The construction sector is one of India's largest sources of employment, providing livelihoods to nearly 13% of the country's workforce, according to the Periodic Labour Force Survey 2022–23. With the sector expected to contribute almost one trillion dollars to India's economy by 2030, its role in driving growth is undeniable. Yet, behind this rapid expansion lies a workforce that continues to face significant economic insecurity. A large proportion of construction workers remain in informal employment, making social security benefits not just desirable but essential.
India has created a dedicated welfare financing mechanism for construction workers through a cess levied on construction projects. The Social Security Code, 2020, largely retains this framework, with one notable change: private residential projects valued below ₹50 lakh are now exempt from the cess, compared to the earlier threshold of ₹10 lakh. For eligible projects, a cess of 1-2% of the construction cost is collected, and 95% of the funds are meant to finance welfare schemes such as pensions, maternity assistance, educational support and other benefits for registered construction workers.
On paper, the system is straightforward. In practice, however, much of the money that should reach welfare boards never does. Reports by the Comptroller and Auditor General (CAG) over several years have consistently pointed to gaps in the way cess is identified, collected and transferred. The consequence is simple: When collections fall short, so do the resources available to support millions of workers.
One of the biggest challenges is that many construction projects never enter the welfare system in the first place. Every building project requires approval from local authorities before construction begins. Projects that fall within the cess framework are also expected to register with the state's Building and Other Construction Workers' Welfare Board. However, weak coordination between planning authorities and welfare boards means many eligible projects are never registered. In some cases, builders may be unaware of the requirement; in others, the absence of effective monitoring allows compliance to be overlooked altogether.
{{/usCountry}}One of the biggest challenges is that many construction projects never enter the welfare system in the first place. Every building project requires approval from local authorities before construction begins. Projects that fall within the cess framework are also expected to register with the state's Building and Other Construction Workers' Welfare Board. However, weak coordination between planning authorities and welfare boards means many eligible projects are never registered. In some cases, builders may be unaware of the requirement; in others, the absence of effective monitoring allows compliance to be overlooked altogether.
{{/usCountry}}Even when cess is collected, the flow of funds is not always seamless. Local authorities are empowered to collect the cess when approving building plans before transferring it to the welfare boards. Yet, without a system that enables real-time sharing of information, welfare boards often receive only aggregate transfers with little visibility into project-wise collections. CAG audits in several states have also found instances where the entire amount collected was not transferred, affecting the overall funds available for worker welfare.
Another issue lies in the way construction costs are calculated. Since the cess is linked to the total cost of construction, any understatement directly reduces the amount payable. Audit reports have highlighted that some projects exclude key components such as electrical installations, plumbing, lifts, fire safety systems and mechanical works while estimating construction costs. Others rely on outdated valuation benchmarks that no longer reflect prevailing market prices. The result is an artificially lower construction cost and, consequently, lower cess collections.
These shortcomings are not merely administrative lapses. They have direct implications for workers who depend on welfare schemes during periods of illness, maternity, education, old age or financial distress. As India transitions towards implementing the new labour codes, strengthening the administration of welfare funds is just as important as updating the legal framework itself.
Technology offers a practical way to bridge many of these gaps. Geographic Information System (GIS)-based mapping can help identify ongoing construction projects across cities and districts by integrating information already available with local planning authorities. This would make it easier to identify projects that have obtained building approvals but have not registered with welfare boards, reducing opportunities for non-compliance.
Similarly, digital tools can improve the accuracy of cess calculations. An online calculator that automatically uses the latest CPWD Plinth Area Rates, while accounting for state and district-specific variations, could help standardise construction cost estimates. By including all components of a project within a single digital framework, such a system would reduce inconsistencies and minimise under-reporting.
Perhaps the most significant reform would be to digitally integrate approval systems with welfare board portals. If project approvals, cess liabilities, payments and transfers could all be tracked through a common digital platform, authorities would gain real-time visibility over collections, outstanding dues and fund transfers. Such integration would improve transparency, simplify reconciliation between agencies and reduce delays in transferring funds.
Ultimately, improving cess governance is not simply about enforcing compliance or increasing government revenues. It is about ensuring that a financing mechanism specifically created for construction workers functions as intended. As India's construction sector continues to expand, the systems that protect the workers building the country's infrastructure must evolve alongside it. By combining better institutional coordination with technology-driven governance, India can make welfare delivery more transparent, efficient and accountable, ensuring that the benefits promised under the Social Security Code reach those who need them most.
(The views expressed are personal)
This article is authored by Chitra Rawat, lead, Citizen Experience and Learning Lab (CELL), Indus Action.