Four Labour Codes, One Unanswered Question: What Happens to India's Informal Majority

When Parliament passed the last of the four labour codes in 2020, consolidating 29 separate central laws into the Code on Wages, the Industrial Relations Code, the Code on Social Security and the Occupational Safety, Health and Working Conditions Code, the government presented it as the most significant overhaul of India's labour architecture since independence. Five years on, most states have still not notified the rules needed to operationalise the codes, and the exercise remains suspended between legislative accomplishment and administrative reality. That gap matters less for what it says about bureaucratic delay than for what it reveals about the codes' fundamental limitation: they were written primarily with the formal, factory-floor workforce in mind, in a country where that workforce is a shrinking minority.

Periodic Labour Force Survey data has consistently shown that roughly nine in every ten Indian workers are employed informally, whether in unregistered enterprises, as casual daily wage labour, or in self-employment without any written contract, provident fund coverage or grievance mechanism. For this workforce, the fierce political battles over the Industrial Relations Code's threshold for retrenchment without government permission, raised from 100 to 300 employees, are close to irrelevant. Most of them do not work in establishments anywhere near that size, and many do not work in establishments at all in any conventional sense.

What the codes actually change

The Code on Wages does extend a statutory floor wage concept to all workers regardless of sector, which is a genuine expansion beyond the earlier Minimum Wages Act's sector-specific schedules. The Code on Social Security, similarly, for the first time creates a legal framework for extending social security, however thin in practice, to gig and platform workers, defining aggregators like ride-hailing and delivery platforms as entities with some contributory obligation toward a welfare fund. This was a meaningful conceptual step, the first time Indian labour law acknowledged that a driver working through an app is a worker deserving some protection even without being anyone's direct employee.

The trouble lies in the distance between the statute and the fund. The social security code envisions contributions from aggregators, state governments and the centre flowing into welfare boards, but the contribution rates, the registration mechanism for workers to claim benefits, and the administrative capacity to run this at national scale remain underdeveloped years after the code's passage. Karnataka and Rajasthan have moved ahead independently with their own gig worker welfare legislation, in some ways overtaking the central framework, which has created exactly the kind of regulatory patchwork the codification exercise was meant to eliminate.

The employer argument and its limits

Industry bodies have argued, not without justification, that Indian labour law before the codes was genuinely dysfunctional, an accumulation of overlapping, sometimes contradictory statutes that made compliance a specialised legal exercise even for well-intentioned employers and gave inspectors enormous discretionary power that too often became a vehicle for rent-seeking rather than worker protection. Simplification and single registration processes, digitised compliance, and the alignment of definitions across the four codes are real efficiency gains that reduce the cost of formal employment, and economic theory suggests that lower compliance costs at the margin should, other things equal, encourage more firms to hire formally rather than stay small and informal to avoid the old law's reach.

But this argument, however sound in principle, has an unresolved empirical problem: five years after passage, there is no rigorous evidence yet of the promised formalisation effect, partly because full implementation has not happened, and partly because informality in India has deeper roots than labour law complexity alone, including tax avoidance incentives, weak enforcement capacity, and the working capital advantages that come from staying below regulatory thresholds. A restaurant owner who keeps staff strength under twenty to avoid factory-style obligations is responding to a bundle of incentives that a cleaner labour code alone does not dissolve.

Trade unions and the retrenchment threshold fight

The loudest political battle over the codes, the raised threshold for layoff and closure permissions under the Industrial Relations Code, has consumed disproportionate attention relative to its coverage. Central trade unions, including those aligned with the Congress and the Left as well as the RSS-affiliated Bharatiya Mazdoor Sangh, have variously opposed provisions they see as weakening job security, and several states with non-BJP governments delayed notifying rules partly out of this political resistance. The substantive objection, that a higher threshold makes it easier for larger firms to retrench workers without government scrutiny, is legitimate for the roughly ten percent of the workforce in establishments of that scale. It says nothing about the much larger population working in ten-person workshops or as informal contract labour, who never had the protection being debated in the first place and will not gain any from its removal or retention either way.

Migrant and platform workers, the codes' real test

The most consequential real-world test for the codes going forward is not the large-factory threshold debate at all, but whether the social security architecture can be built out fast enough to reach interstate migrant workers and platform-based gig workers, two categories whose vulnerability was thrown into sharp relief during the 2020 pandemic lockdown, when millions of migrant labourers found themselves without wages, shelter or any institutional safety net during the long walk home. The codes introduced a national database requirement, the e-Shram portal, meant to register unorganised workers so that welfare benefits could eventually be targeted at them directly. Registration numbers on e-Shram have crossed thirty crore, an administratively impressive figure, but registration is not the same as entitlement, and most registered workers still cannot point to a specific new benefit flowing from their listing.

What would make the reform real

For the labour codes to matter for the workforce that actually needs protection, three things need to happen that have not yet happened at scale. States need to notify rules and build the inspection and grievance infrastructure to enforce the wage floor for informal workers, not merely formal ones. The social security fund for gig and platform workers needs an actual contribution mechanism with enforceable rates, rather than an enabling provision awaiting political consensus on how much aggregators should pay. And the e-Shram database needs to be linked to functioning benefit delivery, whether health insurance, maternity benefit or old-age pension, so that registration converts into something a worker can use in a moment of need.

None of this is technically impossible; India has built comparably ambitious digital public infrastructure before, from the unified payments interface to Aadhaar-linked direct benefit transfer. What is missing is the same political urgency that produced the codification exercise itself, now redirected toward the harder, less headline-friendly work of making the promise reach the ninety percent it was, on paper, always meant to include.