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A Living Wage Strategies for Implementation of the Minimum Wage-The Case of the Indian Beedi Industry

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A Living Wage Strategies for Implementation of the Minimum Wage-The Case of the Indian Beedi Industry by Madhu M. Raghunath M.S.W. in Urban and Rural Community Development Tata Institute of Social Sciences, 1997 B.A. Economics University of Madras, 1995 Submitted to the Department of Urban Studies and Planning in Partial Fulfillment of the Requirements for the Degree of Master in City Planning ROTCV at the MASSACHUSETTS INSITUTE OF TECHNOLOGY Massachusetts Institute of Technology JUL3 1 2001 June 2001 LIBRARIES @ 2001 Madhu M. Raghunath. All rights reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part. Author Department of Urban Studies and Planning May 17, 2001 Certified by , Professor Bishwapriya Sanyal Chair T,-- ment of Urban Studies and Planning Thesis Supervisor Accepted by Professor Dennis Frenchman Chair, MCP Committee Department of Urban Studies and Planning A Living Wage Strategies for Implementation of Minimum Wages: The Case of the Indian Beedi Industry By Madhu M. Raghunath Submitted to the Department of Urban Studies and Planning on May 17, 2001 in partial fulfillment of the requirements for the Degree of Master in City Planning Abstract 92% of India's total workforce (approximately 320 million workers) is employed in the unorganized sector. Out of these, 4.4 million workers are employed by the beedi (indigenous cigarette) industry. Annually, this industry contributes nearly 13% of the total indirect taxes to the central government. The beedi industry is highly mobile in nature. It is also one of the most exploitative labor- intensive industries in India. The industry thrives on the cheap cost of production and locates in regions that have low wages. Most of the production in the beedi industry is carried out by sub- contracting, where the workers are exploited in terms of low wages, lack of social security benefits and poor working conditions. In 1966, the Government of India enacted the Beedi and Cigar Workers (Employment of Conditions) Act to protect the workers from exploitation, provide the workers with minimum wages and social security benefits. The Act allows a state government to fix its own minimum wages. This has resulted in varying rates of minimum wages across states. States that have enforced higher minimum wages have witnessed an industrial flight of the beedi firms, leaving behind thousands of unemployed workers. Further, the enforcement and implementation of the Act has been very ineffective. The report identifies successful strategies for implementation of minimum wages in the beedi sector by analyzing the cases of the Kerala Dinesh Beedi Cooperative and the Self Employed Women's Association. These organizations have been successful in their approaches because they were able to 1) organize beedi workers into trade unions and cooperatives, 2) garner political support for their movement, and 3) compete with other beedi producers in the country. The report recommends that implementation of the minimum wages in the beedi industry in India can be achieved by a) developing a national minimum wage policy for the beedi industry, and b) increased cooperation between the trade unions, government, NGO's, political parties, employers and beedi workers. Thesis Supervisor: Bishwapriya Sanyal Title: Chair, Department of Urban Studies and Planning Acknowledgements I am very grateful to many people who helped me complete my thesis. First and foremost, I extend my gratitude to my advisor, Bish Sanyal. His research project - "Role of organizations in organizing informal workers in India" - helped me develop the topic for this thesis. He persistently engaged me in provocative discussions on the topic, and his unique perspective on institutional politics in India helped me immensely in my research. He has been a wonderful mentor and I am truly privileged for having worked with him. I must appreciate the guidance of Rajagopal Balakrishnan, my reader, and the deep insights he provided into the working of legislation in India. I am grateful to my wonderful husband Sanjay for all his support and patience. My parents, in- laws and my sister have always encouraged me to pursue my passions and I am thankful for their support. During my two years at MIT, I have learnt a lot from the innumerable discussions with my fellow colleagues and professors. I would like to thank Marty Chen, David Laws, Dara 0' Rourke, Judith Tendler, Paul Martin and Meenu Tewari for sharing their ideas on my thesis. I would like to thank Working Women's Forum for hosting me during my trip to Chennai. It would have been impossible for me to complete my thesis without the help of my colleague Smita Srinivas. I would also like to acknowledge Narasimha for editing the draft. I dedicate my thesis to all the workers in the beedi industry. Table of Contents Chapter 1 1.1 Introduction ...........................................................----------------------------------------........................... 1 1.2 M ethodology ............ ............................................................................................ 6 1.3 Beedi Production Process ..................................................................... 6 1.3.1 Contracting and sub-contracting system in the home-based industry.............. 7 1.4 System of cess in the beedi industry ........................................................... 9 Chapter 2 Minimum Wage Legislation in India- Before Independence .......................................................... 13 2.1 Fixing and enforcement of Minimum Wage......................................................................... 18 2.2 Public Policy for unorganized workers ....................................... 20 2.3 Beedi Struggle- Kerala's Story ....................................................... ...... 22 Chapter 3 3.1 Formation of the cooperative............................................................. ..... 29 3.2 The nature of wage structure at KDB-benefits of organizing ................................................ 36 3.3 SEW A story.................................................. ----------------------------............................................... 40 3 .4 L esson s learnt .......................................................... --------------------------------............................ 43 Chapter 4 4.1 Changing nature of the beedi industry.................................................................................. 48 4.2 Growing awareness on the ill effects of tobacco................................................................... 49 4.3 C B S story .......................................................------. ------------------------------------.............................. 5 1 4.4 Competition from the mini cigarette industry........................................................................... 53 4.5 Decline in the production of beedis and its social impacts on beedi workers ....................... 55 4.6 Alternative options adopted by KDB................................................................... .... 59 Chapter 5 5.1 Recommendations to the central government....................................................................... 62 5.2 Need for a national minim um wage....................................................................................... 65 5.3 Implementation issues ......................................................................... 71 5.4 Enforcem ent mechanism s................................................................... --............................. 73 Conclusion ...............................................................................-----.--.. --------------........................ 77 A p pen d ix .................................................................................- -... -----------------------------................. 77 Bibliography.......................................................... - - --.................... List of Tables Table 1 - Position of Beedi W orkers W elfare Funds...................................................................... 11 Table 2 - Trends in Total Receipts from Cess Levied on the Beedi industry -1987 to 2000..... 2 Table 3 - Growth of Kerala Dinesh Beedi.................................................................................. 2 Table 4 - Beedi Rolling Wages for Selected Outputs.................................................................. 2 Table 5 - Wages and Benefits ......................................................... ............... 2 Table 6 - India's Beedi Exports to USA (1996 - May, 2000)..................................................... 2 Table 7 - Position of Beedi Workers Welfare Funds.................................................................. 2 Table 8 - Minimum Rates of Wages for Employment in Beedi Industry .................. 2 Table 9 - Cost of Structure of 3" Branded beedi in Karnataka .................................................. 2 Table 10 - Criteria and Relative Weights for Determining Inter se Shares of States................... 2 Table 11 - States' Share in Central Tax Revenues as Per Assessment-2000-2005...................... 2 Table 12 - State-wise Details of the Total Number of Beedi Workers ....................................... 2 List of Figures Figure 1 - Geographical Pattern of Beedi Production in India ................................................... 2 Figure 2 - The Beedi Production Process...................................................................................
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