Public debates on employment in India’s economically lagging states often overlook the structural constraints that prevent meaningful job creation. Bihar illustrates this challenge clearly. While political conversations periodically revive promises of large-scale government hiring, such proposals do little to address the deeper problem: the absence of a modern regulatory ecosystem capable of nurturing high-productivity private-sector employment. For states with persistently weak economic performance, operationalising India’s new labour codes is an essential step toward transforming their job landscape.
Why Low Unemployment Masks Deeper Labour Market Distress
Bihar’s unemployment rate—consistently between 3% and 10% over three decades—gives the impression of relative stability. In reality, it conceals the widespread prevalence of underemployment, low wages, and unviable self-employment. Most workers are engaged in subsistence activities not because they choose them but because the state lacks a robust base of formal enterprises. Bihar has only a small number of listed companies, around 9,000 ESI-contributing employers, and an MSME ecosystem where nearly all units remain micro in scale. Consequently, over half of its workforce is still in agriculture, manufacturing employs barely 5%, and modern sectors—IT, financial services, pharmaceuticals, organised retail—remain negligible.
Lessons from States That Benefited from Policy-Driven Growth
The situation contrasts sharply with the economic evolution of states like Karnataka and Tamil Nadu. Since the 1990s, Karnataka has built a globally competitive software industry, while Tamil Nadu has emerged as a manufacturing powerhouse. Nationally, too, India has grown into a major exporter of pharmaceuticals and IT services. These successes were not driven primarily by government expenditure but by policy ecosystems that encouraged productivity, formalisation, and private-sector expansion. For backward states to emulate such transformations, labour regulations must enable rather than impede enterprise growth.
How the New Labour Codes Can Transform Job Markets
India’s new labour codes offer an opportunity to modernise a system long criticised for complexity and inconsistency. By merging 29 existing laws into four consolidated codes, they significantly reduce procedural burdens. Once notified, the codes will streamline compliance by reducing the number of legal sections, eliminating redundant registers and returns, and consolidating multiple licenses into a single framework. The decriminalisation of several compliance-related provisions is particularly important, as it mitigates the legal risks that discourage small and medium enterprises from scaling operations.
Beyond simplification, the codes introduce substantive improvements. They extend social security benefits to gig workers and those in the unorganised sector, enhance the participation of women by removing outdated restrictions, and allow for portability of welfare benefits to support inter-state migrant workers. They also propose a more transparent, technology-driven inspection system that reduces the scope for discretionary actions and corruption—both major deterrents to investment.
Building a Trust-Based Regulatory Framework
Although some policymakers advocate for a single, unified labour law in the long term, the current codes still represent a notable move towards a trust-based regulatory architecture. This approach supports predictability, self-certification, and accountability over punitive enforcement. Smaller enterprises, which struggle the most with compliance-heavy systems, stand to benefit substantially. As these firms expand, they can become critical drivers of employment generation across backward states.
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Why State-Level Flexibility Matters for Future Growth
A key strength of the new codes is the flexibility they grant states in designing rules suited to their economic realities. This is particularly relevant in a country where per-capita income varies drastically between the richest and poorest states. Those that act quickly to simplify compliance and create a more business-friendly environment will be well-positioned to capture the next wave of job-generating investment—estimated at more than 50 million roles in the coming decade.
A Necessary Foundation for Competitiveness
While electoral politics may not always revolve around employment, long-term regional development certainly does. Backward states cannot close the gap with economically advanced states without addressing the regulatory barriers that suppress private-sector growth. Notifying and implementing India’s new labour codes is therefore not just a bureaucratic exercise—it is a foundational step toward enabling genuine job creation, improving labour conditions, and fostering sustainable economic growth.
This article is adapted from an Indian Express Op-Ed by Manish Sabharwal, TeamLease Services Ltd.
