New labour codes to increase formalisation 15%, says SBI report

SBI expects India's four new labour codes to boost formalisation 15%, extend social security to 85%, and create 7.7M jobs, though costs and state rules may affect results

The recently notified four new labour codes will boost formalisation of the labour force by at least 15 per cent and increase social sector coverage to 85 per cent, highlighted a report by the State Bank of India (SBI) on Tuesday.

 

Besides, the new codes are also estimated to generate 7.7 million new jobs and reduce the unemployment rate by 1.3 per cent over the medium term, thus resulting in a consumption boost of approximately Rs 75,000 crore.

 

“The implementation of new labour codes will empower both workers and enterprises, building a workforce that is protected, productive and aligned with the evolving world of work — paving the way for a more resilient, competitive and self-reliant nation. There are primarily four tangible benefits that will accrue as the labour codes are implemented,” the report noted.

 

What assumptions underpin SBI’s estimates?

 

This assessment is based on the current labour force participation rate of individuals aged 15 years and above at 60.1 per cent, and the average working-age population at 70.7 per cent across rural and urban regions. It further noted that this will depend on the reform implementation, firm-level adjustment costs and complementary state-level rules.

 

SBI in its report noted that around 440 million people in India currently work in the unorganised sector, out of which nearly 310 million workers are registered on the e-Shram portal. By assuming that 20 per cent of these workers move from informal payroll to formal payroll, around 100 million individuals could directly benefit from improved job security, social protection and formal employment benefits.

 

“With this transition, India’s social security coverage is expected to reach 80-85 per cent in the next 2-3 years,” the report said.

 

What do the new labour codes comprise?

 

On Friday, the Centre notified the four new comprehensive labour codes, which were enacted by Parliament in 2019 and 2020.

 

These codes — the Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; and Occupational Safety, Health and Working Conditions Code, 2020 — are prepared by rationalising 29 existing labour laws, which were framed during the pre-independence era, at a time when the economy and world of work were fundamentally different.

 

What impact will the codes have on employers?

 

“Though the new codes will escalate the cost of operation for the employers, they will reduce the compliance burden substantially,” the report noted.