Many of India’s labour laws were drafted in the pre-Independence and early post-Independence decades, when the structure of the economy and the nature of work bore little resemblance to today’s environment. While most major economies modernised and consolidated their labour systems over time, India continued to operate under a fragmented and often outdated framework spread across 29 Central laws.
It has taken five years for the Modi dispensation, spread over two terms, to implement the four labour codes, replacing these 29 Central labour laws, after Parliament cleared them. The shift to the four labour codes thus marks a major structural reset. The four labour codes – on wages, social security, industrial relations, and occupational safety, health & working conditions (OSH) – will now come into effect to ease regulations and compliance norms for employers and ensure uniformity in wage structure and social security protection for workers. However, rules regarding administrative and procedural issues remain to be finalised before these codes can be implemented. As things stand, the corresponding rules and schemes are to be framed through wide public and stakeholder consultations, while ensuring that provisions under existing acts continue during the transition.
While these codes are seen as moving the needle for domestic manufacturing with easier compliance, decriminalisation of offences by replacing criminal penalties like imprisonment with civil penalties like fines for first-time offences, and incentives for economies of scale, trade unions have flagged changes related to hire & fire, retrenchment, fixed-term employment and curtailment of the right to strike.
Ease of doing business?
The Modi government is touting the unification of 29 labour laws to be a landmark ‘ease of doing business’ move. Over 1,400 rules have been compressed into 365, with the compliance formalities in terms of registration and filling up forms and registers also coming down sharply. Significantly, the codes attempt to expand the social security net – bridging the gap between a ‘labour aristocracy’ and the rest. To this end, this government can rightly claim credit for the net increase in numbers under the Employees’ Provident Fund Scheme.
By extending stronger protections and nationwide entitlements to women, youth, gig, migrant, unorganised and contract workers, the codes place workers firmly at the centre of labour governance
A notable reform move is the creation of a category of ‘fixed-term employees’, apart from regular and contract workers. The FTEs will receive benefits equal to permanent workers after a year of being in the job, except for retrenchment compensation – bridging the gap between permanent workers and the rest.
All forms of work will be covered under minimum wage laws, and all workers shall receive mandatory employment letters. Women can work at night with the requisite safety measures in place and without wage discrimination. Significantly, the estimated 10 million gig & platform workers will get social security coverage, from contributions by aggregators. The coverage of the Employees’ State Insurance Corporation has been expanded to cover all establishments with over 10 employees, and not just some notified areas and hazardous industries. So, the codes do not view ‘labour reforms’ as a race to the bottom. Employers have much to cheer, as self-certification for compliance becomes the norm and the labour inspector-cum-facilitator, as the term suggests, exercises powers with due restraint.
Addressing criticism by the TUs, a senior labour ministry official points out that, over the past decade, India has expanded social security coverage from just 19 per cent of the workforce in 2015 to over 64 per cent in 2025 – a milestone acknowledged globally. By extending stronger protections and nationwide entitlements to women, youth, gig, migrant, unorganised and contract workers, the codes place workers firmly at the centre of labour governance. This is no mean achievement.
Government economists point out that, despite being a labour-abundant economy, India has struggled just to usher in a manufacturing revolution; not only that, even its limited manufacturing gains have been mostly concentrated in sectors that are not labour-intensive. A lot of this failure has been attributed to India’s labour market regime, which, businesses have argued, does not allow them to run enterprises that are nimble enough to deal with the volatilities or cyclical fluctuations of the market. There are studies that show that entrepreneurs have often tried to bypass these regulations by resorting to either replicating smaller factories or outsourcing to informal workers, both of which have led to forgoing economies of scale in the Indian economy. The roll-out of the new labour codes should take away this constraint, real or perceived.