Why in the News?

• Recent data from the Ministry of Statistics and Programme Implementation’s (MoSPI) report shows that India’s informal sector is reducing debt levels significantly, but at the same time witnessing a decline in investments and job creation.

What’s in Today’s Article?

• Informal Sector (Introduction, Components, etc.)
• Key Findings of ASUSE Report

Introduction

• India’s informal sector, which forms the backbone of employment and small-scale economic activity, is witnessing a major financial shift.
• According to the Ministry of Statistics and Programme Implementation’s (MoSPI) Annual Survey of Unincorporated Sector Enterprises (ASUSE) 2025, informal businesses are becoming less indebted as outstanding loans and interest liabilities have declined sharply.
• However, the reduction in debt has also coincided with weaker investment activity, slower wage growth, and reduced job creation.
• The findings have raised concerns among policymakers regarding the long-term health of India’s unorganised sector, which employs a majority of the country’s workforce and contributes significantly to Gross Value Added (GVA).

About India’s Informal Sector

• India’s informal or unorganised sector mainly consists of unincorporated non-agricultural enterprises such as:

• Small manufacturers
• Local traders
• Service providers
• Household enterprises
• Micro businesses operating without formal corporate registration

• These enterprises play a vital role in the Indian economy by generating employment and supporting local consumption.
• According to ASUSE 2025, the informal non-agricultural sector contributes nearly Rs 20 lakh crore to the economy, accounting for around 6.4% of India’s total GVA.
• Most enterprises in this category fall under the Micro, Small and Medium Enterprises (MSME) framework, with micro enterprises forming nearly 99.94% of the establishments surveyed.

Key Findings of ASUSE 2025

• The ASUSE 2025 survey revealed several important trends regarding the financial condition of India’s informal businesses.
• Decline in Outstanding Loans
  • Outstanding loans per informal establishment declined by nearly 20% to approximately Rs 42,776 compared to the previous survey period.
  • Additionally, annual interest payable by businesses reduced by around 16%, indicating that loan repayments are exceeding fresh borrowings.
  • This trend suggests increasing financial caution among informal entrepreneurs, many of whom appear to be focusing on reducing liabilities instead of expanding operations.
• Reduction in Fixed Asset Investments
  • Alongside lower indebtedness, the survey reported a 14% decline in net addition to fixed assets per establishment.
  • This means informal enterprises are investing less in machinery, infrastructure, technology, or business expansion.
  • The decline in investment is considered worrying because fixed asset creation is closely linked to productivity improvement and future economic growth.
• Slower Job Creation and Wage Growth
  • The survey also showed signs of weakening employment generation:
    • Employment creation declined to 74.5 lakh jobs in 2025 compared to 1.1 crore jobs in the previous year.
    • Wage growth in the informal sector slowed sharply to 3.9%, significantly lower than the 13% increase reported earlier.
  • These indicators suggest that economic momentum in the informal sector may be slowing.

• Growing Concerns Over Investment Slowdown
  • The reduction in investments within the informal economy aligns with broader concerns regarding private sector capital expenditure in India.
  • Chief Economic Advisor V. Anantha Nageswaran recently observed that despite strong profit growth among large Indian companies after the Covid-19 pandemic, capital formation and investment activity remain below expectations.
  • For informal businesses, the hesitation to invest may arise due to:

• Economic uncertainty
• Weak consumer demand
• Rising operational costs
• Limited access to affordable finance
• Lack of social security and institutional support

• When businesses prioritize survival and debt repayment over expansion, economic growth potential becomes constrained.

State-wise Variations in Informal Sector Performance

• The ASUSE 2025 survey highlighted large differences among states in terms of investments and indebtedness.
• States Reporting Higher Investments

• Punjab witnessed more than double the investments by establishments, alongside a sharp rise in outstanding loans.
• Goa and Chhattisgarh also reported increasing investments despite declining indebtedness.

• States Reporting Investment Decline
  • Several economically significant states saw substantial reductions in investment levels:

• Telangana: Investment down by 63%
• Gujarat: Investment down by 48%
• Maharashtra: Investment down by 35%
• Uttar Pradesh: Investment down by 30%

• These variations reflect uneven economic recovery and differing business confidence levels across states.

