MP Salary Hike vs. Worker Wage Stagnation

• 26 Mar 2025

For Prelims: Members of Parliament, Cost Inflation Index, SDG 10, Food inflation, e-Shram portal, 8^th Pay Commission 

For Mains: Economic Disparities and Wage Stagnation, Minimum wage laws and wage indexation 

Source:IE 

Why in News?

The Central government has notified a 24% hike in the salaries and pensions of Members of Parliament (MPs) with retrospective effect from 1st April 2023. 

• However, the India Employment Report (IER) 2024 reveals stagnation and decline in real wages for India's working population, highlighting the growing economic divide. 

Note: MP salaries increased to Rs 1.24 lakh/month, daily allowance to Rs 2,500, and pensions to Rs 31,000/month. 

How are MPs' Salaries Revised?

• Legal Framework: Since 2018, salaries and pensions of MPs are revised every five years based on the Cost Inflation Index (CII) instead of requiring a separate parliamentary approval. 
  • This adjustment mechanism was established under the Finance Act, 2018, which amended the Salaries, Allowances, and Pension of Members of Parliament Act, 1954. 
• Cost Inflation Index: The CII is notified every year under under Section 48 of the Income Tax Act, 1961 by the Income Tax department, 
  • CII is used to adjust the purchase price of assets based on inflation.  
  • CII helps in indexation and ensures that taxpayers do not pay excessive taxes on long-term capital gains (LTCG) due to the rise in asset prices over time. 
  • The CII for FY 2024-25 is 363, meaning prices have risen 3.63 times since the 2001 base year (earlier 1981), which has a fixed value of 100. 

What Does the IER 2024 Say About Wage Trends in India? 

• Wage Trends: Average real wages for regular salaried workers declined from Rs 10,925 in 2022 to Rs 10,790 in 2023 and average casual wages dropped slightly from Rs 4,712 to Rs 4,671. 
  • The average earnings for self-employed individuals rose from Rs 6,843 in 2022 to Rs 7,060 in 2023. 
  • Average earnings for women in self-employment and casual work declined, while men in self-employment saw marginal gains. 
• Quality of employment generation: The report states that poor real wage growth reflects weak quality of employment generation, despite rising Gross Domestic Product (GDP). 

What are the Concerns of Rising Political Pay Vs. Worker wage Stagnation? 

• Weakening of Democratic Accountability: India's per capita income in 2022-23 was estimated at Rs 1.72 lakh, or roughly Rs 14,333 per month. 
  • A retired MP now receives over twice the average Indian income, while a sitting MP earns nearly nine times as much.  
  • When political leaders receive substantial salary hikes while the general populace experiences wage stagnation, it may lead to perceptions of self-serving governance.  
    • This can undermine the legitimacy of democratic institutions, erode public trust in elected officials and widen the divide between the rulers and the ruled. 
• Asymmetry in Governance Priorities: While MPs' salaries were hiked by 24% in 2025, India's National Floor Level Minimum Wage (NFLMW) remains at a meagre Rs 176/day (unchanged since 2017) and among the lowest in the Asia-Pacific.  
  • This stark contrast reveals a mismatch in urgency and prioritisation, undermining the moral credibility of democratic governance. 
• Fueling Populism: With wages stagnating, inflation rising (food inflation at 9.04% in 2024), and household savings remain low at 5.3% of GDP in FY24,, the electorate is increasingly reliant on state-led freebies.  
  • Rising political pay without addressing these vulnerabilities may reinforce short-term populist politics over long-term welfare reforms. 
• Undermining Inclusive Growth Goals: Disparity in wages threatens the idea of “shared prosperity”, a key Sustainable Development Goal (SDG 10: Reduced Inequalities), and may weaken India’s global image as a growth-inclusive economy. 
• Weak Social Protection Infrastructure: Unlike the European Union, which has moved towards fair minimum wages and legal redress mechanisms for wage disputes. 
  • India’s minimum wage Minimum Wages Act,1948 remains narrowly defined (focused mostly on food/calorie norms) it does not comprehensively address other essential aspects such as housing, health, and education, keeping labour pay survival-focused. 

How Can India Bridge the Wage-Inflation Gap? 

• Need for systemic reform: The Second Administrative Reforms Commission and experts like the 14th Finance Commission have recommended independent emoluments commissions to depoliticize pay revisions and align them with economic performance. 
• Index Minimum Wages to Inflation: Indexing minimum wages to inflation can prevent wage erosion and ensure stable real income.  
  • A National Wage Indexation Mechanism with periodic base floor revisions can be implemented. 
• Shift from Minimum Wage to Fair Wage: Aligning with the Article 43 of the Indian Constitution, expand the definition of a “decent standard of living” to include health, education, housing, and social mobility.  
  • Align with the ILO’s Decent Work Agenda (aims to promote productive employment and decent work through job creation) and EU fair wage frameworks. 
• Compliance through Digital Governance: Leverage the e-Shram portal, and Employees' Provident Fund Organisation (EPFO) databases, and real-time reporting tools to monitor wage compliance, especially in the informal sector. 
• 8^th Pay Commission for Wage Parity: The 8^th Pay Commission should align government salaries with inflation and economic conditions, linking public and private sector wage trends for a balanced income structure. 

Drishti Mains Question: 

Q. How can India bridge the wage-inflation gap while ensuring inclusive growth? Suggest policy reforms.