Introduction
India has embarked on one of its most ambitious labour reforms in decades with the notification of four new Labour Codes. The government believes these reforms will simplify compliance, encourage investment, formalise employment, and strengthen worker welfare. However, as the Codes move from policy to practice, opinions remain divided across industry, trade unions, and small businesses. The real test lies in execution.
Why Labour Reform Was Necessary
Many of India’s labour laws were written during the colonial era and no longer reflect the realities of a modern economy. Over time, 29 central laws and hundreds of state rules created a complex compliance environment for employers while leaving most workers outside the formal social security net. As India transitioned through liberalisation, digitisation, and the rise of gig work, the legal framework struggled to keep pace. This gap pushed the government to consolidate and modernise labour regulations.
The Four Labour Codes at a Glance
The reforms merge 29 central laws into four comprehensive codes. The Code on Wages ensures uniform wage definitions and minimum wage coverage. The Occupational Safety, Health and Working Conditions Code unifies workplace safety norms. The Industrial Relations Code governs trade unions, strikes, and retrenchment rules. The Code on Social Security expands benefits to gig, platform, and unorganised workers. Together, they aim to create a simpler and more predictable labour regime.
What the Government Promises
The Centre describes the Labour Codes as pro worker and pro growth. According to the government, the reforms will ensure fair wages, safer workplaces, and universal social security while reducing compliance hurdles for businesses. The timing is significant, as India faces global trade pressures and slowing export demand. Labour reform is being positioned as part of a broader push to improve competitiveness and attract investment.
Why Industry Is Largely Supportive
Businesses see the biggest benefit in compliance simplification. Multiple registrations, inspections, and returns have been consolidated into a single digital framework. According to industry experts, procedural requirements have been reduced sharply, making compliance easier and more transparent. Inspectors have been reoriented toward facilitation rather than punishment, which industry bodies believe will improve the ease of doing business.
Key Concerns Around Costs and Flexibility
One debated change is the standardisation of wage definitions, including the rule that basic pay must form at least half of total compensation. While this improves social security contributions, it may increase payroll costs, especially for MSMEs. Another contentious provision raises the threshold for government approval for layoffs and closures to 300 workers, giving firms more flexibility but drawing criticism from labour unions.
Trade Unions and MSMEs Push Back
Several trade unions argue the Codes weaken worker protections, restrict the right to strike, and encourage insecure employment. Provisions allowing longer workdays and fixed-term contracts have raised concerns about job security. MSMEs, meanwhile, worry about higher compliance costs related to social security, safety norms, and digital systems. Many have called for phased implementation and financial support.
The Role of States in Implementation
Since labour is a concurrent subject, states must frame their own rules. Differences in state-level implementation could either strengthen or dilute the intended benefits of the Codes. Experts caution that without coordination and clarity, compliance complexity could persist despite central consolidation.
Conclusion
India’s Labour Codes represent a bold attempt to modernise an outdated system and improve ease of doing business while expanding worker protection. The potential gains are significant, but success will depend on careful implementation, harmonised state rules, and support for small businesses during the transition. If executed well, the reforms could reshape India’s labour market for decades. If not, they risk falling short of their transformative promise.
