Brief Context
Context The Economic Survey 2025-26 presents an optimistic assessment of India’s labour reforms and highlights the potential of the new labour codes to increase formalisation, employment generation and economic growth. India’s Labour Codes India has consolidated 29 labour laws into four comprehensive labour codes to simplify regulations and improve labour market efficiency. The Code on Wages, 2019 aims to standardise wage regulation through the introduction of a National Floor Wage.
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Syllabus: GS3/ Economy
Context
- The Economic Survey 2025-26 presents an optimistic assessment of India’s labour reforms and highlights the potential of the new labour codes to increase formalisation, employment generation and economic growth.
India’s Labour Codes
- India has consolidated 29 labour laws into four comprehensive labour codes to simplify regulations and improve labour market efficiency.
- The Code on Wages, 2019 aims to standardise wage regulation through the introduction of a National Floor Wage.
- The Industrial Relations Code, 2020 regulates trade unions, industrial disputes, layoffs and retrenchment.
- The Occupational Safety, Health and Working Conditions Code, 2020 seeks to unify workplace safety and health standards.
- The Code on Social Security, 2020 expands social security coverage to workers in both organised and unorganised sectors, including gig workers.
Key Projections in the Economic Survey
- The Economic Survey projects that labour market formalisation will increase from 60.4% to 75.5% after the implementation of labour codes.
- The Survey estimates that the reforms could generate nearly 77 lakh new jobs in the coming years.
- The Survey also estimates that these reforms could contribute around 1.25% to India’s GDP by 2029–30.
Concerns with the Labour Market and New Labour Code
- Informality in India’s Labour Market: More than 80% of India’s workforce remains employed in the informal sector without job security or social protection.
- Informal workers lack written contracts, stable wages and access to labour grievance mechanisms.
- Reliance on Contract Labour: The share of permanent workers in factories declined from about 61% in 2011 to nearly 47% in 2023.
- Contract workers now constitute around 42% of the factory workforce, reflecting a shift toward flexible employment arrangements.
- Changes in Regulatory Thresholds: The Occupational Safety, Health and Working Conditions Code, 2020 raises the factory threshold from 10 to 20 workers (with power) and from 20 to 40 workers (without power).
- The Industrial Relations Code, 2020 increases the threshold for government approval for layoffs and retrenchment from 100 to 300 workers.
- These changes reduce regulatory compliance for firms but also limit the coverage of labour protections.
- Social Security for Gig Workers: The Code on Social Security, 2020 recognises gig and platform workers as part of the labour market.
- However, the details regarding benefit levels, coverage and implementation mechanisms remain unclear.
- Law Enforcement: The labour codes redesignate labour inspectors as “Inspector-cum-Facilitators” to encourage compliance through cooperation with employers. It is argued that this shift may weaken enforcement if inspection powers are diluted.
- The codes also allow certain labour violations to be settled through fines, which may reduce deterrence.
What are the Structural Drivers of Informality?
- Informal employment often allows firms to reduce labour costs and maintain operational flexibility.
- Technological changes and automation are reducing demand for routine jobs.
- The growth of the platform economy has created new forms of work that bypass traditional employer–employee relationships.
Way Ahead
- The labour codes represent an important attempt to modernise India’s labour regulatory framework and improve ease of doing business.
- However, the optimistic projections presented in the Economic Survey rely on assumptions that may not fully reflect the realities of India’s labour market.
- The success of these reforms will depend on effective enforcement, expansion of social security coverage, and policies that address the structural causes of informality.
Source: TH