India’s Labour Codes: A Transformative Step Towards Inclusive Economic Growth

Syllabus: GS3/Economy

Context

• India’s new Labour Codes, consolidating several existing laws into a unified, modern framework designed to foster clarity, consistency, and equity across the workforce.

About New Labour Codes: A Unified Framework

• Overview of the Four Labour Codes: According to the Ministry of Labour & Employment, the reforms consolidate 29 central laws into four codes:
  • Code on Wages, 2019: Universalizes minimum wages and ensures timely payment.
  • Industrial Relations Code, 2020: Streamlines dispute resolution and promotes flexibility in hiring.
  • Social Security Code, 2020: Extends social security to gig workers, platform workers, and the unorganized sector.
  • Occupational Safety, Health and Working Conditions Code, 2020: Enhances workplace safety and welfare standards.
• The four Labour Codes aim to modernise India’s labour ecosystem by bringing workers and employers under a common set of rules that simplify compliance, ensure protection, and promote flexibility in workforce management.
  • For workers: stronger social security, safer workplaces, and wider access to benefits.
  • For businesses: simpler compliance, standardised processes, and a level playing field.
• These reforms are designed to reduce compliance burdens, eliminate outdated provisions, and promote ‘Ease of Doing Business’.

Importance of New Labour Codes

• Expanding the Social Security Net: The Code on Social Security (2020) formally recognises the millions of unorganised, gig, and platform workers, allowing the Centre and states to establish dedicated social security funds.
  • Aggregators are required to contribute 1–2% of turnover, capped at 5% of payouts, ensuring sustainable financing for benefits.
  • The e-Shram portal (India’s first national database of informal workers), which has enrolled over 310 million workers, assigns each a Universal Account Number (UAN) — enabling portability of health insurance, maternity benefits, and pensions across employers and states.
• Safety, Dignity and Gender Inclusion: The Occupational Safety, Health and Working Conditions Code (OSH) integrates safety norms across sectors and enables women to work night shifts with safeguards and consent — expanding opportunities while prioritising protection.
  • The OSH Code promotes technology-based inspections and risk-based compliance, shifting focus from punishment to prevention.
• Fair Wages and Industrial Harmony: The Code on Wages universalises minimum wages and timely payments across all sectors, regardless of skill or geography, ensuring income stability.
  • Meanwhile, the Industrial Relations Code encourages negotiation, conciliation, and arbitration before disputes escalate, strengthening industrial peace.
  • Simplified trade union recognition and standing order rules improve transparency and predictability.
• Boosting Ease of Doing Business: For enterprises — especially MSMEs — the new Codes simplify processes through digital filings, standardised definitions, and reduced paperwork.
  • During FY 2021–22, India recorded FDI inflows of $83.6 billion, supported by broader reforms such as labour simplification, capital expenditure increases, and ease-of-doing-business initiatives.
  • These measures have positioned India as a competitive, investment-friendly destination.

Issues and Challenges Ahead of India’s New Labour Codes

• Uneven State-Level Implementation: Since labour is a Concurrent List (Schedule VII) subject, state-level adoption remains inconsistent.
  • It has delayed implementation and created uncertainty for industries planning workforce policies under the new framework.
• Worker Discontent: New codes dilute key labour protections such as collective bargaining rights, job security, and safeguards against arbitrary layoffs.
  • The Industrial Relations Code has drawn criticism for raising the threshold for mandatory government approval of layoffs from 100 to 300 workers.
• Compliance Complexity for MSMEs: MSMEs face practical challenges in adapting to digital filings, multiple registrations, and new compliance norms.
  • Many lack the administrative capacity or technological infrastructure to manage online systems.
• Social Security for Gig and Informal Workers: The inclusion of gig and platform workers remains unclear in financing and execution.
  • The proposed contribution by aggregators (1–2% of turnover) may not cover actual benefit costs, and many gig workers remain unregistered or unaware of the schemes.
• Digital Divide and Implementation Gaps: The success of systems like e-Shram, EPFO, and ESIC depends on data integration and real-time benefit portability.
  • Technical glitches, duplicate entries, and low digital literacy among informal workers threaten to undermine accessibility and trust in the system.
• Gender and Safety Concerns: The enforcement of safety standards — especially in smaller enterprises and informal sectors — remains doubtful.
• Industrial Relations and Collective Bargaining: The Industrial Relations Code changes union recognition thresholds and dispute mechanisms, which may dilute collective bargaining rights.

Way Forward: Priorities for Effective Transition

• Operationalise Unorganised Workers’ Coverage: Notify aggregator contributions, ensure transparent benefit delivery, and establish public dashboards for accountability.
• Integrate Digital Platforms: Link e-Shram, EPFO, and ESIC databases so benefits are portable nationwide.
• Build Awareness and Capacity: Equip MSMEs and workers with multilingual guides, help-desks, and outreach programmes to translate legal rights into tangible benefits.

Conclusion

• India’s Labour Codes can anchor the country’s next growth chapter—ensuring competitiveness for businesses, dignity for workers, and a predictable environment for investors, if implemented with speed, transparency, and collaboration.
• For the vision of ‘One Nation, One Labour Law Framework’ to materialise, coordinated action and rapid operationalisation are essential.

Source: BS