Relationship Between Formal Credit and Informal Enterprises

• An important aspect highlighted in the report is the disconnect between rising formal bank credit and declining informal sector investment.
• According to Reserve Bank of India (RBI) data, loans to micro and small industries increased by nearly 33% year-on-year as of March 2026.
• However, this increase does not appear to be translating into stronger investments among the smallest informal enterprises.
• This indicates that:

• Formal credit may be concentrated among relatively larger MSMEs
• Small informal units may still face barriers in accessing institutional finance
• Broader economic uncertainty may discourage investment even when credit is available

Why in News?

• The Union Government has fully operationalised the four Labour Codes by notifying over 30 final Rules after announcing their implementation from November 21, 2025.
• These Codes consolidate 29 existing labour laws governing wages, industrial relations, social security, occupational safety, and working conditions.
• The move has triggered sharp reactions from trade unions and Opposition parties, which allege that the reforms weaken labour protections, centralise decision-making, and undermine collective bargaining rights.
• The government, however, argues that the Codes simplify compliance, improve ease of doing business, and modernise India’s labour regime.

What’s in Today’s Article?

• The Four Labour Codes
• Wage-Related Provisions
• Critical Change in Minimum Wage Formula
• Concerns Raised by Experts
• Social Security Provisions
• Industrial Relations and Trade Union Recognition
• Opposition from Trade Unions and Political Parties
• Major Challenges Associated with the Labour Codes
• Way Forward
• Conclusion

The Four Labour Codes:

• The four Labour Codes enacted between 2019 and 2020 are -
  • Code on Wages, 2019
  • Industrial Relations Code, 2020
  • Code on Social Security, 2020
  • Occupational Safety, Health and Working Conditions (OSH) Code, 2020
• Significance of the Labour Codes:
  • Ease of Doing Business: Simplified compliance framework, reduction in multiplicity of laws, and digitisation of labour administration.
  • Formalisation of employment: Improved documentation, electronic wage payment systems, and universalised social security architecture.
  • Expansion of social security: Inclusion of gig workers, platform workers, and unorganised labour marks a major policy shift.
• Together, they replace 29 existing labour laws. Below, we will discuss key provisions of the final Rules.

Wage-Related Provisions:

• National Floor Wage:
  • The Centre will determine a national floor wage in consultation with the Central Advisory Board, and State governments.
  • The floor wage will consider minimum living standards, food, clothing, housing, and other factors deemed appropriate.
• Working hours: 8-hour normal working day, weekly cap fixed at 48 hours, and daily wage calculations (hourly wage is equal to daily wage divided by 8, while monthly wage is equal to daily wage multiply by 26).
• Mandatory wage slips: Employers must issue wage slips electronically or physically.
• Timely wage payments:
  • The government has mandated strict timelines for wage payments - daily workers (by end of shift), weekly workers (before weekly holiday), fortnightly workers (within 2 days), and monthly workers (within 7 days of next month).
  • Payments must be made through the bank transfer electronic mode.
• Penalties for contractors: Contractors failing to pay workers on time may face debarment, blacklisting, and procurement restrictions.

Critical Change in Minimum Wage Formula:

• Removal of scientific criteria:
  • One of the most controversial changes is the removal of the earlier formula for calculating minimum wages from the final Rules.
  • The draft rules had retained the established formula based on 2,700 calories per day, clothing requirement of 66 metres annually, housing expenditure, fuel and electricity costs, and education and medical expenses.
• This formula emerged from:
  • 15th Indian Labour Conference (1957).
  • Reptakos Brett Supreme Court Judgement (1991).
• The final Rules now state that wage criteria will be separately specified later through government orders.

Concerns Raised by Experts:

• Possibility of lower minimum wages: Labour economists argue that removing the formula could -
  • Reduce wage transparency
  • Enable arbitrary wage determination
  • Result in lower wages
  • Increase interstate wage disparities
• Impact on collective bargaining: Minimum wages often act as the baseline for trade union negotiations, and collective bargaining agreements. Weakening this benchmark may reduce workers’ bargaining power.

