India's Shram Shakti Niti 2025 Prioritizes MSMEs with Proposed 'Employment Relations Code'

The newly introduced Shram Shakti Niti 2025 places Micro, Small, and Medium Enterprises (MSMEs) at the core of India’s employment and production system. These enterprises are critical for maintaining supply chains and nurturing local skills, collectively employing over 70 per cent of the country’s workforce. Their inherent strengths include agility, quick decision-making, and close-knit teams. The government's consolidation of nearly 50 laws into four labor codes—Wages, Social Security, Industrial Relations, and Occupational Safety and Health (OSH)—is a significant reform. However, the article argues that the next phase must recognize MSMEs’ unique character, rhythm, and constraints, which differ substantially from large enterprises. MSMEs often operate on trust-based relationships with limited administrative bandwidth, requiring rules that are proportional, not merely exemptions. They function in an ecosystem defined by personal engagement and short production cycles, where the owner often handles multiple roles. Applying identical compliance procedures to both small and large enterprises creates a structural mismatch. A differentiated approach can help formalize employment without stifling enterprise and secure the rights of workers in a segment with high informality.

The proposed next logical step is an Employment Relations (ER) Code, a dedicated framework for enterprises employing up to 50 workers. This code would work within existing laws, adapting procedures to the size and capacity of small firms. It would foster partnership at the enterprise level, encouraging employers and employees to collectively decide on wages, safety, and social security within an accountable framework. Under the ER Code, small establishments would register for the formal system and form Work Councils comprising employer and employee representatives. These councils would deliberate and record mutual agreements, with the Labour Department playing an advisory role focused on guidance and mentoring, supported by digital integration linking enterprises to databases like EPFO and ESIC. Verified digital records of Work Council agreements could serve as proof of compliance, potentially qualifying enterprises for incentives like easier credit.

Impact This policy shift aims to significantly boost the formalization of a vast segment of the Indian economy, improve worker conditions and rights in MSMEs, and enhance business efficiency through tailored compliance. It could lead to increased investment and sustained economic growth.

Rating: 8/10

Difficult Terms Explained: MSMEs (Micro, Small and Medium Enterprises): Businesses classified by their investment in plant and machinery or annual turnover, playing a crucial role in employment and economic activity. Labor Codes: Consolidated sets of laws that govern employment conditions, wages, social security, industrial relations, and occupational safety and health. Proportionality: The principle of applying rules and regulations in a manner that is fair and appropriate to the size, capacity, and nature of an enterprise. Employment Relations (ER) Code: A proposed specific legal framework designed to manage the relationship between employers and employees in small enterprises. Work Council: A body within an enterprise formed by representatives of both employers and employees to discuss and make decisions on workplace matters. EPFO (Employees' Provident Fund Organisation): A statutory body under the Ministry of Labour and Employment, Government of India, that manages retirement savings and pension schemes. ESIC (Employees' State Insurance Corporation): A statutory body that provides social security and medical benefits to employees in case of sickness, maternity, and employment injury. DGFASLI (Directorate General Factory Advice Service & Labour Institutes): A subordinate office under the Ministry of Labour and Employment, Government of India, that provides technical and advisory services on factory safety and health. UAN (Universal Account Number): A unique 12-digit number allotted to each member of the Employees' Provident Fund Organisation (EPFO) to manage their provident fund account.