Worker protests: How higher wages and the viability of industry can be the win-win India needs

Within days, UP temporarily revised wages, with higher benchmarks for industrialized and municipal areas. The Union government also made adjustments to the inflation-linked variable part of minimum wages.

Haryana’s move is what began the domino effect. The widespread consequences deserve examination through two lenses: labour market dynamics and institutional design.

At one level, decadal wage increases are more than justified. Real incomes for blue-collar workers are constantly eroded by inflation while job creation sputters. In a country with a median age of 29 and some 10-12 million people entering the workforce every year, this is a sobering developmental and security challenge.

What makes matters urgent is that related pressures are intensifying at a time when India faces a dual transition. Technology-led automation will suppress labour demand even as globalization continues to expose domestic industry to competition from lower-cost manufacturing economies.

The promise of economic convergence via globalization has weakened; income inequality between countries shrank rapidly from the 90s to the mid-2010s but has flatlined since. Covid worsened within-country wealth inequality.

Retrospective hikes, however, are bad policy. For labour-intensive sectors such as textiles where wages account for a large share of costs and margins are in the 5-7% ballpark, a sharp percentage increase in the wage bill can wipe out profits entirely. What’s more, manufacturers operate on annual or seasonal production cycles, locking in orders, costs and contracts several months in advance.

The result is a reduced incentive to invest in precisely the kinds of industries that continue to generate large-scale employment; those that can ease the pressure of inevitable shifts to capital- and tech-intensive manufacturing.

The second issue is institutional. Labour is a concurrent subject but states are eschewing the notion of India as a single market where industries can benefit from policy certainty as envisioned in the four central Labour Codes.

The Code on Wages prescribes the establishment of central and state advisory boards to guide the setting of minimum wages. These are meant to bring rigour, expertise and hopefully transparency into wage-setting.

But in Haryana’s case, revisions have relied on arbitrary cost-of-living benchmarks. Reports suggest, for instance, that rental costs were likely assumed at 10% of combined food and clothing expenses, rather than deriving them from market data. Official details on the contours of the inquiry carried out by its wage committee are unavailable.

Other factors such as business conditions and productivity also merit consideration. Most industrialized nations consider them for good reason: income must be earned to be paid.

Our lack of institutional coordination and depth is not limited to the issue of wages. The Centre’s Code on Social Security proposes a national framework for gig worker welfare funded through contributions by platform businesses like Uber and Amazon. Yet, states like Karnataka and Telangana have formed their own welfare funds for those who engage in flexible work in their jurisdictions, resulting in duplication.

The upshot is that both legacy and new businesses face a growing web of overlapping compliance requirements. India’s experience with similar experiments such as District Mineral Foundation funds offers little reassurance on outcomes. More than half the ₹1 trillion-odd collected by states across the country for the developmental needs of mining states was unspent at last count in March 2025.

Our labour policy discourse remains focused on compensation through minimum wages and welfare funds with little attention paid to the conditions required for sustained job creation.

India’s demographic dividend is impossible to realize through redistribution alone. It requires the deepening of markets, improving the business environment and enabling competitiveness. These objectives demand harmonization across labour laws, industrial strategy and trade and tax policy.

Existing mechanisms for Centre-state cooperation are wholly inadequate. Meaningful coordination frameworks exist only for fiscal policy, such as in the case of the GST Council, which is critical for governments from a revenue perspective. No such coordination is visible in industrial policy. Plainly put, governments care about what they earn but not how that value is created in the first place. This will have to change.

The labour protests seen recently are an early indication of the amplification of economic stress into social tension. Decent compensation for work and the viability of Indian industry are not contradictory aims, but achieving both would require India to invest in serious economic thought.

The authors are, respectively, a partner, and an analyst, in Koan Advisory.