Social Security Provisions:

• Expanded coverage: The Code on Social Security modifies several existing rules, including the Employees’ State Insurance (ESI) Rules, and the Employees’ Provident Fund (EPF) framework.
• Social Security Fund:
  • A dedicated social security fund will be created for the unorganised workers, gig workers, and the platform workers.
  • This is significant given the rapid expansion of gig economy employment, and informal labour markets.

Industrial Relations and Trade Union Recognition:

• Sole negotiating union: The Industrial Relations Code provides that if only one registered trade union exists, and it has at least 30% membership of workers, then the employer must recognise it as the sole negotiating union.

Opposition from Trade Unions and Political Parties:

• Trade union protests:
  • Ten central trade unions organised nationwide protests and burnt copies of the Rules.
  • Key demands included clarity on working hours, minimum wages, floor wages, social security protections, and trade union rights.
  • Trade unions alleged that their suggestions were largely ignored.
• Political opposition:
  • Opposition parties described the Rules as anti-worker, corporate-friendly, and an attack on labour rights.
  • They accused the government of delaying notification until after Assembly election results to avoid political backlash.

Major Challenges Associated with the Labour Codes:

• Federal concerns: As labour is in the Concurrent List, states framing their own rules, may create uneven labour standards due to variations across states.
• Informalisation of labour: India’s workforce remains predominantly informal, and challenges include weak enforcement, contractualisation, lack of unionisation, and gig worker vulnerability.
• Dilution of worker protections: Critics argue the Codes may ease hire-and-fire practices, reduce union bargaining power, and increase employer discretion.
• Implementation capacity: Effective implementation requires labour inspection reforms, digital infrastructure, worker awareness, and coordination between Centre and States.
• Wage inequality across states: Without a transparent minimum wage formula wage disparities may widen, workers in poorer states may face wage suppression.

Way Forward:

• Restore scientific wage determination: The government should adopt transparent and objective criteria for minimum wages based on nutritional needs, inflation, and living wage standards.
• Strengthen tripartite consultation: Meaningful consultation among government, employers, and trade unions is essential for labour peace.
• Ensure uniform minimum standards: While states may adapt rules, a strong national floor wage should prevent exploitation and regional disparities.
• Strengthen social security delivery: Focus areas are gig worker registration, portability of benefits, universal coverage, and efficient grievance redressal.
• Improve labour inspection and enforcement: Technology-driven inspections should not weaken accountability. Worker protection mechanisms must remain robust.

Conclusion:

• The operationalisation of the four Labour Codes marks one of the most significant labour reforms in independent India.
• While the Codes aim to modernise labour governance, serious concerns remain regarding wage determination, dilution of labour protections, and weakening of collective bargaining mechanisms.
• The ultimate success of the Labour Codes will depend not merely on simplification of laws, but on achieving a balanced framework that promotes economic growth while safeguarding workers’ dignity.

Why in news?

After the Tamilaga Vettri Kazhagam (TVK) emerged as the single largest party in the 2026 Tamil Nadu Assembly elections, Governor Rajendra Arlekar delayed inviting party president C. Joseph Vijay to form the government.

The Governor asked Vijay to demonstrate majority support by submitting physical letters from at least 118 MLAs in the 234-member Tamil Nadu Legislative Assembly before taking oath as Chief Minister.

What’s in Today’s Article?

• Governor’s Role in a Hung Assembly
• Order of Preference for Inviting a Party to Form Government
• Floor Test as a Measure of Majority
• Instances Where Floor Tests Protected Constitutional Governance

Governor’s Role in a Hung Assembly

• Under Article 164 of the Constitution, the Governor appoints the Chief Minister.
• However, the Constitution does not prescribe a fixed procedure for selecting a Chief Minister in the event of a hung Assembly.
• The Governor’s primary responsibility is to ensure the formation of a stable and responsible government while preserving constitutional governance in the State.
• Recommendations of the Sarkaria Commission and various Supreme Court judgments emphasise that Governors must act impartially and constitutionally rather than on personal discretion.
• Exploring Government Formation
  • The Governor is expected to explore all reasonable possibilities for government formation by consulting political parties, alliances, and independent MLAs within a reasonable timeframe.
  • While some time may be allowed to establish majority support, the Governor cannot delay indefinitely, as prolonged uncertainty may encourage political defections and horse-trading.
• Power to Dissolve the Assembly
  • The Supreme Court of India, in cases such as B.R. Kapur case and Rameshwar Prasad case, recognised that the Governor may recommend dissolution of the Assembly under Article 174(2)(b) if no party is able to form a stable government.
  • If all possibilities of forming a government fail, the Governor may recommend President’s Rule under Article 356 as a last constitutional option.

