SBI says new labour codes to lift formalisation, expand social security and boost jobs and consumption

The rollout of India’s four new labour codes is set to raise the formalisation of work, expand social-security coverage, reduce unemployment and deliver a notable consumption boost over the medium term, according to the latest Ecowrap report by Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

The report evaluates the macroeconomic impact of the Codes on Wages, Industrial Relations, Social Security and Occupational Safety and Health, implemented by the government on November 21, 2025.

The Ecowrap notes that the implementation of the new labour codes "will empower both workers and enterprises, building a workforce that is protected, productive and aligned with the evolving world of work — paving the way for a more resilient, competitive and self-reliant nation." It outlines four major quantifiable benefits that are expected to accrue as the codes are operationalised across the economy.

10 Crore Workers Expected to Move from Informal to Formal Payroll

According to the report, approximately 44 crore people currently work in India’s unorganised sector, of which around 31 crore are registered on the government’s e-Shram portal. "By assuming 20% will shift from informal payroll to formal payroll, it will benefit around 10 crore beneficiaries," the Ecowrap states.

This shift, SBI Research estimates, could drive India’s social-security coverage to "80–85% in the next 2/3 years." The report notes that India has already recorded a significant rise in social-security coverage, from 19% of the workforce in 2015 to 64.3% in 2025, as per International Labour Organization (ILO) data. The new codes, it says, represent "the next major step in this trajectory," widening the social-security net further and embedding portability of benefits across states and sectors.

At the same time, the report flags that take-home salaries for some employees may reduce because "retirement benefits will increase," with the wage code mandating that basic salary must constitute at least 50% of cost-to-company (CTC).

Formalisation Rate Expected to Increase to 75.5%

The Ecowrap provides an elasticity-based estimate of the likely rise in formalisation following the implementation of the labour codes. Citing Periodic Labour Force Survey (PLFS) data, it places India’s current share of formal workers at 60.4%, defining formal workers as regular wage or salaried employees with written contracts, eligibility for paid leave and social-security benefits.

Using empirical labour-market studies for developing economies that estimate reform elasticity between 0.20 and 0.30, and applying an elasticity value of 0.25, the report estimates that the labour codes could raise the formalisation rate by 15.1%. “Hence, we believe that post labour laws implementation, based on PLFS data, formalisation is likely to increase to 75.5%," it states.

Implementation of the Codes and Rationale

The four new labour codes, enacted by Parliament between 2019 and 2020, have been implemented by rationalising 29 existing labour laws framed in the pre-independence era. According to the report, "the working conditions have changed, but the labour laws remained obsolete." It says the government has implemented the codes to "move beyond colonial-era structures and align with modern global trends."

The reforms bring in several structural changes, including mandatory appointment letters for all workers, social-security coverage for gig and platform workers, statutory minimum wages for all categories of workers, free annual health check-ups for workers above 40 years, timely payment of wages and flexibility for women to work at night and across establishments, subject to consent and safety norms. The codes also significantly reduce compliance requirements through single registration, a PAN-India single licence and a single return.

Employment Generation of 77 Lakh Expected

The report projects that India’s labour codes could lead to medium-term employment gains once short-run adjustment costs are absorbed. Citing global research, it notes that easing labour-market rigidities could result in a 1.0–2.2% rise in organised-sector employment. Applying this range to India’s current unemployment rate of 3.2%, the Ecowrap presents three scenarios.

In the conservative case, using a lower-bound assumption of a 0.5% employment gain, unemployment could fall by 0.28% to 2.9%. Under the mid-range assumption of a 1% employment increase, unemployment may decline by 0.57% to 2.6%. In the optimistic scenario, applying a 2% gain, unemployment could fall to 1.9%.

Based on a labour-force participation rate of 60.1% and an average working-age population share of 70.7% across rural and urban areas, the report states: "This would imply additional employment generation of 77 lakh people."

Overall, the Ecowrap concludes that India’s new labour codes "after a short transition phase could reduce unemployment by 0.3% to 1.3% over the medium term, depending on reform implementation, firm-level adjustment costs, and complementary state-level rules."

Consumption Boost of ₹75,000 Crore Estimated

The Ecowrap also estimates the likely rise in consumption resulting from increases in minimum wage entitlements. It states that the current minimum wage rate in India is ₹546 per capita per day, while the average wage reported by the ILO stands at ₹451 per day. With the Code on Wages mandating statutory minimum wages for all workers, "disposable income of workers on an average may rise by ₹95 per day post implementation of the labour codes," the report says.

Assuming a saving rate of around 30%, this translates into a consumption increase of ₹66 per person per day. "This could lead to an approx. consumption boost of ₹75,000 crore," it states, adding that the implementation of the labour codes "is poised to give a major boost to consumption as well.”

In a nut-shell

SBI Research concludes that although the new labour codes may raise costs for employers, they will also reduce compliance burdens substantially, with the Industrial Relations Code cutting the number of rules from 105 to 51, forms from 37 to 18 and registers from three to zero. The report views the reforms as an important step that will help India progress toward its long-term economic goals, saying the measures will "spur employment, which will help India to reach Viksit Bharat by 2047."