India’s Labour Codes: A New Engine for Jobs and Growth

India’s Labour Codes: A New Engine for Jobs and Growth

DIPAK KURMI

 Maila Aanchal lies in its prophetic understanding of how idealistic politics—promises of equality, justice, and people’s power—crumble against entrenched hierarchies and transactional governance. The recent Bihar elections crystallized this tension when a promise to provide government jobs to every family was dismissed as financially implausible, requiring five times the state’s annual budget. Yet this dismissal, delivered with patronizing certainty by dynastic politicians more comfortable ruling than governing, inadvertently highlighted a fundamental truth: backward states cannot subsidize their way to prosperity through public sector employment alone. They require transformative policies that catalyze private sector job creation at scale.

Bihar’s employment paradox defies simplistic analysis. Since 1991, the state’s unemployment rate has fluctuated within a narrow band of three to ten percent, figures that might suggest economic health to the uninitiated. However, unemployment statistics obscure more than they reveal in contexts like Bihar. The real crisis manifests in employed poverty, where individuals labor without earning enough to escape deprivation, and unviable self-employment, a euphemism for self-exploitation where people create their own jobs not from entrepreneurial aspiration but from desperate necessity. The state suffers from an acute shortage of high-productivity employers, evidenced by stark statistics: only five listed companies call Bihar home, merely 9,217 employers contribute to the Employees’ State Insurance scheme, and a staggering ninety-nine percent of micro, small, and medium enterprises remain classified as micro-scale operations.

The sectoral composition of Bihar’s economy tells an equally troubling story. Fifty-four percent of the workforce remains tethered to agriculture, a sector characterized by low productivity and seasonal volatility. Manufacturing, the traditional engine of industrialization and middle-class job creation, employs only five percent of Bihar’s workers. Financial services engage half a percent, technology absorbs four-tenths of a percent, and modern retail and pharmaceutical sectors together account for less than one percent of employment. These figures reveal an economy structurally frozen in time, where the flow of new jobs since economic liberalization in 1991 has failed to alter the fundamental stock of employment opportunities that existed in 1961.

Contrast this stagnation with the dynamism visible in other Indian states. Karnataka transformed its economic DNA by growing software services from five percent of state GDP in 1991 to an extraordinary sixty-three percent today, creating a technology ecosystem that rivals global hubs. Tamil Nadu expanded manufacturing’s share of state output from seven percent in 1991 to thirty-four percent currently, establishing itself as a preferred destination for automotive, textile, and electronics production. These transformations did not occur through government spending alone but through policies that simplified doing business and made states attractive to high-productivity, high-wage employers. India now produces half the medicines consumed in America and exports more software than Saudi Arabia exports oil—achievements driven predominantly by private sector dynamism operating within enabling policy frameworks.

The newly notified labour codes represent precisely such an enabling framework, consolidating twenty-nine separate Acts into four comprehensive codes. This consolidation achieves remarkable simplification: reducing 1,228 sections to 480, shrinking 1,436 rules to 351, collapsing 84 mandatory registers to eight, merging 31 returns into one, combining eight registers into one, and unifying four separate licenses into a single authorization. Beyond numerical reduction, the codes decriminalize sixty-five sections that previously weaponized compliance requirements, transforming regulatory infractions from criminal matters to administrative ones. This shift fundamentally alters the relationship between employers and the state, replacing fear with trust as the foundation of regulatory engagement.

The codes extend social security coverage to gig economy workers and those in the unorganized sector, populations previously excluded from formal protections. They eliminate anachronistic restrictions on women’s employment that reflected outdated paternalism rather than contemporary realities. For inter-state migrant workers—a particularly vulnerable population in Bihar’s context—the codes enable portability of benefits, ensuring that employment protections travel with workers rather than evaporating at state boundaries. Corruption, the corrosive element that undermines even well-intentioned regulations, receives targeted attention through provisions addressing multiple conflicting definitions of fundamental terms like wages, employee, and worker; eliminating requirements for mandatory physical records in an increasingly digital age; extending license durations to reduce opportunities for rent-seeking; requiring notice before prosecution; randomizing inspections to prevent targeted harassment; imposing time limitations on inquiries into past matters; restricting arbitrary reopening of closed cases; and reducing the Employees’ Provident Fund Organization’s appeal deposit requirement from a prohibitive seventy-five percent to more reasonable levels.

India’s labour laws have functioned as regulatory cholesterol, clogging the arteries of job creation and economic mobility. They disproportionately harmed small employers lacking the networks, financial resources, and political connections available to large corporations. They contributed to India’s failure to capture manufacturing jobs fleeing China’s rising costs, directing those opportunities instead toward Vietnam, Bangladesh, and other competitors. They consigned fifty percent of India’s labor force to marginal self-employment or low-productivity farm work. Perhaps most corrosively, they bred cynicism about the rule of law itself, as yawning gaps between written law, official interpretation, actual practice, and selective enforcement created infinite opportunities for corruption. Labour inspectors could credibly paraphrase Stalin’s infamous boast: “Show me the company and I will show you the crime.”

Trade unions, representing primarily older workers with formal employment, maintained vested interests in preserving the previous regime despite its failure to serve younger workers seeking entry into formal employment. This organized labour aristocracy, though vocal, represents a shrinking demographic in a nation where sixty-five percent of the population is below thirty-five years old. Their self-interest cannot substitute for national interest when millions of young Indians require pathways to productive work.

The new codes grant states substantial discretion in rule-making, acknowledging India’s vast internal diversity. Per capita incomes vary tenfold between the richest and poorest states—greater disparities than China’s fourfold variation, Europe’s threefold differences, or America’s twofold range. Historical precedent demonstrates state-level flexibility matters: while the Central Factories Act has been amended merely three times since independence—in 1954, 1976, and 1987—various state-administered Shops and Establishment Acts have accumulated over 1,900 amendments, with Maharashtra alone accounting for more than 180 revisions.

The labour codes are not perfect; ideally, consolidation would produce one code rather than four. However, they represent monumental progress toward making India a hospitable environment for quality job creation. They preview a legislative future where regulatory cholesterol yields to trust-based governance, abandoning ineffective criminal deterrents, replacing prior approvals with perpetual self-registration, acknowledging that unenforceable regulations breed corruption, accepting that everything is permitted unless explicitly prohibited, and recognizing that excessive process punishes only the innocent. This regulatory philosophy restricts the administrative state to two transparent instruments: Acts passed by Parliament and Rules notified in official gazettes, eliminating the proliferation of guidelines, circulars, orders, regulations, directions, notes, and policies that previously diminished accountability, bred discretion, and undermined legal certainty.

States attracting the fifty million good jobs likely available over the next decade will adopt a worm’s eye view rather than a bird’s eye perspective, examining the daily realities facing employers and removing friction points that discourage investment. As the television series Maharani dramatizes through a fictional Bihar Chief Minister’s anger at Delhi for not granting “special status” as a solution to catching up with Karnataka, Maharashtra, and Tamil Nadu, backward states face a choice. They can continue demanding special treatment while keeping their faces dusty, or they can clean their faces by implementing reforms like the labour codes that create genuine competitive advantages. The notification of labour codes offers Bihar and similar states not a panacea but something more valuable: agency over their economic destinies.

(The writer can be reached at dipakkurmiglpltd@gmail.com)