Vishleshan for Regulatory Exams, 16th September 2025: Protecting Gig Workers in India’s IBC 2025

Staying updated on economic and regulatory issues is non-negotiable for exams like RBI, SEBI, or NABARD. Every topic matters. Every update can turn into a question. In today’s Vishleshan, we focus on ”Economic Risks of Ignoring Gig Workers in India.” This issue is timely. Its relevance is growing. And its impact is deeply linked with policy and regulation. Understanding it now will not just help in exams but also sharpen your perspective.

More Than a Gig, A Systemic Economic Risk

Context: The failure to protect gig workers in bankruptcy is not just an ethical lapse; it’s an economic hazard. Unpaid dues can trigger loan defaults and depress consumption, posing a systemic risk that India’s new insolvency bill must address.

Source: Indian Express

The article highlights a critical oversight in India’s legal and economic framework: the neglect of gig workers. It focuses on the Insolvency and Bankruptcy Code (IBC) Amendment Bill, 2025, arguing that its failure to adequately classify and protect gig workers as “workmen” is not just an ethical issue but a significant economic risk. The article uses the example of a platform’s collapse to illustrate how gig workers, classified as “operational creditors,” are at the bottom of the repayment queue, risking the loss of their hard-earned dues. It then broadens the discussion to the wider challenges faced by this workforce, proposing essential legal reforms to safeguard their future and, by extension, India’s economic stability.

Conceptual Terms and Workforce Landscape:

• Gig Worker: An individual who engages in short-term, flexible, or task-based jobs, often facilitated by digital platforms. This includes delivery riders, cab drivers, and other service providers. Unlike traditional employees, they lack a fixed employer-employee relationship and are often considered “independent contractors” by platforms.
• Freelancer: A self-employed professional who offers specialized services (e.g., writing, graphic design, software development) directly to clients on a project basis. They typically have more control over their rates, clients, and work hours than gig workers.
• Moonlighting: The practice of holding a second job or engaging in additional work outside of one’s primary, full-time employment. This can involve working a part-time job or doing freelance work during evenings or weekends to earn extra income.
• Operational Creditors: In insolvency law, these are creditors who are owed money for operational debts, such as the supply of goods or services. The article emphasizes that gig workers are currently categorized as operational creditors, placing them at a disadvantage in insolvency proceedings.
• Workmen: A legal term for a class of employees who receive high priority for the recovery of their unpaid wages and dues during insolvency proceedings. The article advocates for gig workers to be legally recognized as workmen.
• Piercing the Corporate Veil: A legal concept where courts disregard the separate legal identity of a company to hold its directors, members, or, in this case, the company itself, responsible for its actions. The article cites historical court cases where the veil was pierced to recognize workers as employees, despite being labelled as “contractors.”

India’s Gig Workforce:

The gig economy in India is a rapidly growing sector. According to a NITI Aayog report, the workforce is projected to grow from 7.7 million in 2020–21 to 23.5 million by 2029–30. The article further warns that this number may swell to 90 million by 2030. This growth is fuelled by high youth unemployment (over 40% of Indians aged 20–24 are jobless) and a demand for flexible work, although for most, it is a low-paid, full-time, and insecure reality.

Issues Faced by Gig Workers in India:

The gig workforce, despite being the backbone of the urban economy, faces a myriad of challenges:

• Financial Insecurity: Their income is often low, inconsistent, and volatile, making it difficult to cover basic living expenses. Many are reliant on microloans and unsecured credit, which can lead to a rise in non-performing assets for banks when they are unable to make repayments.
• Lack of Social Security: Gig workers are excluded from traditional benefits like health insurance, paid leave, provident funds, and pensions, leaving them vulnerable to financial distress during illness or injury. The Code on Social Security 2020 (COSS), while defining gig workers, fails to provide a robust framework for their protection, particularly by excluding their social security from priority claims under the IBC.
• Insolvency Risks: Under the Insolvency and Bankruptcy Code (IBC), gig workers’ dues are low priority, often left unrecovered when a platform collapses. This is in stark contrast to the high priority accorded to the wages of “workmen.”
• Algorithmic Exploitation and Opaque Practices: Platforms often use opaque rating and deactivation systems, with little recourse for workers who are unfairly suspended or deactivated. Gig workers can be suspended for minor infractions, such as taking water breaks during summer heat.
• Health and Safety Concerns: Workers often endure long hours, leading to musculoskeletal injuries. Women, in particular, face harassment from customers. The “10-minute delivery race” puts gig workers’ safety at risk.

Economic Potential:

Harnessing the gig economy can be a significant boost to India’s GDP and overall productivity. Here’s how:

• Employment Generation: It provides a crucial source of income for a vast and growing workforce, particularly in a country grappling with high youth unemployment.
• Increased Consumption: By providing supplementary income, the gig economy can increase the consumption level of the economy, which is essential to power economic growth.
• Micro-Entrepreneurship and Innovation: The gig economy fosters a culture of entrepreneurship, with workers operating as micro-entrepreneurs.
• Productivity Boost: Flexible work arrangements can increase productivity as workers can choose hours that suit their personal and professional efficiency.
• Bridging Rural-Urban Divide: Digital platforms can connect the rural population to urban markets, providing income opportunities outside of the agricultural sector.
• Increased Female Workforce Participation: The flexibility of gig work, including work-from-home options, can encourage more women to join the workforce, which can boost India’s GDP. Estimates suggest that improving gender parity could increase India’s GDP by as much as $500 billion by 2025.

The article argues that the legal and economic risks of not protecting gig workers could lead to dire consequences, such as an increase in non-performing assets, lower disposable incomes hitting consumption, and a reversal of urbanization as stressed workers retreat to farming.

Analysis of the Article’s Arguments:

The article effectively deconstructs the facade of “partner” and “independent contractor,” revealing a functional reality where platforms exercise significant control, leaving gig workers economically dependent. It uses international examples (EU, Mexico, Canada) to demonstrate that the reclassification of gig workers as employees is a global trend aimed at providing them with essential protections. The specific court cases mentioned (Hussainbhai, Calicut vs Alath Factory Thozhilali, Dharangadhara Chemical Works Ltd vs State of Saurashtra, and Messrs. P.M. Patel & Sons vs Union of India) are powerful references, showing that India’s courts have historically favoured a functional test of employment over mere contractual labels.

The article’s call for three specific reforms—amending the IBC to recognize gig workers as “workmen,” revising the COSS to prioritize their claims, and creating a separate legal class for them—provides a clear, actionable roadmap for policymakers. By linking the issue of gig worker rights to India’s overall demographic dividend and economic future, the article successfully elevates it from a labour rights concern to a matter of national economic strategy.

• Sign Up on Practicemock for Updated Current Affairs, Topic Tests and Mini Mocks
• Sign Up Here to Download Free Study Material