ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Dissecting the Draft Labour Code on Social Security, 2018

Arundhati Char ( is a public health specialist at the Centre for Health Policy, Asian Development Research Institute, Patna. Barna Ganguli ( and Bakshi Amit Kumar Sinha ( are with the Centre for Economic Policy and Public Finance, Asian Development Research Institute, Patna.

While the draft Labour Code on Social Security, 2018 tries to cover over 90% unorganised workers, it still has some issues that need to be addressed.

The authors acknowledge the contributions of Vikash Ranjan Keshri, Apurva Srishti, and Manish Prasad from Asian Development Research Institute, Patna.

Part IV of the Indian Constitution delineates the “Directive Principles of State Policy” under Article 41 which states that

The State shall, within the limits of its economic capacity and development, make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want.

The union government has taken a number of strides towards formalisation of the Indian economy. Apart from demonetisation and goods and services tax, the draft Labour Code on Social Security, 2018, will be a step towards formalisation and socio-economic reform. The Planning Commission had emphasised in the EleventhFive Year Plan that

There is a need for an inclusive social security system for more than 91% of India’s workforce which consists of informal workers working either in the unorganised sector (85%) or in the organised formal sector (6%).

The social security schemes in India have been provided through different channels and modes. The schemes relate to pension, dependent benefit, disablement benefit, sickness benefit, maternity benefit, medical benefit, unemployment benefit, provident fund benefit and international worker pension. It has many administrative and financial complexities, including identification of beneficiary, execution, monitoring, evaluation and so on. In this context, “One Nation One Labour Code” is long overdue. The proposed code follows the decentralised method through the three-tier social security administration structure—national social security council and central board of social security at the union level, state board of social security at state level and panchayati raj institutions (PRIs) and urban local bodies (ULBs) at the local government level—with tripartite representation of workers, employers and government.

An unequal and diverse population necessitates that the financial principle should focus on equity and not equality. The equality principle may put a burden on the poorer regions as they are less resourceful on one hand and more unorganised on the other. Thus, the article comments on administrative and financial aspects of the proposed labour code.

Administrative Challenges

The proposed code seems to attempt two important aspects. First, amalgamation of all 15 existing acts related to social security in India, and universalisation of social security provisions for the entire working-class population, including wage earners and self-employed. The success of the scheme requires the active support and involvement of both employers and employees.

Establishment of an exclusive social security organisation: The creation of a cadre of Indian social security services is similar to creating another vertical bureaucratic structure like the Indian Administrative Service. It is not known how officers currently serving in the labour department of each state will be positioned within the new structure. Further, establishment of new institutions such as the national social security council, central and state boards does not include any role for trade unions, in the context of negotiation for workers’ rights and benefits, which is restricted to providing legal representation for workers. Also, out of the total of 21 members of the national council, only three are employee representatives, as opposed to higher numbers in existing statutory bodies under the labour laws that this draft labour code seeks to repeal. It must also be noted that the gender balance in respect of members in the various statutory bodies is weak at best, with no specific mention of the proportion of women to be inducted.

The proposed solution could be to provide trade unions a wider role to realise right to information and collective bargaining for profit-sharing. Further, the numbers of employees’ representatives should be increased in all committees and bodies to be constituted under this code. These provisions exist in the current statute and it will be unreasonable to restrict the rights and role of trade unions with this new law. This will also facilitate an environment that fosters democratic participation in decision- making. The numbers of women representatives should be increased to promote gender equality.

It is well known that the issue of social security falls in the concurrent list of the Constitution, enabling both union and state governments to legislate on this. The diverse socio-demographic and economic development of Indian states necessitates different approaches. The draft code, which mandates the dissolution of all currently functioning social security organisations in order to replace them with a three-tier structure of national-, state- and district-level councils, headed by the Prime Minister, will have regulatory and guiding roles. However, this may not be in the best interest of individual states. It should also include a provision that grants some autonomy to states.

Beneficiary identification, inclusion and coverage: India, with a population of about 1.2 billion, has over 21.9% people belonging to the below poverty line (BPL) category, who are the primary beneficiaries of the uniform social security scheme. The youth population, aged 15–29, is 27.5% (Census 2011). The total number of workers (aged 15+), is around 537.4 million, and the per capita income is ₹ 82,269 (2016–17). Also, about 10.4 million of the population comprise of those who are aged above 60 years (Census 2011). Therefore, targeted initiatives for the welfare of labour as well as old, disabled persons and women are essential.

The idea is to “leave no one behind” and get everyone within its fold. However, there are some specific vulnerable populations, such as men and women in sex work, beggars or homeless persons, who are not included. Recognition of such groups through special registration would be important. Further, with regard to the unorganised sector, there is no provision for housewives from the targeted socio-economic strata of society, essentially in the SEC–4 (socio-economic category) segment. There is an urgent need to recognise homemakers as unemployed persons. From the draft code, clearly, the term “employee” refers to persons who are employed for remuneration, whether in kind or cash. Homemakers or housewives should be looked at as contributing to the progress of the household, but currently are not compensated for their efforts, since they do not have a “source of income.” This will also encourage empowerment of women and have repercussions on several gender biases prevailing in the society. Another group that is mostly ignored is the transgender community. The Census 2011 estimates the number of transgender persons to be around five lakh. Although the community has won the legal battle of being identified as the third gender, they continue to face social stigma and isolation. It would be imperative for the act to include this often isolated group, so that they would benefit from the social security code.

