The implementation of the four new labour codes will boost social security coverage to 85% in next 2-3 years and would generate additional employment for 7.7 million people, a report by the State Bank of India Research said on Tuesday. It, however, cautioned about the possibility of short-run frictions followed by medium-run gains as compliance costs fall and formal hiring expands.
The government enforced four labour codes namely the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020, on November 21 with an objective to align with global trends and empower both workers and enterprises.
What does SBI research suggest?
The SBI Research said that around 440 million people are working in the unorganised sector and nearly 310 million of them are registered under the e-shram portal. It assumed that 20% will shift from informal pay-roll to formal pay-roll benefitting nearly 100 million beneficiaries. “With this we expect, India’s social security coverage may reach 80-85% in the next 2/3 years,” SBI Research said.
Currently, the social security cover for workers in India is around 64.3%, as per the International Labour Organisation.
It also indicated an increase of 15.1% in the formalisation rate following the implementation of the new labour codes. Referring to the Periodic Labour Force Survey dataset, the SBI Research stated that the share of formal workers is estimated to be 60.4% in the country. With new codes, the labour market formalisation would be increased to 75.5%, it said.
How are the labour reforms expected to impact unemployment
On the job front, the SBI Research projected reduction of unemployment by 0.3% to 1.3% over the medium term after a short transition phase, depending on reform implementation, firm level adjustment cost and complementary state-level rules.
“This would imply additional employment generation of 7.7 million people based on current labour force participation rate (15 yrs+) at 60.1% and average working age population at 70.7% across rural and urban workforce,” the SBI Research said.
It also underlined that the new labour codes will boost consumption at Rs 66 per person per day post implementation. This could lead to a consumption boost of Rs 75,000 crore, the SBI Research said.
The report stated that the take home salary of employees may reduce post the implementation of the new codes as the retirement benefits will increase, along with wage code mandated that the basic salary be at least 50% of cost-to-company.
“Though, the new codes will escalate the cost of operation for the employers but will reduce compliance burden substantially. The Industrial Relations Code, 2020 has reduced the number of rules to 51 from 105, forms to 18 from 37 and registers to zero from 3, thereby reducing the overall compliance burden to spur employment, which will help India to reach Viksit Bharat by 2047,” the report stated.
The SBI Research said that the current minimum wage rate in India is Rs 546 per capita per day. “The average wage as reported by the ILO is Rs 451 per capita per day. With the “Code on Wages” implemented, all workers will be entitled to the minimum wage rate. This would imply that disposable income of workers on an average may rise by Rs 95 per day post implementation of the labour codes,” it said.