Aam Aadmi Party (AAP) Member of Parliament Raghav Chadha has called for the enactment of an “Inflation Linked Salary Revision Act,” arguing that salaried Indians have witnessed a significant erosion in real wages over the past several years due to rising inflation.
In a statement shared after his intervention in Parliament, Chadha highlighted that between FY2018 and FY2026, real wages for salaried individuals declined by 16%, attributing the fall to salary increments failing to keep pace with inflation. He asserted that inflation has effectively acted as a “silent pay cut” for millions of workers and urged the government to introduce a statutory framework mandating wage indexation.
Demand for Mandatory Wage Indexation
Chadha argued that while government employees are protected through mechanisms such as Dearness Allowance (DA) and periodic Pay Commissions, a large segment of India’s formal workforce remains without any statutory inflation safeguard.
“Government employees get protection through Dearness Allowance and periodic Pay Commissions. But 85% of India’s formal workforce has zero statutory inflation protection,” he stated, adding that most private sector employees are dependent on employer discretion and individual bargaining power for salary revisions.
The proposed legislation, according to Chadha, would introduce a mandatory wage indexation formula that ensures minimum salary revisions are linked to inflation levels, thereby preserving purchasing power.
International Comparisons
In support of his proposal, Chadha referred to practices in several other economies where wage adjustments are either automatic or institutionally structured:
- United States: Cost-of-Living Adjustments (COLA) mechanisms provide automatic revisions in certain wage and benefit categories.
- Germany: Wage revisions are typically negotiated every 18–24 months through collective bargaining agreements.
- Japan: The annual “Shunto” spring wage negotiations facilitate coordinated salary increases.
- Belgium: Operates an automatic quarterly wage indexation system tied to inflation.
Chadha suggested that India could draw lessons from such models to design a system suited to its economic structure and labour market realities.
Context: Inflation and Wage Growth
The debate comes amid broader concerns about inflationary pressures and their impact on household finances. While nominal wages in several sectors have risen over the years, economists have pointed out that real wage growth—adjusted for inflation—has been uneven, particularly in the post-pandemic recovery phase.
Industry bodies, however, have previously cautioned that automatic wage indexation could increase cost pressures for businesses, particularly small and medium enterprises, and potentially influence employment dynamics. Economists are also divided on the macroeconomic impact of statutory wage indexation, with some warning that it could contribute to inflationary cycles if not carefully calibrated.
Policy Implications
If introduced, an Inflation Linked Salary Revision Act would represent a significant shift in India’s wage policy framework, extending statutory inflation protection beyond public sector employment.
Labour law experts note that implementing such a framework would require clarity on coverage thresholds, frequency of revisions, inflation benchmarks to be used (such as CPI), and sector-specific flexibility. The proposal would also need to be reconciled with existing labour codes and industrial relations mechanisms.
As of now, the government has not issued a formal response to the proposal. The issue is expected to generate debate among policymakers, industry representatives, trade unions, and economists in the coming weeks.
Chadha concluded his remarks by stating that inflation “should not be India’s silent pay cut,” framing the proposal as a measure to protect purchasing power and ensure income stability for salaried households.