The draft labour code focuses on providing social security to all labourers. However, the framework on coverage and registration of workers is not contextualised, that is, based on socio-economic conditions in different states, but is uniform across all the states. This may not fulfil the criteria of “universal coverage,” especially for poor states like Bihar and Uttar Pradesh, where coverage of existing social security schemes for workers itself is very narrow. As per Census 2011, around 71% of the total households in rural Bihar earn their livelihood as manual casual labourers, as against the national average of 51%. Hence, registration of manual casual labourers under the social security schemes will be a huge challenge for resource-constrained states. The draft labour code mentions that the state/central government will contribute on behalf of the weak/marginalised sections of the society. But the code should also mention the criteria for administrative contribution. Specifically, the role of the state and union cadre along with a separate cadre related to implementing the social security act should be made clear.

Making the registration Aadhaar-based, has its own set of challenges, since even today many citizens from the vulnerable and poor segments of the society are not eligible for an Aadhaar number due to lack of permanent address as proof of residence. Under such circumstances, an alternate solution of registration based on existing proofs such as any other government document, that is, ration card or voter identity card may be considered. In the event of the beneficiary not having any government document, endorsement from the local government authority both in the rural and urban areas may be considered. It has already been mentioned in the social security code that at the local level, the PRIs in the rural areas will be responsible for registration and facilitation, and that it will be the responsibility of the ULBs in the urban areas. This is indeed a welcome step.

Maternity benefits: Different provisions of maternity leave for women with up to two surviving children and women with more than two surviving children appears to be a reasonable classification in the law. This will have an impact on the fertility rate of the country in the long run. However, this will need to be supported by a strong and focused communication and awareness campaign on the social security benefits to our proposed beneficiaries, for them to act on this aspect.

Offences and penalties: Different aspects of discrimination against women in employment have been described and included in the code schedule; the SeventhSchedule, which provides for penalties explicitly, restricts it to “Making Prohibited Deductions from Wages.” However, the provision in the Seventh Schedule should be amended to cover different forms of discrimination against women in employment. This would ensure women’s safety and promote gender equality.

Financial Challenges

The paradox behind SEC-4 category employees’ share: It is stated in the draft labour code that if the employee belongs to the SEC-4 category, then their contribution shall be zero (that is, single contribution from employer may only be collected in such cases). Further, in the case of own account worker (and owner-cum-worker of an enterprise), there is no “employer,” and hence a single contribution from the worker himself (maximum 20% of income) is prescribed. However, if the worker is of SEC-3 or 4, the contribution to be paid is zero (as it is expected that government will contribute on his behalf). As evident from the code, it will include all kinds of employment, as even part time, casual, fixed or piece rate/commission-rated worker, informal, home-based worker, domestic or seasonal worker will avail the benefit of the code. But the main paradox lies in fixing of the rate at which the government will contribute on behalf of SEC-4. However, in the unorganised sectors, wages are not paid on the basis of the minimum national wage and for the same work and working hours, different wages may prevail and thus, universalising such wage differences would be another challenge. In this case, they may have to set some other criteria for fixing 12.5% of wage, for example, some minimum wage rate for a particular work. Also, considering that the minimum wages may differ area-wise/district-wise/state-wise, solving this intertwined issue would be a challenge.

Sharing pattern between union and states and between the states: As per cooperative federalism, the disbursement of funds from the centre to the states should be based on the equity principle. The big question that arises in the present set-up is: What should be the guidelines of devolution from union to states and how would the money be shared between the states? The total population burden on the state and union could be counted on account of labour force, including disabled and ageing population. While this figure is 69 crore for all India, it is more than five crore for states like Uttar Pradesh, Maharashtra, West Bengal, Andhra Pradesh and Bihar. Subsequently, for states like Bihar, where the factories in operation are only 1.6% of all-India share, the total employment in these large industries is 1.46 lakh, which accounts for a little higher than 1% of the total employment in the country. Further, the share of agricultural workers and cultivators together form 64.1% of total workers in Chhattisgarh and 61.3% in Bihar and Madhya Pradesh, respectively. Unfortunately, this proves that more than 60% of the workforce of these states is engaged in unorganised sectors. Even for states like Uttar Pradesh, Bihar and Madhya Pradesh, a major share of population is BPL and contributes to the state burden. Conversely, these backward states also lack resources to feed such a mega share of dependent population. The per capita income of Bihar is 31.6% and that of Uttar Pradesh is 47.4% of all-India average (Table 1). It is evident that these states have a large burden of dependent population. Thus, while deciding the sharing mode between special category and general category states, the government should develop a third modified state share of 80:20, that is, the central share should be 80% and state share 20% for these backward states. This kind of sharing pattern will help such states which face the burden of high dependent populations.


Any new scheme/programme can only be successful if it is fully understood and accessed by the population that it is meant to serve. An intensive awareness campaign should be incorporated prior to rolling out the social security scheme, so that our socio-economically vulnerable and less educated populace can claim what is rightfully theirs. The implementation of the code would face several challenges regarding identification of the beneficiaries, fixing the rate of contribution for SEC-4, tracking unpaid workers who are not registered and so on.

The sudden registration of a huge number of beneficiaries in the social security net will be a huge challenge. Considering that a substantial number of unorganised sector workers will be required for implementation, there will be ample scope for middlemen to lure semi-literate and illiterate people. The provision of the act is very comprehensive and ambitious and should it be decided to implement it at one go, a feasibility study may be undertaken to understand the impact of such an action. Overall, resource-poor states that bear a larger unorganised workload burden will definitely benefit from this scheme provided that 80% is contributed from the centre, taking into account the equity principle.

Updated On : 31st Aug, 2018


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