Introduction to India's Labour Codes and Informality

In 2019-2020, India enacted four comprehensive labour codes consolidating 29 central labour laws: The Code on Wages, 2019, The Industrial Relations Code, 2020, The Occupational Safety, Health and Working Conditions Code, 2020, and The Code on Social Security, 2020. These codes aim to streamline complex regulatory frameworks and address the pervasive informality in India’s labour market, where over 80% of workers remain informal (PLFS 2023). Labour being a State subject under Entry 24 of List II of the Seventh Schedule necessitates cooperation between Centre and States for effective implementation.

Consolidation and Key Provisions of the Labour Codes

The four labour codes unify multiple laws to reduce compliance burden and improve regulatory clarity. The Code on Wages, 2019 introduces a National Floor Wage (Section 15) to harmonise minimum wages across states, addressing wage disparities. The Industrial Relations Code, 2020 governs trade unions, dispute resolution, layoffs, and retrenchment (Sections 25-29), aiming to balance employer flexibility with worker rights. The Occupational Safety, Health and Working Conditions Code, 2020 consolidates workplace safety norms (Sections 3-15), while The Code on Social Security, 2020 extends social security benefits to unorganised, gig, and platform workers (Sections 2(77), 42-48), a significant expansion from previous schemes.

• National Floor Wage under Code on Wages standardises minimum wage across states to reduce wage inequality.
• Industrial Relations Code simplifies dispute resolution and regulates layoffs with clearer provisions.
• Occupational Safety Code consolidates safety standards to improve workplace conditions.
• Social Security Code extends coverage to informal, gig, and platform workers, including provisions for provident fund, ESIC, and maternity benefits.

Economic Impact and Labour Market Formalisation

The Economic Survey 2025-26 projects labour market formalisation rising from 60.4% to 75.5% due to these reforms, potentially generating 7.7 million new jobs and contributing 1.25% to GDP by 2029-30. Currently, formal sector employment accounts for only 10-12% of the workforce (PLFS 2023), highlighting the scale of informality. The informal sector contributes nearly 45% to GDP (CMIE 2024), underscoring its economic significance despite weak protections.

• Formalisation increase from 60.4% to 75.5% expected post-implementation (Economic Survey 2025-26).
• Estimated 7.7 million new jobs to be created, boosting employment.
• Labour reforms projected to add 1.25% to GDP by 2029-30.
• Informal sector employs ~90% of workforce but lacks social security and job stability.
• Estimated Rs 50,000 crore annual cost for social security expansion under Code on Social Security (Ministry of Labour).

Institutional Framework and Enforcement Challenges

The Ministry of Labour and Employment (MoLE) oversees policy and enforcement, supported by State Labour Departments responsible for inspections and implementation. Labour Courts and Industrial Tribunals adjudicate disputes. The Central Board of Workers' Education (CBWE) promotes worker awareness and training. However, enforcement capacity varies widely across states, limiting the codes’ effectiveness. Data collection by the National Statistical Office (NSO) and technical support from the International Labour Organization (ILO) aid monitoring and benchmarking.

• MoLE formulates policies and monitors implementation.
• State Labour Departments conduct inspections and enforce compliance.
• Labour Courts and Industrial Tribunals resolve disputes under the Industrial Relations Code.
• CBWE enhances worker education on rights and benefits.
• Enforcement gaps in many states hinder formalisation progress.

Comparative Insights: Lessons from Brazil’s Labour Reforms

Brazil’s 2017 labour reforms, which simplified over 100 laws, led to a 5% increase in formal employment over five years and contributed 0.8% to GDP growth. This experience illustrates the potential gains from labour law rationalisation but also highlights challenges in enforcement and social security coverage. India’s larger informal workforce and federal structure pose additional hurdles.

Critical Gaps in Addressing Informality

Despite codification, enforcement remains weak due to limited inspection capacity and political economy constraints at the state level. Social security coverage, though expanded on paper, faces implementation bottlenecks in reaching informal and gig workers. Contract labour reliance remains high, with permanent worker share in factories declining from 61% in 2011 to 47% in 2023, perpetuating precarity. These gaps limit the codes’ ability to achieve true formalisation and inclusive growth.

• Enforcement capacity varies widely across states, limiting compliance.
• Social security benefits often do not reach informal and gig workers effectively.
• Rising contract labour usage undermines job security.
• Worker awareness and grievance redressal mechanisms remain inadequate.

Way Forward: Enhancing Impact of Labour Codes

• Strengthen state-level inspection and enforcement through capacity building and technology.
• Expand social security schemes with targeted outreach to informal and gig workers.
• Promote formal employment contracts and regulate contract labour more strictly.
• Enhance worker education via CBWE and digital platforms for rights awareness.
• Foster Centre-State coordination for uniform implementation respecting federalism.

Jharkhand & JPSC Relevance

• JPSC Paper: Paper 2 (Indian Economy and Development), Paper 3 (Governance and Social Issues)
• Jharkhand Angle: Jharkhand’s large informal workforce in mining and agriculture sectors can benefit from expanded social security and formalisation under labour codes.
• Mains Pointer: Highlight state-level enforcement challenges and need for tailored implementation strategies in Jharkhand’s informal sectors.