India’s new labour codes, which consolidated 29 existing labour laws into four comprehensive codes, could reduce unemployment by up to 1.3 percent over the medium term, according to a State Bank of India report released recently. The reforms came into effect on November 21, 2025.
Employment Generation Projections
The SBI report projects that the labour reforms could generate employment for approximately 7.7 million (77 lakh) additional workers. This assessment is calculated based on the current labour force participation rate of 60.1 percent for individuals aged 15 years and above, and an average working-age population of 70.7 percent across rural and urban areas.
The report stated: “India’s new Labour Codes after a short transition phase could reduce unemployment by upto 1.3 per cent over the medium term. This would imply additional employment generation of 77 lakh people.”
Formalisation and Social Security Coverage
According to the analysis, implementation of the labour codes will increase formalisation in the workforce by at least 15 percent. This would raise the proportion of formal workers to 75.5 percent from the current estimated 60.4 percent, based on Periodic Labour Force Survey (PLFS) data.
The report indicates that social sector coverage could expand to 85 percent, with overall social security coverage expected to reach 80-85 percent within the next 2-3 years.
Impact on Unorganised Sector Workers
India currently has approximately 440 million workers in the unorganised sector, with nearly 310 million registered on the e-Shram portal. The report assumes that 20 percent of these workers could transition from informal to formal payroll, directly benefiting around 100 million individuals through improved job security, social protection, and formal employment benefits.
Economic Implications
With an assumed savings rate of approximately 30 percent, the reforms could increase consumption by around Rs 66 per person daily following implementation. The report projects this would result in an overall consumption boost of Rs 75,000 crore over the medium term, potentially stimulating domestic spending and economic growth.
Four Labour Codes
The reforms merged existing legislation into four codes: The Code on Wages, 2019; The Code on Social Security, 2020; The Occupational Safety, Health and Working Conditions Code, 2020; and The Industrial Relations Code, 2020. These codes aim to simplify labour regulations and improve workplace governance for both workers and enterprises.
