Labour codes could increase formalisation of workforce by 15.1%: SBI Ecowrap

There could be an increase of 15.1 per cent in the formalisation rate of the workforce after the implementation of the four labour codes that’s poised to reduce compliance burden. According to the SBI Ecowrap, after the implementation of the labour codes, formalisation is likely to increase to 75.5 per cent. The report added that the codes are also projected to trigger a push in consumption, estimated at around Rs 75,000 crore.

The anticipated boost stems from a calculated rise in daily consumption by Rs 66 per person post-implementation, as a result of higher formalisation and improved earnings within the workforce. Disposable income on an average could rise by Rs 95 per day, the report added.

With a saving rate of approximately 30 per cent, this policy move is set to influence household spending patterns across rural and urban sectors, marking a notable shift in the country's economic landscape.

The formalisation drive under the new labour codes is expected to benefit about 10 crore workers, assuming 20 per cent of unorganised workers shift to formal payrolls. Currently, around 44 crore individuals work in the unorganised sector, with 31 crore registered on the e-shram portal.

Following these reforms, India's social security coverage could reach between 80-85 per cent in the next two to three years, the report added. The share of formal workers stands at 60.4 per cent, and a 15.1 per cent increase in the formalisation rate could push this figure to 75.5 per cent.

Labour market analysts estimate that the new labour codes could reduce unemployment by up to 1.3 per cent over the medium term. Based on a current labour force participation rate of 60.1 per cent for those aged 15 years and above, and an average working-age population proportion of 70.7 per cent, this translates to the generation of approximately 77 lakh additional jobs.

The government notified all four Labour Codes, marking a significant overhaul of labour laws. The reforms introduce universal social security coverage for gig workers, mandatory appointment letters for all employees, and statutory minimum wages with timely payment across sectors.

The four Labour Codes include the Code of Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and Occupational Safety, Health and Working Conditions Code (2020). These codes replace 29 fragmented laws with a unified and modern framework.

The changes also expand rights and safety measures for women, including provisions for night-shift work. Workers aged over 40 years will receive free annual health check-ups. Additionally, there will be pan-India ESIC coverage, including for hazardous process units, and a single system for registration, licence, and returns.