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