India’s revised labour laws fail to address a silent crisis. They leave countless workers vulnerable to job losses

The praise is well deserved. According to the Periodic Labour Force Survey, India’s workforce size is roughly 560 million, and more than 90% of all workers are engaged in informal employment, whether they work in the formal or informal sectors.

Further, around 79% of the workforce is employed in the unorganized sector, highlighting the scale of vulnerability among workers with limited social protection.

The simplification of compliance norms and the consolidation of 29 central laws under the four labour codes are, therefore, expected to benefit a substantial portion of this informal and unorganized workforce.

But did the government miss out on certain aspects that could have made these codes more comprehensive, keeping in mind the evolving demands and requirements of today’s workforce?

A recent Niti Aayog report states that the services sector contributes more than 50% to India’s gross value added (GVA) and accounts for 30% of total employment.

Yet, the four labour codes, although meant for all industries, overlook the demands of a service sector that is characterized by market uncertainty, widespread informality and poor job quality.

To be sure, there has been some consideration given. For example, the recognition of gig and platform workers and the proposed mandate of 1-2% of annual turnover for social security. These are progressive steps.

Yet, there seem to be major gaps that remain unaddressed when it comes to the plight of the service-sector employees, such as those working in information technology (IT) and information technology enabled services (ITeS).

In July, one of the largest IT companies laid off 12,000 employees despite no reported job performance issues. In January last year, a leading e-commerce company laid off 400 employees. According to media reports, this was done to facilitate an initial public offering (IPO) that the organization was planning. These are not isolated cases. Such occurrences have become a regular affair in India.

To remain competitive, organizations often resort to laying off many employees. Such layoffs, apart from hurting the mental well-being and confidence of the affected employees, often plunges them and their near-and-dear into an abyss of financial uncertainty.

The standard practice in organizations in India is to give a one-month pay severance package, and for middle-level onwards, a three-month pay package. Given the difficulty of finding a new job, there is hardly any option left for employees but to dip into their savings and continue looking for an opportunity.

A cursory glance across job portals can throw some light on the regularity and desperation of such requests.

The labour codes mention that layoffs in factories, mines and plantations above 300 workers need prior government approval, but remain silent regarding mass layoffs in IT/ITeS and e-commerce, which often resort to such practices.

In India, the industry has embraced the principles of productivity and competitiveness based on successful models of the developed world. The shining examples of the US, Germany and other advanced economies are often cited.

However, what’s not spoken is that in India, social-security benefits are highly inadequate for a large section of employees in situations such as layoffs. In mass layoffs or workforce restructuring, workers would have greatly benefited from the availability of unemployment insurance.

In most developed nations, unemployment protection, including unemployment insurance or unemployment assistance, is a standard and legally mandated feature of labour policy. These systems provide temporary income support, reskilling opportunities and reintegration pathways, cushioning the shock of job loss and preventing households from slipping into poverty.

Countries such as Germany, the US, France and Japan operate robust unemployment benefit systems, with clear rules for eligibility, duration and contribution-sharing between employers and employees.

Research consistently shows that such mechanisms not only protect workers but also improve labour-market stability, strengthen consumer demand during downturns and support faster economic recovery.

In India, what is available under the Atal Beemit Vyakti Kalyan Yojana (ABVKY) for employees covered under the ESIC Act is grossly inadequate and suboptimal. It leaves a large vulnerable section of employees uncovered and exposes them to the precarity associated with the stigma of sudden unemployment.

The question then arises: Could India’s new labour codes have incorporated such a crucial safety net for millions of workers who remain just one corporate restructuring away from financial vulnerability?

Organizations at times are myopic and it is the government’s role to nudge organizations to maintain a balance between their objectives and employee well-being. As India marches towards the vision of a Viksit Bharat by 2047, the services sector can be the bulwark for it to do so.

But without adequate unemployment protection or fair and transparent safeguards, millions of employees in the service-sector would remain vulnerable to corporate restructuring.

The labour codes have perhaps corrected structural gaps of the past, but they may have missed out on some opportunities to future-proof the modern Indian workforce.

The authors are, respectively, professor of practice at NMIMS, Mumbai; associate professor at Indian Institute of Management, Nagpur; and independent director at Kokuyo Camlin Ltd.