There could be a 15.1 percent increase in the formalization rate of the workforce after the implementation of the four labor codes, which is expected to reduce the compliance burden. According to the SBI Ecowrap, after the implementation of labor codes, the formalization rate is expected to reach 75.5 percent. The report adds that the codes are also expected to trigger a surge in consumption, estimated at around Rs 75,000 crore.
The expected increase comes from a calculated increase in daily consumption of Rs 66 per person after implementation, due to greater formalization and improved incomes within the workforce. Disposable income on average could increase by Rs 95 per day, the report added.
With a savings rate of around 30 percent, this policy measure is expected to influence household spending habits in both rural and urban sectors, marking a notable change in the country’s economic landscape.
The formalization drive under the new labor codes is expected to benefit about 10 million workers, assuming 20 percent of non-unionized workers move to formal payrolls. Currently, around 44 crore people are working in the unorganized sector, of which 31 crore are registered on the e-shram portal.
Following these reforms, social security coverage in India could reach between 80 and 85 percent in the next two to three years, the report added. The share of formal workers stands at 60.4 percent, and a 15.1 percent increase in the formalization rate could raise this figure to 75.5 percent.
Labor market analysts estimate that the new labor codes could reduce unemployment by up to 1.3 percent in the medium term. Based on a current labor force participation rate of 60.1 per cent for those aged 15 and above and an average proportion of the working-age population of 70.7 per cent, this translates to the generation of around 77 lakh additional jobs.
The government has notified the four labor codes, marking a significant overhaul of labor laws. The reforms introduce universal social security coverage for gig workers, mandatory appointment letters for all employees, and a legal minimum wage paid on time across all sectors.
The four labor codes include the Wages Code (2019), the Industrial Relations Code (2020), the Social Security Code (2020) and the 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 work. Workers aged over 40 will benefit from a free annual health examination. Additionally, there will be pan-India ESIC coverage, including for hazardous processing units, and a single registration, licensing and returns system.
