By Rameesh Kailasam and Jharna Kamdar
India’s most promising online platform start-up economy, encompassing aggregators and gig workers, is navigating regulatory upheavals due to states thinking differently. While the Centre seems to be thinking on the right lines and engaging with the industry to come out with a pragmatic solution, certain states seem to be moving in a different direction and introducing a maze of complexities, affecting the ease of doing business in the country.
In 2020, the Indian parliament passed the Code on Social Security (CoSS), a landmark legislation designed to provide social security to gig workers. This code gave legal recognition to terms such as “gig worker”, “platform work”, and “platform worker”. It enabled the Union government to introduce social security schemes covering life and disability cover, accident insurance, health, and so on. The funding mechanisms for these schemes were designed to be flexible and derived from multiple sources including contributions from the Union and state governments, aggregators, and corporate social responsibility funds. However, the Union government is yet to notify these.
The delay has prompted several state governments to attempt to introduce their own laws, resulting in a fragmented and complex regulatory environment. Rajasthan was among the first to act, notifying the Rajasthan Platform Based Gig Workers (Registration and Welfare) Act in September 2023. This Act requires aggregators to contribute a specified percentage of each transaction value to a welfare fund, excluding taxes. However, it lacks clarity on the specific benefits to be provided and their administration. The drafting and passage of this Act have raised concerns about transparency and inclusivity as the pre-legislative consultation process was not adequate.
More recently, Karnataka has released a draft of the Karnataka Platform-based Gig Workers (Social Security and Welfare) Bill, 2024, which proposes collecting a welfare fee from aggregators based on transaction values or annual turnover, as determined by the government. The Bill includes several concerning provisions such as prescribed payment frequencies, contract terms, and termination notices. Notably, it is holistically against the spirit of and conflicting with the CoSS that defines gig work as “outside the traditional employer-employee relationship”. For instance, it has deviated from the definition of gig workers provided in the CoSS, and in one Section it has explicitly used the term “employment”. The constitutional repugnance is also evident through Bill’s attempt to include gig workers under the Industrial Disputes Act, 1947, which does not recognise gig workers as workmen. Inadequacies in the pre-legislative consultation were seen here too, with only 10 days given for submission of public comments.
The state-level legislations mentioned above present several issues that disrupt the ease of doing business in the platform economy. They enable states to formulate social security schemes and collect funds, creating inconsistencies with the CoSS. The conflicting provisions of welfare funds create a situation akin to double taxation. They lead to the creation of multiple corpuses for the same purpose, imposing excessive financial demands on aggregators. This duplication of effort not only complicates business operations but also leads to sub-optimal utilisation of public funds. Aggregators may be forced to pass these costs onto consumers, which could reduce the overall consumer demand and therefore the demand for gig workers as well. Aggregators already provide extensive social security benefits through private insurance, offering substantial coverage and quick claims processing. State mandates could force businesses to redirect funds to government corpuses, potentially reducing the quality of provisions. Benefits provided by the government may not offer comparable coverage such as access to private hospitals, quick turnaround times for claims, and substantial lump sum benefits.
In addition, the Bill has provisions that are unnecessary intrusion of the state in business that may harm the consumer. Mandating a 14-day notice period for terminating gig workers, for example, overlooks the realities of the gig economy where quick and flexible responses are often required. According to the provision, the aggregators will be mandated to retain for 14 days even those gig workers who have undertaken fraudulent activity or broken the law of the land. Provisions requiring aggregators to share transactional details with a central transaction information management system also raise concerns about data privacy and potential violations of Securities and Exchange Board of India guidelines. Integrating various systems for registration, monitoring, and compliance across state and the central platforms adds another layer of complexity.
The extensive labour codes in India were consolidated into four in 2020 to improve efficiency and ease of doing business. However, state-level legislations undermine this consolidation by introducing redundant and divergent compliance requirements, increasing the administrative burden on businesses. The Union government is also working on registering gig workers on the e-Shram portal with support from the industry, but state-level legislations mandating decentralised registrations are causing confusion and potential gaps in coverage for migrant workers, thereby denying universal access. This increased regulatory burden may also stifle innovation in the platform economy. Start-ups and small businesses might find it challenging to navigate the complex regulatory environment, hindering their growth and ability to introduce new services or products. It is critical for the Centre and states to work closely to prevent such infructuous duplication.
Rameesh Kailasam is the CEO of Indiatech.org, while Jharna Kamdar serves as an associate in public policy and research at the organization.
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