Minimum Wages may be Hiked Before Polls

Potential Minimum Wage Hike: Impact on Companies and Investors

Source: Original reporting by ET Bureau, published on January 15, 2024.

Analysis for Layman

The central government holds the authority to establish a nationwide mandatory base-level minimum wage, affecting over 500 million workers in India, especially those in the unorganized sector, lacking social security. Currently set at ₹176 per day since 2017, the minimum wage is under review by an expert panel led by S.P. Mukherjee, formed in 2021 to recommend an updated rate through 2024.

The proposed increase aims to account for inflation and household expenses, providing a balanced approach acceptable to all state governments. While the Code on Wages 2019 permits different minimum wages based on regions, it prohibits states from lowering existing rates. The expert panel’s decision could help bridge the gap between states with different minimum wages, potentially reducing labor migration.

Minimum Wages may be Hiked Before Polls

Impact on Retail Investors

For retail investors, the impending minimum wage hike carries nuanced outcomes across sectors. Labor-intensive industries such as textiles, leather, and restaurants may experience margin pressure due to increased wage costs, potentially impacting stock returns. Conversely, sectors like essential consumer goods, healthcare, and insurance could see increased demand, benefiting investors with exposure to these defensive areas.

Banking stocks might witness positive trends as heightened consumption demand translates into more retail loans. However, small businessmen in the informal sector may face margin pressures, necessitating careful monitoring of their loan repayment ability. In the long run, the proposal could lead to increased rural consumption, skill development, and social security, fostering sustainable economic growth. While regulatory costs may rise initially, uplifting masses out of poverty can unlock lasting dividends, and investors should review their exposures accordingly.

Impact on Industries

The proposed minimum wage hike, if significantly higher than current levels, can have pronounced impacts across various industries:

  • Textiles & Garments: Vulnerable to rising state-level wage floors, potential impact on export competitiveness unless offset by currency depreciation.
  • Gems & Jewelry, Leather Goods: Significant manual component and thin margins, leaving little room for cost escalations. MSME players might be the most exposed.
  • Restaurants, Hospitality, Aviation: Service sector already impacted by inflation; higher wage costs could contribute to unviable operations for smaller firms.
  • Agriculture & Plantations: Rising rural prosperity is positive, but agri-labor may shift more to construction due to elevated wage floors, leading to potential labor shortages.
  • Infrastructure, Real Estate: Construction activities are labor-intensive, and an exodus due to higher wage floors can pressure execution unless migration is made easier.

In summary, while stimulating consumption, the wage hike proposal risks a medium-term impact on cost-conscious export sectors and MSMEs. Essential goods demand may rise, but policy support may be needed to offset the impact.

Long Term Benefits & Negatives

The long-term implications of significantly raising mandatory minimum wages across India are expected to be:


  • Helps address income inequality by boosting incomes for the 90% unorganized sector workers who have lagged in recent decades.
  • Raises mass purchasing power, enabling producers to envisage elevated demand levels for mass-market goods & services.
  • Over 5-10 years, rising prosperity can spur investments in health, nutrition, and skill upgrades, creating positive structural shifts.


  • Risk of higher structural inflation if corporations pass on elevated labor costs via higher prices amidst competition constraints.
  • Possible attrition and job losses for weaker MSMEs unable to absorb material cost escalations, requiring fiscal support.
  • India’s competitive positioning in labor-intensive exporting sectors could suffer unless offset by currency or policy adjustments.

While labor regulations typically impose short-term adjustment costs, the long-term productivity and sustained demand upside from uplifting lower-income groups outweigh the risks. Monitoring execution and providing counterbalancing policy stimulus will be vital for a smooth transition.

Short Term Benefits & Negatives

In the next 6-12 months, the proposed significant minimum wage hike can usher both positive and negative consequences:


  • Comes at a time when rural wage growth slowed to sub 5% levels in 2022, providing income stimulus.
  • Can boost firms involved in rural infrastructure, low-cost housing, and asset financing.
  • Essential goods providers in FMCG, consumer durables may enjoy demand tailwinds.


  • Rising state minimum wages coupled with higher inflation expectations can temporarily dent business sentiment, employment, and private capex.
  • MSME heavy sectors like textiles, leather, unorganized manufacturing will face margin pressures which can spur loan defaults.
  • Skill mismatches may emerge in migrant labor-reliant sectors like construction, infrastructure.

For investors, the short-term impact on profitability across labor-intensive sectors needs evaluation. Banking sector trends in unsecured lending and micro loans also require attention before potentially adding exposure. Consumption-oriented large caps may be temporary beneficiaries. Execution by states will be a key monitorable.

Companies Impacted by Potential Minimum Wage Hike in India

Indian Companies:


  • Consumer Staples Companies: Increased disposable income among low-wage earners could boost demand for consumer staples like food and beverages. Companies like Hindustan Unilever (NSE: HINDUNILVR), ITC Ltd. (NSE: ITC), and Marico Ltd. (NSE: MARICO) could benefit from this increased consumer spending.
  • Retailers: Higher minimum wages could lead to increased foot traffic and spending in brick-and-mortar stores, especially in the value segment. Retailers like Avenue Supermarts (NSE: DMART), Shoppers Stop (NSE: SHOPSTOP), and Future Retail (NSE: FURETAIL) might see improved sales and footfall.
  • Rural-focused businesses: Companies with significant operations in rural areas, where a large portion of minimum wage earners are employed, could experience increased demand for their products and services. This could benefit companies like Tata Motors (NSE: TATAMOTORS) in the rural vehicle segment, Bharat Heavy Electricals (NSE: BHEL) in infrastructure projects, and Godrej Consumer Products (NSE: GCPL) in rural markets.


  • Labor-intensive industries: Companies with high reliance on unskilled labor, such as textiles, apparel, and some manufacturing sectors, might face pressure on their profit margins due to increased wage costs. Companies like Raymond (NSE: RAYMOND), Alok Industries (NSE: ALOKINDS), and SPML Ltd. (NSE: SPML) could be impacted.
  • Small and medium businesses (SMBs): Many small businesses, especially in the informal sector, might struggle to absorb the increased wage costs, potentially leading to reduced profits, fewer job opportunities, or even business closures.
  • Infrastructure and construction companies: Higher labor costs could increase project costs for infrastructure and construction companies, potentially impacting their profitability and competitiveness in bidding for new projects. Companies like Larsen & Toubro (NSE: L&T), KEC International (NSE: KEC), and GMR Infrastructure (NSE: GMRINFRA) could be affected.

Global Companies:


  • Luxury goods companies: Increased disposable income among some segments of the population could spur demand for luxury goods. Companies like Gucci, Louis Vuitton, and Rolex might see increased sales in India.
  • International retailers: If the increased minimum wage leads to more organized retail outlets in India, global retailers like Walmart and Carrefour could potentially enter the market or expand their existing operations.


  • Global sourcing companies: Some companies that rely on India for its low-cost labor might reconsider their sourcing strategies if labor costs become less competitive compared to other countries. This could impact companies in various sectors like apparel, electronics, and pharmaceuticals.

Market Sentiment:

The news of a potential minimum wage hike is likely to be mixed for the Indian market. While some sectors like consumer staples and retail could gain, others like labor-intensive industries and SMEs might face challenges. Overall market sentiment will depend on the final details of the wage hike, its implementation across states, and how businesses adapt to the new cost structure.

Please note: This analysis is based on the information provided and should not be considered financial advice.

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