FKCCI calls for a quick reassessment of minimum wages to prevent closure of MSMEs

The cost of doing business in Karnataka is now significantly higher than in neighbouring States such as Tamil Nadu, Telangana, and Andhra Pradesh and such cost escalations coupled with an improper minimum wage structure have been putting a lot of pressure on small entrepreneurs in the State, said M.G. Balakrishna, president of the Federation of Karnataka Chambers of Commerce and Industry (FKCCI), on Wednesday.

“The cost of doing business in Karnataka is now significantly higher than in neighbouring States like Tamil Nadu, Telangana, and Andhra Pradesh,” he said.

The FKCCI, after wide consultations with member industry associations, has voiced grave concern over the recent hike in minimum wages across Karnataka, highlighting its devastating impact on the State’s industrial landscape, particularly on the micro, small and medium enterprises (MSME) sector.

Speaking at a special meeting organised by the trade body for its member associations here, he demanded an urgent reassessment of minimum wages to prevent the closure of the MSME units in the State.

“The indiscriminate wage hike, without assessing the paying capacity of small-scale industries, is leading to a situation where many of them are considering shutting down,” he cautioned.

At the meeting on Wednesday, representatives of the Peenya Industrial Estate, Asia’s largest small-scale industrial cluster, revealed that the increase in variable dearness allowance (VDA) and resultant wage hike has rendered the operations of many small units financially unviable, and consequently, some 20% of units were at risk of closure if the government did not take immediate corrective steps.

The high minimum wages, while well-intentioned, were eroding Karnataka’s competitive advantage in attracting investments, especially in labour-intensive sectors such as textiles, light engineering, electronics, and packaging, Mr. Balakrishna added.

The trade body further cautioned that, if a high wage regime continued, there would be loss of jobs across the State and loss of tax revenue to the government.

“Under a high minimum wage structure, the MSMEs will succumb to closure or decide to shift to neighbouring States where the minimum wages are lower than what they are in Karnataka,” he said.

Some of the recommendations made by the FKCCI to the State government include introducing differentiated minimum wage slabs for MSMEs vs. large industries, immediately convening a wage rationalisation committee, and providing relief through power tariff subsidies, labour cess waivers, or working capital support.

The trade body also asked the Central government to enforce a uniform national minimum wage ceiling, announce wage-linked incentives or subsidies under MSME schemes, and reduce the regulatory burden on small industries to retain employment generation.

The FKCCI also urged various labour unions and civil society outfits to participate in constructive dialogue and recognise the unique vulnerabilities of the MSMEs, which collectively contribute over 45% to industrial jobs in Karnataka.