Order of Preference for Inviting a Party to Form Government

• First Preference: Pre-Poll Alliance with Majority - The Sarkaria Commission recommended that the Governor should first invite a pre-poll alliance that has secured a clear majority in the Assembly. This principle has also received judicial support.
• Second Preference: Single Largest Party - If no alliance has a majority, the Governor may invite the single largest party, provided it can demonstrate majority support through alliances or backing from other legislators.
• Supreme Court’s View on Minority Governments - In the S.R. Bommai case, the Supreme Court of India clarified that the Constitution does not require the ruling party to independently hold a majority. What matters is whether the government enjoys the confidence of the Legislative Assembly.
• Third Preference: Post-Poll Alliances - The next option is a post-election alliance formed after results are declared. Such coalitions are constitutionally valid if they can demonstrate majority support in the House.
• Rise of Coalition Politics - The Court recognised that post-poll alliances among ideologically compatible parties have become common in India’s coalition-era politics and are legitimate means of forming governments.
• Recent debates have focused on concerns that Governors may misuse discretionary powers, including recommendations for President’s Rule, to advance the political interests of the ruling party at the Centre.

Floor Test as a Measure of Majority

• Critics have argued that Governor Rajendra Arlekar’s insistence on physical letters of support has delayed government formation.
• A petition before the Supreme Court contends that the Governor is constitutionally bound to invite C. Joseph Vijay to form the government and then require him to prove majority through a floor test in the Assembly.
• Supreme Court’s Evolving Position
  • Although the S. R. Bommai case initially suggested that floor tests were mainly for testing whether an incumbent government had lost majority support.
  • Later, Supreme Court judgments increasingly treated floor tests as the most objective and transparent method of determining legislative confidence.
  • Successive rulings have stressed that the people’s electoral mandate should not depend solely on the Governor’s personal discretion and that majority claims should ideally be tested on the Assembly floor.

Instances Where Floor Tests Protected Constitutional Governance

• Over the years, the Supreme Court of India has increasingly treated the floor test as the most reliable method for determining majority support and ensuring stable government formation in States.
• Goa Political Crisis (2017)
  • In 2017, the Court allowed Manohar Parrikar of the Bharatiya Janata Party to be sworn in as Chief Minister despite the Congress being the single largest party.
  • However, the Court reduced the time given to prove majority from 15 days to 48 hours and ordered an immediate floor test, which Parrikar successfully won.
• Karnataka Political Crisis (2018)
  • In 2018, the Governor invited B. S. Yediyurappa to form the government and granted him 15 days to prove majority.
  • After a challenge by the Congress–JD(S) alliance, the Supreme Court shortened the deadline to 24 hours and directed that the floor test be conducted openly under live television coverage rather than through a secret ballot.
  • Yediyurappa resigned before the trust vote.
• Assembly Floor Over Governor’s Discretion
  • The Supreme Court has repeatedly emphasised that legislative majority must be tested in the Assembly and not determined solely by the Governor’s subjective assessment.
  • According to the Court, the Legislative House — not the Raj Bhavan — is where democratic legitimacy must ultimately be established.

Why in news?

Pixxel, a Bengaluru-based satellite imaging company, has partnered with Sarvam to launch India’s first orbital data centre satellite, named Pathfinder.

Scheduled for launch in late 2026, the 200-kg-class satellite will combine datacentre-grade graphics processing units (GPUs) with Pixxel’s hyperspectral imaging technology, enabling advanced space-based data processing and AI applications.

What’s in Today’s Article?

