Labour Codes to Unlock Virtuous Growth Cycle

Swift implementation of the labour codes can accelerate economic growth

Expanding opportunities for upward social mobility and reducing inequalities are some of the key factors to achieving economic well-being. Labour or productive employment is one of the key pillars of economic growth. Among India’s 63 million enterprises, only 1 million are formal enterprises which translates into approximately 9% of the total workforce that falls under the purview of labour laws. The remaining 62 million small and informal enterprises that employ over 90% of India’s labour force are bereft of the benefits of the labour laws. Home-based workers, gig workers, informal workers, and informal organisations fall squarely outside the ambit of the present labour law framework.

Cognizant of the direct correlation between the labour-employer dynamic and economic growth, the Central Government of India consolidated the labour reforms into four broad labour codes comprising: (i) Wages, (ii) Industrial Relations, (iii) Social Security, and (iv) Occupational Safety, Health, and Working Conditions. In this article we evaluate the progress on these labour codes, the expanding purview of the labour codes in alignment with new labour market trends, and the need to leverage technology to facilitate a seamless cross-integration among key stakeholders. All these factors together will help to unlock the economic advantages inherent in the swift implementation of the new labour codes.

Status update on the codification of labour laws – The Government redrafted the labour legislation with the aim of easing compliance, updating outdated laws to align with present economic needs, and ensuring better enforcement and standardisation. Post multiple stakeholder consultations among trade union representatives, employers, state governments, and labour market experts, the Standing Committee on Labour recommended 233 changes, of which 174 were accepted and incorporated into the codes. In 2019-2020, the government consolidated the labour reforms into four broad labour codes with a view to empowering workers and laying the foundation for prosperity and self-reliance for India’s teeming frontline workforce. 

However, over the past three years, there has not been much change on the ground since the central and state governments have yet to notify the rules. Unless the rules are notified, the codes cannot become operational. As per the current status, 31 states have pre-published the draft rules under the Code on Wages, 28 states under the Industrial Relations Code, 28 states under the Code on Social Security, and 26 states under the Occupational Safety Health and Working Conditions Code.

Expanding purview of labour codes – The new labour codes are in tune with the changing labour market trends as they provision for the 40 crore workers operating in the unorganised sector including the self-employed and migrant workers alongside the organised sector comprising around 10 crore. In keeping with the changing job market trends, these new codes seek to extend the purview of minimum wages to all employees, support wage parity, provide for the creation of universal security coverage, and expand the definition of migrant labour.

In keeping with changing times, the new labour codes recognize new forms of employment such as platform workers or gig workers, and include them within the ambit of social security. These codes also seek to simplify operations and licensing protocols to promote ease of doing business. The goal is to facilitate and catalyse the creation of employment opportunities while ensuring the safety, health, and social security of every worker.

Leverage Technology to simplify and synergize – The codes also seek to ease compliance mechanisms with a view to promoting ease of doing business and the setting up of new enterprises. To this end, an increased reliance on technology, such as web-based inspection, can be instrumental in expediting processes and enhancing transparency and accountability. Similarly, registers, returns, and challans automated by regtechs can significantly facilitate adherence to compliance mandates and the timely completion of requisite documentation.  While these baby steps towards leveraging technology to ease compliance will help cater to the immediate needs of business, the larger goal must be towards the creation of a fully automated and open compliance framework linked to India’s digital infrastructure.

Along similar lines, technology can be leveraged to create a centralised talent pool that can categorise workers based on education and skill proficiency. All employers would be mandated to report job vacancies on this portal to ensure that everything is under one roof. Technology can thus enable a seamless cross-integration between employers and employees, which in turn can be used to identify future skill requirements. It can also be linked to skill development capabilities in HEIs to maintain a collaborative ecosystem between government bodies, industry, and higher education institutions. Such a system would truly succeed in establishing India as the ‘skill capital of the world’.

Long-term impact on economic growth – The swift espousal of inclusive labour policies that increase the number of beneficiaries will help to reign in systemic problems of declining industrial output and unemployment. The adoption of the proposed Labour codes will help to reduce income inequality by gradually increasing the share of wages in national income, which in turn will boost aggregate demand in the economy. The timely implementation of the labour codes is important as by focusing on the health, well-being, and skill development of our people we can kickstart the virtuous cycle of the economy which is characterised by an increase in formal employment, higher spending power, and of course a larger pool of tax-payers leading to increased government investments.

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