CNBC’s Inside India newsletter: Tricky labor reset — balancing business interests with worker welfare – CNBC

Report on India’s Labor Code Reforms and Alignment with Sustainable Development Goals

Introduction: A Structural Overhaul for Sustainable Growth

The Government of India has initiated significant labor market reforms, consolidating 29 distinct labor laws into four comprehensive codes. This policy shift represents a strategic effort to balance economic growth with social welfare, directly addressing several United Nations Sustainable Development Goals (SDGs). The reforms aim to modernize a complex legal framework, thereby catalyzing industrialization and attracting investment, which are crucial for achieving India’s long-term economic targets, including its goal of becoming a developed nation with a $10 trillion economy by 2047. The core objective is to create a future-ready ecosystem that supports both economic expansion and worker rights, aligning with the principles of sustainable development.

Advancing SDG 8: Decent Work and Economic Growth

The new labor codes are central to India’s strategy for achieving SDG 8, which promotes sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all.

Fostering Economic Growth and Investment (Target 8.1, 8.2)

The reforms address long-standing issues of labor market rigidity, which have been identified as a significant impediment to industrial growth and economies of scale. By simplifying the legal framework, the government aims to:

• Enhance the ease of doing business to attract greater domestic and foreign investment.
• Boost industrial production and expand domestic manufacturing capabilities.
• Increase economic productivity through diversification and technological upgrading.

Protecting Labor Rights and Promoting Safe Work Environments (Target 8.8)

A primary focus of the reforms is to extend protections to a larger segment of the workforce, particularly those in non-traditional employment arrangements. Key provisions include:

1. Social Security for Gig Workers: For the first time, gig and platform workers will be integrated into the social security system. Startups and aggregators will be required to contribute up to 2% of their turnover to a social security fund for these workers.
2. Parity for Contract Employees: Fixed-term or contract employees will now be entitled to the same statutory benefits—including leave, medical, and social security—as permanent employees.
3. Formalization of the Economy (Target 8.3): The simplification of compliance, such as maintaining registers and filing forms, is expected to encourage millions of enterprises in the informal sector to transition to the formal economy.

A Contentious Balance: Business Flexibility vs. Worker Security

While extending benefits, the codes also introduce measures aimed at increasing flexibility for employers, which have raised concerns among trade unions.

• The threshold for requiring government permission for retrenchment has been raised from 100 to 300 employees, a move intended to give businesses more operational flexibility.
• Procedures for conducting legal strikes have been made more stringent.

This dual approach highlights the inherent challenge in balancing the promotion of a business-friendly environment with the comprehensive protection of labor rights as envisioned in SDG 8.

Addressing Poverty and Inequality (SDG 1 & SDG 10)

Establishing Social Protection Floors (Target 1.3)

The extension of social security benefits to an estimated 23.5 million gig workers by 2030 is a significant step towards establishing national social protection systems. This measure directly contributes to SDG 1 (No Poverty) by providing a crucial safety net for a vulnerable and rapidly growing segment of the workforce.

Reducing Inequality (Target 10.4)

The reforms aim to reduce inequalities by addressing the disparities between the formal and informal sectors. Key measures contributing to SDG 10 include:

• National Minimum Wage: The wage code mandates the central government to fix a minimum base wage, providing a floor for states to build upon. This policy is designed to ensure a basic standard of living and adopt fiscal policies that progressively achieve greater equality.
• Equal Benefits: By mandating equal benefits for fixed-term and permanent workers, the codes address a key source of inequality within the organized workforce.

Implementation and Economic Impact

State-Level Dynamics and Operational Costs

The implementation of the labor codes will be a collaborative effort between the central and state governments, with states retaining significant power to frame operational rules. This could lead to a competitive environment among states to attract investment. However, businesses may face initial challenges and increased costs.

1. Increased Operational Costs: Companies reliant on gig workers (e.g., e-commerce, delivery services) and fixed-term employees (e.g., manufacturing, construction) anticipate higher labor costs due to mandatory social security contributions and benefits. Some estimates project a 5%-10% increase in baseline labor costs.
2. Potential for Productivity Gains: The increased flexibility in workforce management, including provisions for longer shift options and smoother exit thresholds, may lead to productivity gains that could partially offset the rise in costs.
3. Transitory Administrative Hurdles: The variation in rules across states may create initial administrative complexities for employers operating in multiple jurisdictions.

