On May 22 this year, the state of Karnataka issued a notification on minimum wages for workers in the organised and unorganised sectors, hiking monthly dues by a steep 60%. This follows actions in many states to raise the minimum wage, but the increase in Karnataka is the highest yet, and has led to concerns among employers regarding its affordability.
Moreover, the hike comes with immediate effect, leaving employers scrambling to revise their wage management systems, product pricing, and operations practically overnight. The Karnataka Employers’ Association has, predictably, challenged the notification in the state high court, pleading that the wage hike was notified under the Minimum Wages Act 1948, and not under the Code on Wages 2019. The Minimum Wage Act 1948 was repealed and along with several other laws, was brought under the Code on Wages 2019. The association also challenged the notification saying the raise was too high.
For 10 million Karnataka workers, however, the new notification comes as a significant relief. Wages in the state had not been increased for almost 10 years, and had been under discussion for several years. The new rates align wages with higher per capita income, increased cost of living expenses and higher worker productivity. While the wage hike could have been undertaken more carefully to give employers time to adjust, there is no doubt that it was a much-needed action.
Worker protests regarding delayed hikes in minimum wages have been taking place in many parts of the country, including in Uttar Pradesh, Haryana, Gujarat and Bihar. Several states have recast the rates, but the increases differ. For example, Telangana increased its minimum wages by around 37% for skilled workers and 25% for unskilled workers, while Uttar Pradesh gave an interim raise of 21% in major industrial hubs and 9% in non-municipal areas.
Though the hikes are necessary, states have unnecessarily complicated wage setting, devising rates pegged to industry sectors, skill levels and regions. By this measure, Karnataka has been more logical, tailoring the minimum wages only to three skill levels in three zones and covering 81 sectors, including newer sectors such as e-commerce and educational institutions. The highest wage is now Rs 34,225.42 for highly-skilled workers in zone 1, while unskilled workers in zone 3 can hope to earn Rs 21,251.30.
Wages have been generally rising across the Asia Pacific region, led by China where real wages have been growing as workers moved from low-productivity agriculture to higher productivity employment in the industrial sector, as per the International Labor Organisation Global Wage Report 2024-25.
India’s real wages index displayed a rising trendline from 2008 to 2018, but has since remained rather flat up to 2024. This contrasts with other G20 emerging economies like China, Brazil, and Indonesia, where a wage recovery has taken place post Covid; moreover, these economies enjoy higher absolute wage values than India. Therefore, India’s competitiveness in the global economy, where Karnataka is an active player, is unlikely to suffer significantly with the sharp rise in minimum wages.
The correction was much needed from the perspective of consumer demand and household savings as well. The share of private final consumption expenditure in GDP has come down from 57.1% in 2022-23 to 55.7% in 2025-26 as per provisional estimates with new base year released by the government.
The household savings to GDP ratio has remained on a downward trajectory since 2012-13, falling sequentially from 22.5% that year to 18.1% in 2023-24 (old series), apart from an upward blip in the Covid period. This decline is of deep concern as household savings is a notable driver of growth, savings and consumption trends. The hike in minimum wages across many states could therefore help boost consumption, which, in turn, could help enterprises suffering from subdued demand.
For employers, the minimum wage increases could mean a fall in competitiveness and possibly profits as well. Enterprises will need to recalibrate their calculations taking into account the higher wage costs. In particular, the MSME sector units will face steep challenges in conforming to the new stipulations, especially as they lie predominantly in the unorganised sector. Their working capital will likely be affected, requiring higher credit, both formal and informal, which should be made readily available to ensure their survival.
Given that a large proportion of employment is in the unorganised sector, with self-employment and household enterprise employment the norm, it is not clear how the new notification will affect these micro enterprises.
It is to be hoped that the Karnataka government would support them to align with the hike in wages, rather than impose onerous fund requirements and compliance issues.
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