Despite rapid economic growth, India has not been able to replicate the large-scale shift from agriculture to manufacturing and services seen in other fast-growing economies like China and Vietnam, says FED Minimum Wage Report 2026.
It says the key reason behind the trend is that India’s labour regulations, especially minimum wages set above prevailing market wages, have raised the cost of formal employment, discouraging firms from hiring more workers or scaling up labour-intensive industries.
The survey, conducted by policy think-tank Foundation for Economic Development (FED), also said the country’s ‘high’ minimum wages end up reducing job opportunities for low-skilled workers rather than protecting them.
The report, titled “Minimum Wages Hurt the Most Vulnerable Workers", indicates that India’s statutory wage floor is 1.7 times the median earnings of casual workers and 77 per cent of per capita GDP.
“This is considerably higher than the 50 per cent benchmark seen in major export competitor economies. As a result, 88 per cent of the workforce remains informal, lacking contracts, provident fund (PF) and legal protection. This is higher than countries like Vietnam, Thailand, Bangladesh and Mexico," it said.
The FED report also argued against setting a national floor wage as it said a uniform floor would sit above the median in poorer states with surplus labour.
“The Code on Wages, 2019 empowers the Centre to set a national floor wage. Median wages and productivity vary widely across states – a uniform floor would sit above the median in poorer states with surplus labour, making the majority of their workforces legally un-hireable. Firms weighing India versus Bangladesh will decide on the all-in cost of labour. A binding national floor would, in many cases, tip that decision against India," it noted.
The survey added that labour-intensive industries like apparel, footwear and electronics assembly offer entry-level jobs that require minimal prior skills and provide on-the-job training. “Yet the very sectors that could absorb these millions remain under-developed," it added.
When firms cannot afford to retain workers at the minimum wage, they either automate, exit labour-intensive sectors for IT or finance, hire only already-skilled workers, or relocate to states with lower floors. Each response reduces the opportunities available to entry-level workers, it said.
Rahul Ahluwalia, founding director, FED, said when businesses cannot afford to retain or hire workers at the minimum wage, they “automate processes, exit high – employment sectors to invest in capital-intensive ones (like IT and finance), hire only high-productivity workers in services or relocate to lower-wage states".
The survey also noted that India’s share of global low-skill exports remains below its labour endowment, leading to an estimated USD 60 billion annual shortfall.
The analysis is based on minimum wage data from 14 populous states, using state-level notified wages as a proxy for India’s wage floor.
