Economic Survey promises, impact of new labour codes, Pg8

Key Highlights:

• New labour codes aim to increase formalization from 60.4% to 75.5% by 2029-30, potentially generating 77 lakh jobs.
• The codes relax definitions and protections, making it easier for firms to avoid permanent employment.
• Occupational Safety, Health and Working Conditions Code raises the definition of a “factory” and increases the contract labour threshold.
• The codes expand “fixed-term employment”, offering some benefits but undermining job security.

Detailed Insights:

• Over 80% of India’s workers are in the informal sector, largely unprotected by the new labour codes.
• Firms are increasingly shifting away from formal employment, with direct factory employment falling from 61% to 47% between 2011 and 2023.
• The codes respond to informality by raising thresholds for protections, such as increasing the definition of a “factory”.
• While platform companies must contribute 1%-2% of annual turnover for gig worker schemes, specific rules and benefit levels are yet to be defined.
• The Code on Wages creates a National Floor Wage and a National Minimum Wage but lacks a clear methodology for setting them.
• Rebranding labour inspectors as “Inspector-cum-Facilitators” may weaken enforcement, especially in the informal sector.
• The labour codes assume that lower compliance costs will lead to formalization, but informality remains structurally profitable.

Key Concepts Involved:

• Formalization: The process of transitioning economic activities from the informal sector to the formal sector, making them subject to government regulation and taxation.
• Informal Sector: The part of the economy that is not taxed, regulated, or monitored by the government.
• Fixed-Term Employment: A type of employment where a person is hired for a specific period, offering some benefits but undermining job security.
• National Minimum Wage: The minimum hourly wage that employers are legally required to pay their workers, aiming to protect workers from exploitation.