Mint Explainer: Will Karnataka’s new ‘welfare’ mandate mess up the gig economy?

It mandates that digital platforms—from food-delivery apps to ride-hailing platforms—contribute between 1% and 5% of each transaction to a state-run welfare fund. This is aimed at improving protections for gig workers across the board.

But what will this additional cost mean for platforms, gig workers, and consumers, and will it hamper the state’s gig economy? Mint explains.

Will platforms pass on the cost to consumers?

Legal and policy experts said the cost was likely to be passed on to consumers. Platforms already charge users various fees over and above the cost of the service, including service fees, platform fees and delivery charges. This welfare fee could be included as a separate line item or as a general price hike, depending on what’s more palatable to customers.

“In India, the burden of regulatory costs is almost always passed on to consumers, even when the intended impact is minimal. Unfortunately, the state has not taken any responsibility on its own shoulders, unlike the EU,” said Ajai Garg, head of digital tech & law, Anand & Anand, and senior advisor at Koan Advisory.

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However, platforms also need to remain competitive. Significant price hikes may provoke a consumer backlash, especially given the myriad fees already layered in to the final price.

“If the entire welfare cost is passed on to the end consumer through significant price hikes, it could trigger adverse reactions. Ultimately, consumers will likely feel the pinch immediately, which may impact their willingness to continue using the service, resulting in disruptions to the overall customer base and market sentiment,” said Anshul Prakash, partner, Khaitan and Co.

None of the major gig platforms—Uber, Ola, Rapido, Swiggy, Zomato and Zepto—responded to Mint’s queries.

What happens to platforms that use a software-as-a-service (SaaS) or zero-commission model?

Not all platforms have the same revenue structure. Those that don’t charge commissions, and instead use SaaS models in which gig workers pay a subscription fee, may look to raise those fees instead. Platforms that do collect commissions on every transaction could increase those slightly. 

“Platforms will likely adjust their commission or subscription models, depending on their operating structure,” said Garg.

Could platforms absorb the cost themselves?

In theory, platforms could absorb the additional cost, but experts said that was unlikely. “Aggregator platforms need to focus on margin retention. That means any cost tied to each transaction is likely to be passed on through small price increases,” Prakash said. 

This puts platforms in a tough spot. Many have already seen growth slowing in mature sectors such as food delivery, and now rely on high-growth verticals such as quick commerce to offset losses. Any dip in margins may affect their long-term viability.

Also read: Is quick commerce eating into the food delivery market?

“This is going to be a tough balancing act, especially given that most of the growth in recent times has been limited to one or two kinds of platform work (quick commerce, for instance), while the older ones (such as food delivery) have not seen exponential growth,” said Sowmya Kumar, partner, Cyril Amarchand Mangaldas.

What about worker contributions and compliance?

The ordinance says gig workers must also contribute to the welfare fund, but offers no clarity on how or how much. This ambiguity makes implementation harder and opens the door to disputes.

“The ordinance specifies a 1-5% of welfare fee but doesn’t explain how the actual percentage of contribution by aggregators will be determined. The structure of worker contributions remains unclear,” said Prakash Gupta, lead, Centre for Inclusive Mobility at OMI Foundation, a policy research think tank in Delhi.

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Platforms will also have to invest in registration systems, fee payment tracking, and potentially algorithmic transparency mechanisms, especially if the rules mandate disclosure of how gig workers are assigned jobs or rated.

With draft rules expected in the next two weeks, Karnataka, which has more than 800,000 gig workers, could soon set a precedent for other Indian states, provided it doesn’t disrupt its own gig economy in the process.