Labor code rollout to generate 7.7 million jobs, boost consumption by ₹75,000 crore: Report

New Delhi (The Uttam Hindu): India's new labor codes will be effective in reducing unemployment by 1.3 percent in the medium term after a short transition phase, according to an SBI report released on Tuesday. However, this impact will depend on factors such as the implementation of the reforms, firm-level adjustment costs, and complementary state-level regulations.

This would mean that, based on the current labor force participation rate of 60.1 percent and the average working-age population in the urban and rural workforce at 70.7 percent, this move would create additional employment for 7.7 million people. Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India, said, “With a savings rate of around 30 percent, the implementation of the new rules will increase consumption by ₹66 per person per day. This will increase consumption by ₹75,000 crore. Therefore, the labor code is considered a significant contributor to increasing consumption.”

The report states that the implementation of the new labor code will empower both employees and enterprises and create a workforce that will pave the way for India to become a strong and competitive, self-reliant nation. India has 440 million people working in the unorganized sector, of which 310 million are registered on the e-Shram portal. If we assume that 20 percent of people shift from informal payrolls to formal payrolls, this will benefit approximately 100 million people. With this, we believe that India's social security coverage penetration will reach 80 to 85 percent in the next 2-3 years.

"According to the PLFS dataset, the participation of formal workers in India is 60.4 percent. We believe that the formalization rate will increase by 15.1 percent after the implementation of the new labor codes, leading to labor market formalization of 75.5 percent," the report said.