Monday, November 23, 2015

Calculation of minimum wage by 7th CPC for a unit of 3


Minimum wage calculation:  4.2.3 To estimate the minimum pay in the government, the VI CPC used the norms set by the
15th Indian Labor Conference (ILC) in 1957 to determine the need-based minimum wage for a
single industrial worker. The norms set by the ILC are as below:
i. A need-based minimum wage for a single worker should cover all the needs of a
worker’s family. The normative family is taken to consist of a spouse and two children
below the age of 14. With the husband assigned 1 unit, wife, 0.8 unit and two children,
0.6 units each, the minimum wage needs to address 3 consumption units;
ii. The food requirement per consumption unit is shown in the Annexure to this chapter.
The specifications were derived from the recommendations of Dr. Wallace Aykroyd,
the noted nutritionist, which stated that an average Indian adult engaged in moderate
activity should, on a daily basis, consume 2,700 calories comprising 65 grams of protein
and around 45-60 grams of fat. Dr Aykroyd had further pointed out that animal proteins,
such as milk, eggs, fish, liver and meat, are biologically more efficient than vegetable
proteins and suggested that they should form at least one-fifth of the total protein intake;
iii. The clothing requirements should be based on per capita consumption of 18 yards per
annum, which gives 72 yards per annum (5.5 meters per month) for the average
worker’s family. The 15th ILC also specified the associated consumption of detergents,
which can be seen in the Annexure; iv. For housing, the rent corresponding to the minimum area provided under the
government’s industrial housing schemes is to be taken. The 15th ILC kept it at 7.5
percent of the total minimum wage;
v. Fuel, lighting and other items of expenditure should constitute an additional 20 percent
of the total minimum wage.
4.2.4 The VI CPC considered additional components of expenditure to cover for children’s
education, medical treatment, recreation, festivals and ceremonies. This followed from the
Supreme Court’s ruling in the Raptakos Brett Vs Workmen case of 1991 for determination of
minimum wage of an industrial worker. The Supreme Court had prescribed this amount at 25
percent of the total minimum wage calculated from the first five components. However, in
considering this additional component the VI CPC took note of the educational allowance and
medical facilities being provided by the government. Based on its calculations the VI CPC
arrived at a minimum wage of ₹5,479. This was enhanced by about 22 percent to ₹6,660, which
was recommended as the minimum pay in the government. The enhancement quantified the
skill factor that Group D staff would acquire through training, upon their merger into Group
`C’. Ultimately, at the implementation stage, the minimum pay was fixed at ₹7,000 per month
on 01.01.2006.
Approach of the Commission
4.2.7 The 15th ILC norms were formulated in 1957. As such, the I CPC, which gave its
recommendations in 1948, pre-dated the same. The II CPC did make an initial assessment using
the ILC norms. However, it moderated the minimum pay so calculated in line with the then
prevailing per capita income. The III CPC adopted a modified version of the norms to calculate
the minimum pay. The IV CPC estimated the minimum pay by applying the growth of total
emoluments index on the minimum pay estimated by the III CPC. As already discussed, the V
CPC estimated the minimum pay through the ‘Constant Relative Income Approach’ whilst the
VI CPC adopted the 15th ILC norms to arrive at a base figure, to which was added additional
25 percent for various additional items plus the skill factor. The Commission has thus noted
that directly or indirectly, the ILC norms have always been at the core of the minimum pay
calculations made by the previous Pay Commissions. The Commission is also of the view that
the ILC norms, along with other supplements (the entire set of seven components), are the best
approach to estimating the minimum pay as it is a need-based wage calculation that directly
costs the requirements, normatively prescribed to ensure a healthy and a dignified standard of
living.
4.2.8 The Commission has estimated the minimum pay (the calculations for which have been
tabulated in the Annexure) through the following steps:
Step 1: The food, clothing and detergent products listed and their respective quantities
specified by the 15th ILC have been adopted. These quantities indicate the monthly
consumption of the listed products by a family comprising three consumption units.
[For e.g. for the product ‘Dal’ the quantity specified for daily consumption is 80
grams per consumption unit per day. The monthly consumption of Dal by a
consumption unit thus works out to 2.4 kg (80 x 30). Accordingly the monthly
consumption of Dal by a family comprising 3 units is 7.2 kgs (2.4 x 3).]
Step 2: The quantities have been multiplied by their respective product prices to arrive at
product wise cost. The price adopted for each product is the average of prices of
various items that are included in the product. The price of an item is the average of
its prices prevailing in each month from July, 2014-June, 2015. [At monthly family
consumption of 7.2 kg the Commission has estimated the monthly expenditure on Dal
at ₹704.44 after calculating the price of Dal at ₹97.84 per kg. The price of Dal has
been calculated as the average of prices of Toor, Urad and Moong Dal items specified
under the product Dal and whose prices have been determined at ₹87.86, ₹109.66 and
₹96.00 respectively. The prices of these three Dal items are the twelve monthly
average prices for the period July, 2014–June, 2015.]
The prices of all items have been sourced from Labor Bureau, Shimla. These prices
are used in the calculation of the CPI (IW) and subsequently the calculation of
