.

Way forward

• 1) Ensuring a decent minimum wage for those who are the bottom of the distribution — the casual labour, would be helpful in this context.
• This will help set a higher wage floor for others engaged in low-paid work, including regular informal workers.
• 2) It is also important that minimum wages are paid in public workfare programmes too, in particular MGNREGA works.
• At present, MGNREGA wages are not covered under the Minimum Wages Act.
• 3) The minimum wage can be linked to the consumption expenditure of the relatively better-off group of workers.

Consider the question “India’s growth story is scripted by demand which has been tapering off. The new source of demand could be those at the bottom of income structure. Suggest the strategies to increase the income of this group which could then translate into demand.”

Conclusion

The Indian employment challenge today cannot be seen independently of the problem of inadequate income. The above intervention will not only enable income enhancement of those in low-paid work but also add fuel to demand and growth, this time from those at the bottom of the distribution.

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