By Raghav Pandey, Director, Centre for Regulatory Studies (CRS), National Law University Delhi
The road to regulatory hell is often paved with uncoordinated legislation. As India attempts to formalise the social security net for its burgeoning gig economy, we are witnessing a fracturing of the national market that threatens to undo the very welfare gains it seeks to achieve. The recent legislative manoeuvres by states like Jharkhand and Karnataka, while born of a noble intent to protect the precariat, have stumbled into a thicket of economic distortion. By deviating from the architectural blueprint of the Central Code on Social Security (CoSS), 2020, these state-level bills are engineering a constitutional absurdity.
The result is a balkanised regulatory regime that penalises domestic entrepreneurship and enfeebles the platforms relied upon to sustain gig livelihoods. This acts as a penalty on the digital model itself. It exposes a fundamental flaw in the current legislative trend: when states design their own rules in isolation, they create uneven playing fields that incentivise regulatory arbitrage rather than genuine welfare.
The Parliament passed CoSS in 2020 with a vision of a unified national architecture. A delivery partner’s livelihood does not adhere to the administrative boundaries of a district or a state. A student working in Ranchi today might move to a metro city like Delhi tomorrow, expecting their work history and accumulated benefits to travel with them.
State-specific legislation ignores this reality. By erecting silos of welfare, states are creating a scenario where a worker’s benefits are trapped in the jurisdiction where they were working. If Jharkhand has one set of rules and Karnataka another, does a worker migrating between the two lose their safety net? Do they have to register twice? The friction this introduces defeats the very purpose of the Central Code designed to offer a safety net as flexible and mobile as the workers it protects.
It is crucial to recognise gig work as a socio-economic bridge. For many, it serves as a transitional pathway from unemployment to aspiration. Consequently, welfare mechanisms must be designed to accommodate this mobility.
A significant yet often overlooked casualty of this patchwork approach is India’s indigenous digital enterprise ecosystem. The majority of these platforms are homegrown success stories, forged by entrepreneurs who bet early on India’s digital potential and fundamentally reshaped the service economy. They have brought efficiency, transparency, and traceability to sectors previously dominated by informal, cash-based networks.
Entangling these companies in a labyrinth of divergent state regulations inflicts a structural blow to scalability. A startup in Hyderabad cannot afford to navigate 28 different compliance regimes, welfare boards, and definitions of ‘turnover’ or ‘aggregator.’
If every state acts as a separate regulatory island, the operational cost of expanding across India becomes prohibitive. We are already seeing signs of capital flight, with logistics companies hesitating to expand into states where the regulatory risk outweighs the market potential. Platforms may simply geofence their operations, avoiding states with punitive frameworks. Tragically, this hurts the consumer, the small business almost entirely hosted on the platform, and the workers in those states the most.
The proposed legislation in Jharkhand offers a stark case study in this overreach. It proposes a Welfare Board with powers that dangerously blur the line between regulation and management.
The Board is empowered to make recommendations regarding the ‘pricing’ and ‘remuneration’ of gig workers. This represents a slippery slope toward state-controlled pricing in a free market. The gig economy thrives on dynamic pricing. If a bureaucratic board begins to dictate minimum floors or pricing caps, the efficiency of the algorithmic matching process collapses.
Furthermore, this power to review remuneration creates a shadow employment relationship. This is when the CoSS, for the first time, recognises and defines gig work and keeps it out of the ambit of the regular employer-employee relationship. The central premise of the gig economy is that workers are independent contractors who enjoy flexibility. If the state dictates their wages, prescribes the format of their contracts, and controls the pricing of their services, the distinction between an employee and a gig worker evaporates.
This legislative overreach must be viewed through the lens of constitutional federalism. While labour is a subject on the Concurrent List of the Constitution, meaning states are within their rights to legislate, the doctrine of repugnancy suggests that when a central law exists, state laws must not conflict with it.
The CoSS 2020 is a central statute awaiting full notification. It was the product of extensive tripartite consultations involving unions, industry, and state governments. It represents a delicate compromise intended to standardise the definition of gig work and the funding of social security. By rushing ahead with divergent bills, states are undermining this federal consensus.
We also face the looming risk of double taxation. If the Central government notifies the CoSS rules tomorrow, will platforms operating in Jharkhand be liable to pay the central levy (capped at 5% of payout) and the state levy (1-2% of turnover)? The laws are silent on this. Such fiscal uncertainty is poison for investor confidence.
The solution is not to abandon the idea of gig worker welfare. It is non-negotiable. However, the mechanism must be sound, and it must be national.
To honour the reality of the digital economy, states must pause their parallel legislative activities. Creating state-specific hurdles defeats the logic of a digital single market. Instead, they cf should work with the Centre to expedite the notification of the CoSS rules, ensuring that the specific needs of their workers are met through the central framework.
Second, governance must be balanced. Welfare Boards, whether central or state-level, must be truly representative, with equal weight given to platform representatives, worker unions, and independent experts rather than being dominated by government appointees who may lack industry expertise. The state must resist the urge to micromanage pricing. The role of the state is to ensure a floor of social protection, not to set the price of a ride from Ranchi Station to Kanke Road.
We need a welfare architecture that is constitutionally coherent, not one that collapses under the weight of its own contradictions.