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Chapter # 2.Employment and Labour Reforms


  • Complete codification of central labour laws into four codes by 2019.
  • Increase female labour force participation to at least 30 per cent by 2022-23.
  • Disseminate publicly available data, collected through rigorous household and enterprise surveys and innovative use of administrative data on a quarterly basis by 2022-23.
  • Encourage increased formalization of the labour force by reforming labour laws, easing of industrial relations and ensuring of fair wages, working conditions and social security through significant productivity improvements in the economy.

Current Situation

To capitalize on its demographic dividend, India must create well-paying, high productivity jobs. Of India’s total workforce of about 52 crore, agriculture employed nearly 49 per cent while contributing only 15 per cent of the GVA. Comprehensive modernization of agriculture and allied sectors are needed urgently. In contrast, only about 29 per cent of China’s workforce was employed in agriculture (Figure 2.1).1 Industry and services accounted for 13.7 and 37.5 per cent of employment while making up for 23 per cent and 62 per cent of GVA, respectively.2

A significant number of workers, currently employed in agriculture, will move out in search of jobs in other areas. This will be in addition to the new entrants to the labour force as a result of population growth. By some estimates, the Indian economy will need to generate nearly 70 lakh jobs annually to absorb the net addition to the workforce. Taking into account the shift of labour force from low productivity employment, 80-90 lakhs new jobs will be needed in the coming years.

Micro and small-sized firms as well as informal sector firms dominate the employment landscape in India. As per the National Sample Survey (NSS) 73rd round, for the period 2015-16, there were 6.34 crore unincorporated non-agricultural micro, small and medium enterprises (MSMEs) in the country engaged in different economic activities providing employment to 11.10 crore workers. A large majority of these firms are in the unorganized sector. By some estimates, India’s informal sector employs approximately 85 per cent of all workers.3

India also exhibits a low and declining female labour force participation rate. The female labour force participation rate in India was 23.7 per cent in 2011-124 compared to 61 per cent in China, 56 per cent in the United States.5

Recognizing the high cost of compliance with existing labour regulations and the complexity generated by various labour laws at the central and state levels, the central government has recently introduced policies to make compliance easier and more effective. They are also simplifying and rationalizing the large and often overlapping number of labour laws. These measures include moving licensing and compliance processes online, simplifying procedures and permitting self-certification in larger number of areas. One of the government’s key initiatives is to rationalize 38 central labour laws into four codes, namely wages, safety and working conditions, industrial relations, and social security and welfare. Of the four codes, the one on wages has been introduced in the Lok Sabha and is under examination. The other three codes are at the pre-legislative consultation stage and should be completed urgently.

The government has put in place several schemes to help generate employment. These include the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), MUDRA Yojana, Prime Minister’s Employment Generation Programme and Pradhan Mantri Rojgar Protsahan Yojana. Additional initiatives aid job creation through providing skill development, easing access to credit and addressing sector specific constraints. The government also made the EPFO premium portable so that workers can change jobs without fear of losing their provident fund benefits.

The government has recently made publicly available the data on employment collected by the Employment Provident Fund Organization (EPFO), Employees’ State Insurance Corporation (ESIC) and National Pension Scheme (NPS). With MOSPI collecting employment data through its enterprises and household surveys – particularly the Periodic Labour Force Survey – and the focus on improving payroll data, the effort is to vastly improve availability of reliable employment data and release it on a regular basis.


  • Productivity across all sectors. A large share of India’s workforce is employed in low productivity activities with low levels remuneration. This is especially true of the informal sector where wages can be one twentieth of those in firms producing the same goods or services but in the formal sector.6
  • Protection and social security. A large number of workers that are engaged in the unorganized sector are not covered by labour regulations and social security. This dualistic nature of the labour market in India may be a result of the complex and large number of labour laws that make compliance very costly. In 2016, there were 44 labour laws under the statute of the central government. More than 100 laws fall under the jurisdiction of state governments.7 The multiplicity and complexity of laws makes compliance and enforcement difficult.
  • Skills. According to the India Skill Report 2018, only 47 per cent of those coming out of higher educational institutions are employable.8
  • Employment data. We currently lack timely and periodic estimates of the work force. This lack of data prevents us from rigorously monitoring the employment situation and assessing the impact of various interventions to create jobs.

Way Forward

  1. Enhance skills and apprenticeships
  • The Labour Market Information System (LMIS) is important for identifying skill shortages, training needs and employment created. The LMIS should be made functional urgently.
  • Ensure the wider use of apprenticeship programmes by all enterprises. This may require an enhancement of the stipend amount paid by the government for sharing the costs of apprenticeships with employers
  1. Labour law reforms
  • Complete the codification of labour laws at the earliest.
  • Simplify and modify labour laws applicable to the formal sector to introduce an optimum combination of flexibility and security.
  • Make the compliance of working conditions regulations more effective and transparent.
  • The National Policy for Domestic Workers needs to be brought in at the earliest to recognize their rights and promote better working conditions.
  1. Enhance female labour force participation
  • Ensure the implementation of and employers’ adherence to the recently passed Maternity Benefit (Amendment) Act, 2017, and the Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressal) Act. It is also important to ensure implementation of these legislations in the informal sector. Further details may be found in the chapter on Gender.
  • Ensure that skills training programmes and apprenticeships include women.
  1. Improve data collection on employment 
  • Ensure that data collection for the Periodic Labour Force Survey (PFLS) of households initiated in April 2017 is completed as per schedule and data disseminated by 2019.
  • Conduct an annual enterprise survey using the goods and service tax network (GSTN) as the sample frame.
  • Increase the use of administrative data viz. EPFO, ESIC and the NPS to track regularly the state of employment while adjusting for the formalization of the workforce.

     5.   Ease industrial relations to encourage formalization

  • Increase severance pay, in line with global best practices.
  • Overhaul the labour dispute resolution system to resolve disputes quickly, efficiently, fairly and at low cost.
  • Strengthen labour courts/tribunals for timely dispute resolution and set a time frame for different disputes.
  1. Wages
  • Make compliance with the national floor level minimum wage mandatory.
  • Expand the Minimum Wages Act, 1948, to cover all jobs.
  • Enforce the payment of wages through cheque or Aadhaar-enabled payments for all.

      7.Working conditions and social security

  • Enact a comprehensive occupational health and safety legislation based on risk assessment, employer-worker co-operation, and effective educational, remedial and sanctioning. Workers housing on site will help to improve global competitiveness of Indian industry, along with enhancing workers’ welfare.
  • Enhance occupational safety and health (OSH) in the informal sector through capacity building and targeted programmes.
  • Ensure compulsory registration of all establishments to ensure better monitoring of occupational safety as well as recreation and sanitation facilities.
  • Enhance transparency in the labour inspection system by allowing online complaints and putting in place a standardized and clear mechanism.

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