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Summary
Unrest in Noida was a wake-up call. Industrial workers have not only seen their real wages stagnate for about a decade, but have been left largely helpless against the force of inflation. Here’s what could be done to address an unjust and risky imbalance.
Edward Bernstein, an American economist, observed that inflation is ultimately a social tug of war; between those unwilling to relinquish their gains and those fighting for their fair share. This captures something that reams of economic data cannot. It describes the human experience behind violence in Manesar and Noida.
Consider a family of four in a Noida worker colony surviving on ₹10,000 a month. The cooking gas price has soared, vegetables are dearer, bus fares have risen and the landlord has raised rent. There is no spending to cut, because there was nothing spare to begin with.
When workers at garment and auto-component factories turned to stone-pelting and arson, it cannot be just mindless rage. It was the accumulated pressure of nearly a decade of stagnant real wages colliding with a savage spike in the cost of living. The recent uptick in inflation was perhaps the last straw. But the eruption was in the making for years.
Last year, Chief Economic Advisor (CEA) V. Anantha Nageswaran delivered a damning verdict in the Economic Survey. The corporate sector, he said, had been “swimming in profits” while wage growth remained tepid. The data bore him out. Profit before taxes for over 33,000 sampled companies nearly quadrupled between 2019-20 and 2022-23. Nifty 500 companies posted profit growth of 22.3% in 2023-24 alone.
Over that period, employment in these firms grew a mere 1.5%. The corporate sector’s net profit to GDP ratio was at a 15-year peak. But there was wage stagnation across many sectors.
The government’s Periodic Labour Force Survey tells a starker story: while India’s GDP grew at 6.7% annually between 2021-22 and 2023-24, real wages for regular workers contracted by 0.07%. For nearly a decade, workers in formal manufacturing have seen wage stagnation, especially among contract workers.
The structural source of this stagnation is a dual caste system that has quietly taken root on factory floors. An analysis by Centre for Policy Research based on data from the Annual Survey of Industries shows that contract workers’ share of organized factory employment has nearly doubled—from just under 22% in 2001-02 to over 40% in 2021-22.
In automotive and auto-components, the epicentre of today’s unrest, regular workers earn decent wages with provident fund, state-insurance and gratuity. Contract workers doing virtually identical work on the same assembly lines earn up to 31% less, with no statutory benefits. In some plants, the total labour cost differential is 78% to 85%.
The employer avoids statutory obligations, the labour contractor pockets a margin and the worker must absorb every risk—of illness, injury, job loss and inflation—with no cushion. Over 80% of India’s workers remain outside formal employment frameworks. The contractual factory worker earning ₹13,000 a month, for all his precarity, is at the better-off end of a vast and largely invisible precariat.
Wage costs in Indian manufacturing account for barely 6% to 7% of total production costs. A 10% wage hike for all workers, permanent and contractual, would raise total costs by about 0.7%. In an industry where profit growth has run at double digits for years, this is just a rounding error. And yet wages do not rise.
What explains this apparent economic irrationality? Violent protests by contract workers at Maruti Suzuki’s Manesar factory in 2012 have an uncanny parallel with Noida today.
Contract workers are hired through labour contractors, dismissed at will and have no legal standing to negotiate with employers. Maruti workers fought for union recognition and making contract workers permanent. The management refused both. The dispute ended in tragedy. More than a decade later, similar antagonism persists across Haryana and UP’s industrial belts.
What’s the way ahead? Collective bargaining for contract workers: India’s four Labour Codes, if earnestly implemented, offer a chance to extend bargaining rights to such workers. But the Codes must be backed by unemployment insurance, a safety net that will help workers withstand transitions without destitution.
Enforce equal pay for equal work: The Contract Labour (Regulation and Abolition) Act mandates it, but it is widely ignored. Enforcement responsibility must shift to the principal employer, with meaningful penalties for non-compliance.
Index minimum wages to inflation automatically: Periodic revisions wrung out under political pressure, as with Haryana’s 35 % hike that followed street violence, are neither stable nor equitable. An automatic inflation link would treat wage adequacy as an institutional design matter, not a crisis-response one.
Heed the CEA’s counsel on enlightened self-interest: A corporate sector that suppresses the wages of 400 million workers undermines the consumption demand it depends on. Higher wages are not charity, but aggregate demand. A workforce that can afford to buy what it produces is the foundation of durable growth. Besides, penny pinching on contract labour wages leads to a heavy price to be paid for work disruptions, not to mention low morale and a sulking workforce.
The recent violence is a symptom, not the disease. The disease is real wage stagnation, a contractualization wave that has stripped millions of bargaining power and an inflation shock that has made the intolerable unbearable. Bernstein’s tug of war is not unwinnable. Right now, only one side is pulling. That is not a tug of war. It is a rout.
The author is senior fellow with Pune International Centre
English (US) ·