Dearness Allowance. In the current exercise the prices of all items are for the period
July 2014-June 2015 and have been used in the calculation of DA at 119 percent
operative from 01.07.2015.
Step 3: The cost of food, clothing and detergent products obtained from Step 2 has been
divided by 0.8 to arrive at a total, of which 20 percent provides for fuel and lighting
expenses. This addresses the fifth component under para 4.2.3. The fourth component
on housing under para 4.2.3 has not been addressed at this stage as its quantification
at the final stage of pay estimation is considered more appropriate by the Commission.
Step 4: The cost estimated from Step 3 is divided by 0.85 to arrive at a total, of which 15
percent is towards recreation, ceremonies and festivities. The prescribed provision of
Report of the Seventh CPC
63 Index
25 percent to cover education, recreation, ceremonies, festivals and medical expenses
has been moderated to 15 percent because expenses on educational and medical
necessities are being separately provided for through relevant allowances and
facilities and thus need not be provided here. This partially addresses the first of the
two components outside the 15th ILC norms.
Step 5: The cost estimated from Step 4 is increased by 25 percent to account for the skill
factor, following the reasoning that there is no unskilled staff in the government after
the merger of Group D staff in Group `C’. This addresses the second of the two
components outside the 15th ILC norms.
Step 6: The cost estimated from Step 5 is divided by 0.97 to arrive at a total, of which 3
percent provides for housing expenses. This is done in view of the observation that
license fees for government accommodation is about 3 percent of the total pay. This
addresses the fourth component stated under para 3 but partially so, as the 15th ILC
norms had fixed the housing provision at 7.5 percent.
Step 7: The cost estimated from Step 6 is as on 1 July, 2015 when the DA was 119 percent.
The DA is assumed to be 125 percent as on 1 January, 2016, the day from which the
Commission expects its recommendations to be implemented by the government.
Accordingly the cost estimated from Step 6 has been increased by 3 percent
(2.25/2.19 = 1.027 or nearly 3%).
4.2.9 The cost estimated from Step 7 is next rounded off to ₹18,000, which is the minimum
pay being recommended by the Commission, operative from 01.01.2016. This is 2.57 times the
minimum pay of ₹7,000 fixed by the government while implementing the VI CPC’s
recommendations from 01.01.2006. Accordingly, basic pay at any level on 01.01.2016 (pay in
the pay band + grade pay) would need to be multiplied by 2.57 to fix the pay of an employee
in the new pay structure. Of this multiple, 2.25 provides for merging of basic pay with DA,
assumed at 125 percent on 01.01.2016, while the balance is the real increase being
recommended by the Commission. The real increase works out to 14.2 percent (2.57÷2.25 =
1.1429). The following table shows the real increase given by each CPC/Government over the
previously set minimum pay:
(in percent)
II CPC 14.2
III CPC 20.6
IV CPC 27.6
V CPC 31.0
VI CPC 54.0
VII CPC 14.3
4.2.10 The real pay in government is protected by providing Dearness Allowance (DA), which
is that percentage of pay by which the CPI (IW)16 increases over a fixed base value.
16 CPI (IW) is Consumer Price Index for Industrial Workers maintained by Labour Bureau, Shimla.
Consequently the absolute amount of DA keeps on growing with every point increase in CPI
(IW). On the other hand the real value of the industrial minimum wage is protected by
providing Variable Dearness Allowance (VDA), which is a fixed amount of money given per
point increase in CPI (IW) as notified by the Chief Labour Commissioner (central sphere) from
time to time. Consequently, over a period of time, the minimum pay + DA in government
becomes larger than the minimum wage + VDA in the private sector even though the basic
minimum wage in both the sectors is calculated on the basis of the 15th ILC norms. As on
01.01.2015 the minimum pay in government was ₹14,910 whereas minimum wage for a skilled
worker was in the range of ₹9,000–₹11,000 per month.
4.2.11 Besides DA, government provides house rent, transport, location and function specific
allowances besides Leave Travel Allowance (LTA) which, along with the basic pay, constitute
the gross pay of a government employee. If one were to only take HRA at 30 percent of the
basic pay and transport allowance at ₹400+DA, as are admissible in A1/A class cities, together
with educational allowances for two children at the rate of ₹1,500 per month, the gross pay
further increases to ₹20,870 (20870 = 14910 +2100+860+3000) as on 01.01.2015. In addition
government gives a host of other benefits that can be measured under the CTG (Cost to
Government of an employee) concept. From these numbers it is clear that benefits given to the
lowest ranked government employees, whether monetized or not, are significantly higher than
the minimum basic pay and also much higher than the emoluments of skilled industrial
workers.
4.2.12 To obtain a comparative picture of the salaries paid in the government with that in the
private sector enterprises the Commission engaged the Indian Institute of Management,
Ahmedabad to conduct a study. According to the study the total emoluments of a General
Helper, who is the lowest ranked employee in the government is ₹22,579, more than two times
the emoluments of a General Helper in the private sector organizations surveyed at ₹8,000-
₹9,500.
4.2.13 After considering all relevant factors the Commission is of the view that the minimum
pay in government recommended at ₹18,000 per month, w.e.f. 01.01.2016, is fair and
reasonable and one which, along with other allowances and facilities, would ensure a decent
standard of living for the lowest ranked employee in the Central Government.


