People's Democracy

On Inflation and Formulating a Living Wage

Utsa Patnaik

ECONOMIC conditions in the recent past and at present are unfavourable for the struggle of labour to maintain a living wage which is adequate for meeting basic needs. There is all the more reason to be aware of the decline in real living standards of workers and their families from already low levels, in order to step up these struggles. The rate of employment growth in the economy virtually collapsed during the period 2004-5 to 2009-10 according to the data provided by the latest 66th Round National Sample Survey. Compared to an annual rate of employment growth of 2.7 per cent during 1999-00 to 2004-5 this declined sharply to only 0.1 per cent growth in the next five years to 2009-10. This means that the reserve army of labour made up of the jobless and severely under-employed, is enlarging further. The high rate of food price inflation of recent years has been accompanied by further privatisation measures with respect to utilities and healthcare which are so expensive now as to gobble up a much higher share of workers’ budget, leaving less available for food. The evidence shows that since the cost of healthcare, transport, power, and so on is not under the control of the consumer, it is food intake on which the working family cuts back to make ends meet. Nutritional levels in the country have been going down for a long time after the 1980s, with decline in both average calorie intake and in protein intake with only fat intake showing a small rise.

A minimum living standard is defined not only by access to enough food but also by access to health care, housing, utilities and education. But food is a basic necessity, and the ability to spend enough on food to satisfy minimum nutritional needs, even after meeting the rising costs of other elements, should define the idea of the minimum living wage. In short, the original definition of per capita monthly poverty line which was directly based on a nutrition norm should be adopted and adjusted by multiplying with the number of consumers that a worker has to support, to get an idea of the minimum living wage.

Given a good data base, it is not difficult to determine the actual current spending per capita, which is required for a minimum nutritional standard. India has an excellent data base on consumer expenditure and nutritional intake. Every five years, a large scale sample survey is carried out by the National Sample Survey Organisation with the household as the unit of enquiry, which is supplemented by annual surveys with a smaller sample size.  The sample surveys give us data relating to consumption expenditure, nutritional intake, employment and unemployment and a number of other important variables. The data are presented for every state and for all-India for both rural and urban areas. Consumer spending and nutritional intake are presented on a per capita basis according to 12 separate spending groups (10 groups in the latest survey). These data have been collected using the same definitions for 50 years, so allowing quite accurate estimation of trends over time. (National Sample Survey Organisation Reports are available on www.mospi.nic.in)

The Indian Planning Commission had adopted, following recommendations of an expert committee, an average calorie intake of 2100 kilocalories per capita per day as the nutrition norm for urban areas with a somewhat higher norm of 2400 calories for rural areas, which in actual application was reduced to 2200 calories. Protein intake is found to be almost perfectly correlated with energy intake across spending classes so it is correct to call this a nutritional norm and not merely an energy norm. These average per capita calorie intake values were arrived at by applying the Census data on the distribution of population by age, sex and occupation, to the varying per capita nutritional requirements of persons in 13 categories. So they are weighted averages, which would not change much over time unless the age-sex-occupation composition of the population itself changes substantially.

Table 1 shows the data on spending and nutrition for all urban persons for all-India, from two NSS Reports for the 66th Round, 2009-10. These Reports were released in July 2011 and January 2012 respectively. The total urban population is divided into 10 decile groups (namely one-tenth of population in each group) and for each group we are given the range of monthly per capita expenditure (MPCE) on all goods and services (second column of the Table). The average MPCE for each group is shown in fourth column, and the next three columns show the average intake of calories, protein and fat for each group obtained from the food spending part of MPCE. The last column gives the share of food spending in total MPCE.  

We can see from the Table that over seven-tenths of the population could not spend the amount needed to obtain 2100 calories per day. On average a person had to spend somewhat below Rs 2189 monthly to reach this norm. By plotting MPCE against calorie intake we get the more precise figure of Rs 2125 per person required monthly spending and by plotting third column against second column, we find that 74 per cent of persons failed to reach this level. Rs 2125 per month per person and 74 per cent below it, is the correct urban poverty line and poverty percentage for 2009-10.        