• About Orbital Data Centre
• Why Global Firms Are Interested in Orbital Data Centres?
• Challenges Facing Orbital Data Centres
• Pixxel–Sarvam Partnership for the Pathfinder Mission
• Can Space-Based Data Centres Become Cheaper Than Ground Systems

About Orbital Data Centre

• An orbital data centre is a network or constellation of satellites equipped with powerful graphics processing units (GPUs) similar to those used in terrestrial data centres.
• Unlike traditional satellites that mainly transmit data back to Earth, orbital data centres can process data and run artificial intelligence models directly in space.
• The concept extends the idea of edge computing, where computation happens close to the source of data generation instead of relying entirely on centralised cloud systems.
• In space, this allows faster and more efficient data analysis onboard satellites.
• Pathfinder as a Demonstration Mission
  • Pixxel’s Pathfinder is being developed as a single-satellite demonstrator to test whether data centre-grade hardware can operate reliably in the harsh conditions of low Earth orbit.
  • The project aims to evaluate the performance of advanced computing systems in space, especially under extreme heat and radiation conditions encountered in orbit.

Why Global Firms Are Interested in Orbital Data Centres?

• Rising Pressure on Earth-Based Data Centres - Growing demand from artificial intelligence has increased pressure on terrestrial data centres, which face constraints related to energy, land, water availability, and regulatory requirements.
• Advantage of Continuous Solar Power - In space, satellites can access near-continuous solar energy, offering a potentially abundant and uninterrupted power source. Supporters see this as a major advantage for running energy-intensive computing systems in orbit.
• Reducing Data Transmission Burden
  • Earth observation satellites generate massive volumes of image and sensor data.
  • Processing this information directly in orbit and transmitting only the final results can significantly reduce data transfer costs and communication bottlenecks.
• Strategic Competition Among Tech Companies
  • Major global technology and space firms are increasingly exploring orbital computing as a future strategic sector.
  • Elon Musk has suggested that advanced satellites and reusable rockets could support large-scale orbital computing infrastructure in the coming years.
  • Companies such as SpaceX, Blue Origin, Microsoft through Azure Space, and Lonestar Data Holdings have already initiated pilot projects, although commercial-scale orbital data centres are yet to be achieved.

Challenges Facing Orbital Data Centres

• Heat Management in Space - Although space is extremely cold, its vacuum prevents convection — the natural process through which heat is carried away on Earth. As a result, powerful GPU chips used in orbital data centres can overheat easily.
• Radiative Cooling Systems - To manage heat, satellites must use specialised cooling systems that circulate heat through ammonia-filled loops to external panels, which then radiate the heat into space as infrared energy.
• Radiation Damage - Cosmic radiation poses another major challenge. High-energy particles can cause “bit flips,” where computer data changes unexpectedly, and can gradually damage semiconductor components over time.
• Limitations of Space-Grade Hardware - Radiation-hardened chips used in spacecraft are generally less advanced than commercial GPUs on Earth, creating performance limitations for space-based computing systems.
• Power Storage Constraints - Orbital systems rely heavily on solar energy, but they must also store sufficient power for periods when satellites pass through Earth’s shadow and sunlight is unavailable.
• Maintenance Difficulties - Repair and maintenance in orbit are extremely difficult without robotic servicing systems. Therefore, orbital data centres must be built with strong redundancy and backup mechanisms from the beginning to ensure reliability.

Pixxel–Sarvam Partnership for the Pathfinder Mission

• Pixxel will design, build, launch, and operate the Pathfinder mission, while Sarvam will provide the artificial intelligence infrastructure and language models.
• The satellite will use onboard GPUs to run AI models for both training and inference directly in space, reducing dependence on Earth-based data centres.
• Pixxel’s hyperspectral imaging camera will also be installed on the satellite. This will allow images captured in orbit to be processed in orbit itself, with only analysed results transmitted back to Earth.

Can Space-Based Data Centres Become Cheaper Than Ground Systems

• At present, operating data-processing infrastructure in space is more expensive than running similar hardware on Earth.
• According to Pixxel, a single satellite carrying GPUs costs significantly more than a comparable terrestrial setup.
• Supporters of orbital data centres believe costs could eventually decline due to:
  • deployment of large satellite constellations,
  • reduced launch costs through reusable rockets like Starship, and
  • lower long-term expenses related to cooling and electricity in orbit.
• Independent studies and space agencies remain more cautious.
• While limited edge computing in orbit is considered feasible in the near term, replacing conventional cloud infrastructure is widely viewed as a much longer-term possibility, potentially requiring 10–30 years.