A Law and Economics Analysis of Digital Labour Compliance under India's Labour Codes: Assessing the Impact on MSMEs in Gujarat

Abstract

ABSTRACT The four Labour Codes enacted between 2019 and 2020 (Code on Wages, Industrial Relations Code, Code on Social Security and Occupational Safety, Health and Working Conditions (OSH) Code) are the most significant consolidation of India's labour law since Independence. A major aspect of this reform will be the implementation of an online inspection system for MLAs, where inspections will be carried out in a random and risk-based way, instead of the traditional way of physical inspections. Further, regular physical inspections will be replaced by a self-certification process of establishments specifically for Micro, Small and Medium Enterprises (MSMEs) to certify compliance in a single electronic return. The paper has focused and explored the legal framework of such a digitization – Shram Suvidha Portal, Unique Labour Identification Number (LIN), Inspector-cum-Facilitator scheme and the self-certification advisory applicable in MSMEs in initial years of operation and has assessed the impact it has made on MSMEs in Gujarat where they contribute to a significant number of registered MSMEs in the country. The paper uses a doctrinal analysis of the provisions in the Act and Regulations to conclude that, after digitization, the compliance burden, transaction costs and scope for discretion in enforcement faced by MSMEs in Gujarat has measurably reduced, but it has also increased risks of reduced physical verification of hazardous micro-units, low digital literacy among small MSMEs proprietors, infrastructural gaps in industrial clusters and possible reduction of enforcement against wage and safety related violations beyond self-certification. The paper points to a lacuna in the lack of empirical evaluation of digitized labour compliance in Gujarat and offers recommendations to calibrate digitization to ensure that the ease of doing business is not compromised, while maintaining the protection of workers. Keywords: Labour Codes 2019-2020, Shram Suvidha Portal, Self Certification, Online inspection, MSME, Gujarat, OSH Code, ease of doing business.