Rs 2125 per person means Rs 8,500 is required for a family of four members in 2009-10 – and this is the rock-bottom necessary spending on all goods and services whose food spending part satisfies a modest nutrition norm, with no margin allowed for saving for the future or for sudden health emergencies. The average consumer-worker ratio can be applied to get an idea of the required monthly wage or earnings per worker. If each worker supports only one other person then the required earnings per month should be Rs 4250 per worker for 2009-10. Using the consumer price index to update this for the next two years at the inflation rate of 12.5 per cent annually, we get Rs 5,379 per month for 2011-12.

The cost of living however varies greatly in urban India with the major metropolitan areas registering up to double the all-India average, since relatively much more has to be spent in these areas on transport, utilities, rent and health care apart from higher food costs. Table 2 shows the required spending for accessing the 2100 calories norm for the states containing the four large metros compared all-India urban figures. The highest cost of living is in urban Delhi and the same would be applicable to the nearby areas in Haryana and Uttar Pradesh which together with Delhi makes up the National Capital Region.

In this region, an unskilled worker supporting one dependent needed to earn Rs10,500 per month to access the bare minimum necessities for a living wage. The actual wages in enterprises in this region however averaged around Rs 5,500 per worker. Studies show that a high share of workers in the NCR could not afford transport and walked 4-5 km to work every day. They were obliged to perform overtime work but did not get paid at the higher rate and contractors deducted from their already low wages. With such severe underpayment under a regime of inflation, it is not surprising that urban Delhi has shown the sharpest decline in nutritional standards by 2009-10, in the whole of India with 54 per cent of the population falling below the lowest possible level of 1800 calories compared to only 24 per cent in that situation a mere five years earlier. The rich governing elite does not believe its own data and continues to mock the poor. The Planning Commission’s 2009-10 poverty line for urban Delhi is a laughable Rs1040 per month or Rs 35 per day. The calorie intake at this level is found to be 1400 only. At the other pole, we have the top 5 per cent of persons in the NCR becoming richer than ever before, owning multiple cars per family, eating out  and holidaying at an unprecedented rate and adding to their real and financial assets. 

The simplifying assumption we made about one worker supporting one other dependent is not correct, the number of dependents is higher in urban than in rural areas and close to three according to the NSS data on usual employment. Taking account of subsidiary work we can put 2.5 consumers per worker approximately. The required minimum living wage per worker at the all-India level becomes Rs 5,313. In urban Delhi with its much higher cost of living it goes up to Rs13,125, while in Maharashtra,  the monthly living wage per worker two years ago works out to Rs 8,000  and for both Tamilnadu and West Bengal it is Rs 6,250.

Adjusting for inflation, the 2011-12 minimum urban monthly living wage is Rs16,611 in Delhi, Rs10,125 in Maharashtra, and Rs 7,910 in both Tamilnadu and West Bengal. These values can serve as guidelines to the trade union movement to track and combat the erosion of already low living standards of workers, owing to continuing underpayment and inadequate adjustment to the sharply rising cost of living.

Table 1       All-India Urban 2009-10, Basic data on Spending and Nutrition,

(Mixed Recall  Period)

Note: MPCE is Monthly Per Capita Expenditure (in Rupees). Col.2 to be read as ‘up to Rs 682,  Rs 682 up to Rs 846, Rs 846 up to Rs 1004 and so on. The cumulative percentage of persons figures in column 3 are to be read as 10 per cent below Rs 682 spending, 20 per cent below Rs 846 spending, 30 per cent below Rs 1004 spending and so on.

Source: NSS Report nos. 538 Level and Pattern of Consumer Expenditure 2009-2010 and Report no.540, Nutritional Intake in India 2009-2010.  www.mospi.nic.in      

Table 2 Nutrition- based poverty lines and poverty ratios in Urban India, large- city states and All-India 2009-10