India’s recent overhaul of labour laws introduces four new labour codes, consolidating 29 outdated regulations into a simpler framework. These reforms aim to improve worker welfare and ease of doing business but bring significant implications for gig economy giants like Swiggy and Zomato—and their investors. Here’s a detailed look at the changes and their impact.
Key Changes in India’s New Labour Codes
The four new codes—covering wages, social security, industrial relations, and occupational safety—focus on formalizing worker rights, including gig economy participants. Key takeaways for food delivery platforms include:
- Social Security for Gig Workers
- The Code on Social Security, 2020 requires companies to provide gig workers (like delivery partners) with insurance, pension, and healthcare benefits.
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Platforms must now contribute a percentage of earnings towards these benefits, increasing operational expenses.
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Expanded Definition of ‘Worker’
- Gig workers may now qualify as formal employees under broader definitions, potentially entitling them to minimum wages, paid leave, and other benefits.
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This challenges the current contractor-based model used by Swiggy and Zomato.
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Higher Compliance Risks
- Failure to meet social security obligations could result in steep penalties, forcing companies to revise workforce policies.
How Swiggy and Zomato Are Affected
The new regulations present both risks and opportunities for food delivery platforms:
1. Rising Operational Costs
- Swiggy and Zomato currently treat delivery partners as independent contractors, avoiding expenses like PF and ESI.
- With mandatory social security contributions, CLSA estimates a 10-15% rise in employee benefit costs, pressuring profitability.
2. Possible Higher Fees for Consumers
- To compensate for increased costs, platforms may hike delivery fees or restaurant commissions, risking reduced order volumes.
3. Legal and Structural Shifts
- Ambiguities in worker classification could spark legal battles, mirroring global disputes involving Uber and Lyft.
- Companies might adopt hybrid employment models, offering partial benefits while retaining flexibility.
Investor Implications
Key stakeholders—including Prosus, SoftBank, and Tiger Global—should note:
- Short-Term Pressure: Higher compliance costs could lead to earnings downgrades, impacting stock prices (Zomato’s shares are already volatile).
- Long-Term Adaptation: Successfully passing costs to consumers or improving delivery efficiency could stabilize margins.
- Market Consolidation: Smaller competitors may struggle, potentially benefiting Swiggy and Zomato through increased market share.
What’s Next?
While the laws aim to formalize gig work, implementation remains uncertain as states finalize rules. Companies are pushing for flexible enforcement, but the era of growth without worker protections is ending.
For investors, the focus should be on how Swiggy and Zomato adapt—balancing compliance with profitability—to sustain their market dominance.
—By NextMinuteNews Research Desk
