Why the New Labour Codes Do Little for Indian Workers

Four new labour codes were enacted through parliament in 2019 and 2020 by the Union Ministry of Labour and Employment. These codes – which merged 29 existing laws – relate to wages, industrial relations, social security and occupational safety and healthy working conditions. 

However, over five years later, the codes are yet to be implemented. Meanwhile, all central trade unions, including the Bharatiya Majdoor Sangh (BMS) which opposed certain provisions, have registered their opposition to the codes.

While employers’ organisations have mostly remained silent on the codes, they have expressed their disappointment in private. They say that the new codes will not have the desired liberating effect on the market.

Ministry officials have not provided specific reasons for the delay in the codes' implementation except that states are still drafting rules. During the last such update a few months ago, an official statement noted that all the major states, except a few, have completed the rule-making exercise. 

The three new farm laws came into being around the same time as the labour codes. After severe and vociferous opposition to the farm laws and a long farmers' protest, the laws were withdrawn by the government. However, despite opposition from major trade unions, the labour codes did not ignite popular protests among the grass-root working class. Protests by the trade unions remained limited to usual activities like sit-in demonstrations, few general strikes and scattered agitations.

Matters concerning labour are generally deliberated upon in a tripartite manner. Formulation of the four new codes is an important legal activity which has huge socioeconomic implications touching all of us.

The trade unions alleged that they were consulted but their views were not taken into the consideration while finalising the codes. They maintained that the entire exercise of formulation of the four labour codes was driven by the principle of ‘ease of doing business’, which makes the burden of compliance easier for the employer. 

The largest and the most important forum of tripartite consultation in the country is the Indian Labour Conference (ILC). The ILC was convened every alternative year until 2015 – when it stopped happening entirely. It is quite surprising that ILC has not been convened since 2015 to discuss or endorse important formulations like the labour codes. Moreover, the codes were not sufficiently discussed in either House of the parliament. The trade unions too failed to unite the working class against the labour codes and in compelling the government to convene the ILC on the matter.

Working class's indifference to the labour codes

But why has the working class not identified with the ongoing opposition to the labour codes so far?

The answer might lie in the fact that four codes, or for that matter the existing labour laws, hardly make any difference to the life of ordinary Indian workers. This is because the Indian labour market is largely informal. The majority of the labour laws, with exceptions like the Minimum Wages Act, do not apply to informal labour.

In the Indian context, formality is defined in terms of access to provident fund and employees state insurance benefits. If a worker has access to EPF and ESI, that worker is considered a formal worker. The rest are informal. This is consistent with the internationally recognised definition of informal workers as those working without social security.

It must be noted that the formal sector also engages several informal workers. This is done through increasing contractualisation and casualisation of the workforce.  For example, all construction entities are formal but the workers they employ are almost entirely informal.

According to official data, 52% of all workers are self-employed, including a portion engaged as unpaid family labour (UFL). In recent years, there has been a sharp increase in the number of gig and platform workers. Within the gig and platform economy, the concept of an employment relationship is deliberately kept ambiguous, effectively placing these workers outside the protective framework of labour laws.

What does this mean in terms of actual numbers?

According to the National Sample Survey (NSS) and the Periodic Labour Force Survey (PLFS), the Indian labour force stood at 610 million in 2024. If 93% of them are informal workers, then the size of informal labour in India is 567 million.

Out of these 567 million, 58% are self-employed, which means they are entirely outside the purview of protective labour laws as the employer-employee relationship is absent. In absolute terms, this is 354 million. The remaining 266 million informal workers are wage employed and come under the purview of the Minimum Wages Act, 1948. 

Among the new labour codes, only the code on wages and parts of the code on social security extend to informal workers. The remaining codes primarily apply to the formal sector, which comprises fewer than 50 million workers out of a total workforce of approximately 610 million. In essence, the new labour codes consolidate 29 existing laws, most of which were already limited to the formal sector. This means that, since independence, the vast majority of workers have remained outside the scope of labour laws. As a result, a large segment of informal workers remains unaffected by the implementation of the new labour codes.

Kinkshuk Sarkar is Associate Prof of Economics, Goa Institute of Management. Santosh Mehrotra was Prof of Economics at Jawaharlal Nehru University, New Delhi.

The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.