Indian Economy Needs Labour Reform 2.0

(Source: The Indian Express, Editorial Page)

Also Read: The Indian Express Editorial Analysis: 30 June 2025
Also Read: The Hindu Editorial Analysis: 30 June 2025

Topic: GS Paper 3: Economy (Labour Reforms, Economic Development)

Context

In 2020, India introduced four consolidated Labour Codes to simplify and rationalize the country’s complex web of 29 labour laws. However, despite this reform initiative, the labour market continues to suffer from informality, inadequate social protection, and uneven implementation across states.

Background of Labour Reforms in India

• In 2020, the government passed four Labour Codes:

  • Code on Wages

  • Code on Industrial Relations

  • Code on Social Security

  • Code on Occupational Safety, Health and Working Conditions

• Aim: Simplify and modernize outdated labour laws to boost compliance, attract investment, and improve working conditions.

• Challenge: Implementation has been uneven and fragmented, as many states have not notified rules or established necessary institutional frameworks.

Key Concerns in the Current Labour Market

a. High Informality

• Over 90% of India’s workforce is still in the informal sector.

• Workers in construction, agriculture, and retail lack formal contracts, social security, or health insurance.

b. Gig and Platform Workers Left Out

• Despite being major contributors to the digital and service economy (e.g., Swiggy, Ola, Zomato), gig workers are excluded from social security.

• No clear framework exists for their inclusion in welfare schemes.

c. Weak Enforcement

• Labour law enforcement varies drastically by state.

• Lack of digital infrastructure and poor data on workers hinder monitoring and compliance.

d. Migrant Workers and Benefit Portability

• Millions of internal migrants face difficulties accessing portability of benefits, including health insurance and food rations.

From Reform 1.0 to Reform 2.0

Labour Reform 1.0 (2020 Codes):

• Objective: Rationalization and simplification of existing laws.

• Success: Unified multiple laws; improved employer ease-of-doing-business.

Labour Reform 2.0 (The Need Now):

• Implementation Overhaul: Strengthen inspection and grievance mechanisms.

• Social Security Expansion: Include gig and platform workers in the ambit of formal protections.

• Migrant Portability: Ensure benefit portability using digital ID and Aadhaar linkage.

• Labour Market Data: Build a National Labour Database to track employment, job losses, and migration.

Way Forward

• Build Federal Consensus: Avoid labour fragmentation by coordinating between Centre and States.

• Leverage Technology: Use Aadhaar-linked Direct Benefit Transfer (DBT), digital tracking, and e-Shram portal effectively.

• Inclusive Reforms: Ensure marginalised and informal workers are not left behind.

• Tripartite Dialogue: Involve trade unions, industry bodies, and governments to draft inclusive reforms.

Practice Question: (GS-3 | 15 Marks | 250 Words) Despite rationalization through the Labour Codes, India’s labour market remains largely informal and unprotected. Critically analyze the gaps in the current framework and propose a roadmap for Labour Reform 2.0.