SDGs, Targets, and Indicators Analysis

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on India’s labor reforms addresses several Sustainable Development Goals (SDGs) by focusing on economic growth, industrialization, worker welfare, and institutional improvements. The following SDGs are relevant:

• SDG 8: Decent Work and Economic Growth: The core of the article revolves around reforming labor laws to boost economic growth, attract investment, and formalize work for millions, while also addressing worker rights and social protection.
• SDG 9: Industry, Innovation, and Infrastructure: The reforms are explicitly mentioned as a measure to “catalyze industrialization,” “ramp up industrial production,” and attract investments from global companies to expand manufacturing in India.
• SDG 10: Reduced Inequalities: The article highlights that the new codes aim to reduce disparities by providing social security benefits to previously unprotected gig workers and ensuring contract employees receive benefits comparable to permanent workers.
• SDG 16: Peace, Justice, and Strong Institutions: The reform itself, which consolidates a “complex web of labor laws” (29 laws into 4 codes), represents a significant effort to build more effective, transparent, and accountable institutions by simplifying compliance and reducing bureaucracy.

2. What specific targets under those SDGs can be identified based on the article’s content?

SDG 8: Decent Work and Economic Growth

• Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries.
  • Explanation: The article mentions India’s ambition to become a “$10 trillion economy, by 2047” and its status as the “world’s fastest growing economy,” directly linking the labor reforms to sustaining high economic growth.
• Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.
  • Explanation: The reforms address this by establishing a national “minimum base rate” for wages and ensuring that fixed-term or contract employees “qualify for benefits available to permanent workers,” promoting fairer employment conditions.
• Target 8.8: Protect labour rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment.
  • Explanation: A central theme is balancing business interests with “employee welfare.” The article states that gig workers, who previously had “no employment protection or social welfare,” will now gain access to “social security benefits,” directly addressing precarious employment.

SDG 9: Industry, Innovation, and Infrastructure

• Target 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries.
  • Explanation: The article explicitly states that the labor reform is “expected to catalyze industrialization and attract more investments.” It notes that easing “rigid labor laws” is necessary for global companies to “expand domestic manufacturing in India.”

SDG 10: Reduced Inequalities

• Target 10.4: Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality.
  • Explanation: The new policy mandates that startups “allocate up to 2% of their turnover toward building a social security net” for gig workers. This, along with the introduction of a minimum wage and benefits for contract workers, is a direct social protection policy aimed at reducing income inequality.

SDG 16: Peace, Justice, and Strong Institutions

• Target 16.6: Develop effective, accountable and transparent institutions at all levels.
  • Explanation: The reform is described as “consolidating 29 separate labor laws into four comprehensive codes.” This action simplifies a “complex web of labor laws” and is intended to reduce the “tyranny of a corrupt and rent-seeking bureaucracy,” thereby creating a more effective and transparent legal framework for labor.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

SDG 8: Decent Work and Economic Growth

• Indicator 8.1.1 (Annual growth rate of real GDP per capita): This is implied by the article’s reference to India being the “world’s fastest growing economy” and its goal to become a “$10 trillion economy.” Tracking GDP growth is a clear measure of progress.
• Indicator 8.8.2 (Level of national compliance with labour rights…): The extension of “social security benefits” and “employment protection” to gig and contract workers is a direct measure of improving compliance with labor rights for those in precarious employment.

SDG 9: Industry, Innovation, and Infrastructure

• Indicator 9.2.1 (Manufacturing value added as a proportion of GDP and per capita): Progress towards the goal of catalyzing “industrialization” and expanding “domestic manufacturing” would be measured by the growth in the manufacturing sector’s contribution to the national economy.

SDG 10: Reduced Inequalities

• Indicator 10.4.1 (Labour share of GDP, comprising wages and social protection transfers): The article mentions a specific, measurable policy: startups will be “required to allocate up to 2% of their turnover toward building a social security net for these workers.” This contribution is a direct social protection transfer that can be tracked.

SDG 16: Peace, Justice, and Strong Institutions

• Qualitative Indicator for Target 16.6: The article provides a direct indicator of institutional reform: the reduction of 29 separate laws into 4 codes. The success of this can be measured by the “ease of maintaining registers and filling forms,” which the article notes will reduce bureaucracy.

4. Create a table with three columns titled ‘SDGs, Targets and Indicators” to present the findings from analyzing the article.

Source: cnbc.com