Consolidating laws to boost jobs and protect worker rights
Bhubaneswar: In a decisive move aimed at transforming the Indian economy, the Central Government has officially picked up the threads on a long-pending structural change. After a significant hiatus, the government has moved to consolidate 29 distinct Central labour laws into four comprehensive Labour Code reforms. This strategic overhaul is designed to fix the missing links in India’s manufacturing narrative and accelerate employment generation across the nation.
Breaking the Policy Gridlock
For years, the manufacturing sector in India has shown promise, supported by initiatives like Production-Linked Incentives (PLIs) and a redefined scope for MSMEs. However, the complexity of archaic labour laws remained a hurdle. Although the National Democratic Alliance (NDA) government successfully passed these codes in Parliament between 2019 and 2020, their actual implementation was delayed.
Now, moving past the hesitation that followed the 2019 Lok Sabha elections, the Centre has notified all four codes. This includes the crucial Industrial Relations Code, which introduces much-needed flexibility for employers. Companies will now have the ability to hire workers on fixed terms to meet seasonal spikes in demand, a measure essential for industries to remain competitive globally.
Balancing Flexibility with Security
While trade unions have historically resisted flexible hiring norms, the government has ensured that these reforms are not one-sided. A significant "sweetener" has been added to the Social Security Code to protect the workforce. Under the new rules, employees will be eligible for gratuity benefits after completing just one year of service. This is a massive shift from the current requirement of five years of continuous service, offering immediate financial security to millions of workers.
Strategic Timing and Avoiding Backlash
The notification of these Labour Code reforms was managed with a high degree of discretion. Sources suggest this secrecy was intentional, aimed at preventing the kind of political and union backlash that derailed the farm law reforms previously.
Prior to the announcement on social media, the Labour and Employment Ministry held quiet consultations with the RSS-affiliated Bharatiya Mazdoor Sangh. Simultaneously, the Finance Ministry engaged with various trade unions. The government is keen to demonstrate political will, ensuring that all stakeholders are on board to avoid any disruption to this economic reset.
Revitalizing Investment Sentiment
This unshackling of the regulatory framework comes at a critical time. Despite various fiscal incentives, private investment in India has been sluggish. By pushing through these fundamental reforms involving factors of production, the Centre is signaling a strong willingness to make bold decisions.
This is particularly relevant as the global economy faces a wave of protectionism, specifically from markets like the United States. By streamlining domestic laws, India is positioning itself to negotiate better bilateral trade pacts and stand on its own as a manufacturing hub. The move also follows the government's recent decision to roll back Quality Control Orders (QCOs) on 21 key industrial inputs—ranging from chemicals to copper and aluminium—which had been choking the supply chains for MSMEs and the textile sector.
The Federal Challenge: Getting States on Board
The road ahead, however, involves navigating India’s federal structure. Since labour is a subject on the Concurrent List, both the Centre and State governments must frame their own rules. While the Centre has finalized its draft rules, several states have been lagging.
Internal discussions in 2022 had considered a staggered rollout, starting with the Code on Wages and Social Security. However, the focus has now shifted to a comprehensive push. The Centre is actively nudging states to align their regulations with the central mandate.
Focus on Gig Workers
A standout feature of the new reforms is the attention given to the modern gig economy. With the traditional employer-employee relationship evolving, the codes introduce safety nets for platform-based workers. The Code on Social Security mandates that aggregators (such as food delivery or ride-sharing apps) must contribute between 1 to 2 per cent of their annual turnover towards a social security fund for gig workers. This contribution is capped at 5 per cent of the amount payable to the workers.
While some states like Rajasthan and Karnataka had already begun drafting their own laws for gig worker welfare, the central legislation aims to provide a uniform safety net. The ultimate success of these Labour Code reforms will now depend on how quickly state governments can demonstrate the political conviction to implement them on the ground.
