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At a time when Indian jobs growth is already below what is required, the Cabinet on Wednesday approved a uniform labour code on minimum wages that makes it obligatory for all industries to pay a minimum wage to all category of employees across the country, and not just those earning less than Rs 18,000 a month as it is now. If passed by Parliament, the new law will not only affect competitiveness of trade and industry, it will affect the ability of states to attract investments on the basis of lower wage rates — the goods and services tax has already reduced their ability to offer VAT sops.

Labour is on the concurrent list, so it is not clear if states will agree to the new proposals. While the move will be popular among trade unions and those currently employed, if implemented faithfully across the country, it will add to the series of disadvantages Indian firms face and ensure more of them remain in the informal sector where policing wages is that much more difficult. As Manish Sabharwal, chairman, Teamlease, India’s largest temping agency, puts it, “we have so many problems, this is probably the last thing we need”.

The latest Economic Survey points to the fact that 78% of Indian firms employ under 50 workers and just 10% employ more than 500 — the comparable figures for China are 15% and 28%. With much smaller firms than China, India’s quality suffers as a result.

To this, add the cost of poor infrastructure — road transport, for instance, costs $7 per km versus $2.5 in China, and it takes 21 days to deliver goods from JNPT to the US east coast compared with 14 days for China.“States are expected to take into account local conditions including local cost of living and availability of skills and also the need to attract investment. All of these go together.

So, when the Centre imposes a common minimum wage, you are taking away a very valuable policymaking tool of states,” said Pronab Sen, former chief statistician of India. Sen said the move would lead to wide income disparity in India with the possibility of low-income states suffering de-industrialisation, leading to wide regional income disparity.

Brazil, which implemented a similar minimum wage law, suffered regional income disparities as a result. Which is why the Brazil Senate recently approved some major changes to that country’s labour code. Amidst some serious opposition, the Brazilian government tweaked the law to allow agreements negotiated between employers and workers, on a range of issues, to override the current labour law.

“I don’t know how they (Centre) are going to impose this, where is the machinery,” said Sudipto Mundle, member, 14th Finance Commission. Industry, especially the unorganised sector that could be affected more, could find ways around to bypass the law if economics tells them that they can’t afford, Mundle added.

If Parliament approves the code, the minimum wage will be applicable to all classes of workers, which at present, is applicable to scheduled industries or establishments in the law.

The Labour Code on Wages, 2015, will empower the central government to notify a “national minimum wage” (below which no state can fix their minimum wages) and this will be revised every two years (five years if the dearness allowance becomes part of the minimum wages).

Given India’s labour laws are already very restrictive, imposing one more condition will only make it more difficult for companies — especially smaller ones — to function efficiently.