While researching our now bestselling book, “Breakpoint: The Crisis of the Middle Class & The Future of Work”, we realised for those Indians earning at least Rs 5 lakhs per annum the possibility of getting a white-collar office job is heading rapidly towards zero even as cost of living doubles every 8 years or so for this strata of society.
However, for less affluent Indians, those who earn a couple of lakhs or so per year from blue collar jobs, we were told by dozens of employers that: a) there is a shortage of such workers; and b) wages are rising swiftly for such workers and even with generous wages, apparently nobody wants to work because the government – both at the Centre and in the states – has been incredibly generous with welfare schemes and Direct Benefit Transfers. We found this narrative a little odd not just because the central government’s accounts showed no proof of such generosity but also because the anaemic volume growth in FMCG consumption for nearly a decade cannot not be explained if the masses were in such a comfortable position.
The recent labour disturbances – triggered by LPG cylinder shortages (read the WSJ article which explains how difficult it has become for ordinary Indians to get LPG cylinders) – which are spreading across the NCR and into Bihar in the East and into Gujarat in the West suggest that our scepticism of the “blue collar workers are being pampered by the welfare state” narrative is warranted.
The Deccan Herald article makes 3 very interesting points. Firstly, the state governments of Haryana and UP have now pushed through hefty hikes in minimum wages (of around 25%) suggesting that they are awake and alive to the dangers posed by worker unrest in industrial areas.
Secondly, in spite of these hikes, mass absenteeism and labour shortages continue. In fact, we are hearing such reports from the city of Pune, Maharashtra, as well. Quoting from the Deccan Herald:
“A large number of migrant workers have returned to their native places, leading to labour shortages in industrial clusters across Delhi NCR, Punjab, Gujarat, Tamil Nadu and Maharashtra. Deepak Dumra, Director of Eveline International, a Ludhiana-based hosiery knitwear manufacturer and exporter, said at least 20 per cent of workers who went to their native places during the Holi festival in late February and early March have not returned to work.
Another Ludhiana-based businessman said the fear among workers is similar to that during the Covid-19 pandemic. “In a crisis situation, people prefer to stay close to their families. The difficulties faced during Covid are still fresh in their minds,” said the industrialist…”
That in turn brings us to the third – and most interesting – aspect covered by the Deccan Herald article. Even with these wage hikes, workers seem to be worse today in real terms (i.e. after taking cost of living into account) than in 2019. Why is that? Part of the answer seems to be that most workers don’t get the minimum wage (again suggesting that the stories most employers tell us are not consistent with lived reality):
“Recent labour protests have focused on demands for higher minimum wages, yet data shows that a vast majority of workers in the country still earn below the statutory threshold. According to an analysis of the Periodic Labour Force Survey (PLFS) data for 2023–24, nearly 64 per cent of Indian workers earn less than the minimum wage.
A note by the Foundation for Economic Development states that for around 50 per cent of workers, even a 30 per cent wage increase would still leave their earnings below the minimum wage threshold. The New Delhi-based think tank said that India’s current minimum wage laws may be doing more harm than good for low-income workers. “This is also one of the contributing factors to slow formal-sector job growth in in the country, leaving nearly 90 per cent of India’s workforce — millions of individuals — stuck in informal, low-paying jobs that lack contracts or social security benefits,” it said…
Real wages for regular jobs have not kept pace with price rises. Inflation measured by the Consumer Price Index for Industrial Workers (CPI-IW) increased by about 54 per cent between October 2016 and February 2026, while minimum wages rose by around 53 per cent. This indicates that the real wages of workers are now less than what they were getting 10 years ago.”
There is a reason why most Indian manufacturers are reluctant to pay their workers more. These manufacturers operate in an intensely competitive global market for manufactured goods where rivals from economies such as Vietnam and Bangladesh have access to much cheaper land (40-50% cheaper than India) and/or much cheaper than Indian (working capital costs 3% p.a. in Vietnam vs 12% for an Indian SME). As a result, the Indian manufacturer already has the odds stacked against him. The last thing he needs is more expensive labour. Quoting from the Deccan Herald:
“Industry leaders fear that a sharp rise in wages could erode the competitiveness of Indian manufacturers. “Our margins are very thin. If we increase prices, our customers will shift to countries like Bangladesh and Vietnam,” said a Noida-based industrialist involved in the manufacturing and export of apparel products.
In sectors such as textiles, gems and jewellery, and engineering goods, India’s competitiveness is largely based on low costs, primarily driven by cheap labour.”
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