Calculation of
Minimum Pay as on
01.01.2016
by the
Commission



S.No

Per day
PCU
Unit
Per month
3 PCU
Unit
Price/
Unit
()
Expenses
()
1
Rice/Wheat
475
gm
42.75
kg
25.93
1108.30
2
Dal (Toor/Urad/Moong)
80
gm
7.20
kg
97.84
704.44
3
Raw Vegetables
100
gm
9.00
kg
58.48
526.28
4
Green Vegetables
125
gm
11.25
kg
38.12
428.85
5
Other Vegetables
75
gm
6.75
kg
32.80
221.42
6
Fruits
120
gm
10.80
kg
64.16
692.93
7.
Milk
200 ml
litre
18.00
37.74

679.26
8
Sugar/Jaggery
56
gm
5.04
kg
37.40
188.48
9
Edible Oil
40
gm
3.60
kg
114.02
410.46
10
Fish



2.50
kg
268.38
11
Meat


5.00
kg
400.90
2004.51
12
Egg


90.00
no.
4.27
383.98
13
Detergents etc



₹/month
291.31
291.31
14
Clothing


5.50
meter
164.88
906.83
15
Total (1-14)





9217.99
16
Fuel, Electricity, Water Charges





2304.50
17
Total-(15) divided by 0.8





11522.49
18
Marriage, Recreation, Festivals, etc.





2033.38
19
Total-(17) divided by 0.85





13555.87
20
Provide for Skill by adding 25% to (19)





3388.97
21
Sum (19+20)





16944.84
22
Housing





524.07
23
Total-Divide no.21 by 0.97





17468.91
24
Step up of 3% on No.23 as DA is projected at 125% on 01.01.2016





524.07

Final Minimum Pay as on 01.01.2016 (23+24)





17992.98

Rounding off





18000

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