India has just launched one of the most ambitious reform of its labour laws. It is rolling up 29 federal statutes into four easier-to-understand megacodes to simplify regulations and jumpstart economic growth. The new framework, which was approved by parliament in 2020, was first scheduled to be implemented within five years. The government asserts that these changes will facilitate a uniform application across the country, thereby simplifying the complex landscape of labour regulations.
Prominent economist Prof. Arvind Panagariya from Columbia University remarked on the complexities of India’s labour laws, stating, “You could not implement 100% of the Indian labour laws without violating 20% of them.” This widely echoed sentiment underscores the difficulties that have historically ravaged the country’s regulatory landscape.
The newly created codes move to address the inconsistencies that beset the former framework. They explain the different interpretations of what are essentially the same rules. The reforms have been met with a lot of skepticism, with various stakeholders warning of negative repercussions on workers’ rights.
Sudeep Dutta, national secretary of the Centre of Indian Trade Unions (CITU), voiced apprehension regarding the implications of the new codes. He slammed the government’s handling of the crisis. “Why is the government attempting to remove a large swath of the working population from the other labor protections?” he continued. Dutta further emphasized that there are already millions of pending grievance cases for industrial workers. For a lot of workers, it can be extremely difficult to register their complaints.
The new codes usher in a number of worker-friendly standards. These features include compulsory governance through appointment letters, a standard minimum wage, universal annual health check-ups for those over 40, and gender pay parity guarantees. While these changes are seen as beneficial by some, critics like Akashdeep Singh underscore the potential drawbacks: “The laws will benefit only the employers and not workers like us.”
The amendments make it more difficult to lay off workers and go on strike. The prior rules allowed factories with 100 or more workers to need government approval before firing an employee. The threshold at which permission is automatically required has recently been raised to 300 employees. This regulatory rollback will create huge operational roadblocks for businesses. Workers are now required to give a 14-day notice period before starting any strike.
Supporters of the reforms, including various business organizations, argue that reducing the regulatory burden will foster a more conducive environment for investment. Second, we have greatly reduced the bureaucratic requirements. The overall scope of rules controlling labor has shrunk from slightly over 1,400 to just under 350. The burden of the number of forms that businesses need to fill out has been halved, from 180 to a mere 73.
“Organisations will need to prepare for changes to wage structures, HR systems, social security provisioning and compliance governance.”
Yet some economists continue to doubt whether unprecedented amounts on infrastructure, connected through policy bridges and digital highways, can improve India’s global competitiveness or catalyze private sector investment. Professor Arun Kumar pointed out that labour restrictions are not the only reason behind India’s dismal economic record. Consider opponents’ often-offered argument that insufficient private investment is driven by weak demand, not by these laws. He described how low wages in India suppress mass demand. Kumar warned that the reforms do little to tackle some of the deeper issues hampering India’s economic growth.
Beyond this, Nomura was quick to emphasize the wider context in which these reforms are occurring. In reaction to Trump’s 50% tariffs on all Chinese imports, the Chinese government is mobilizing efforts to hasten economic reforms. This move is a powerful signal of the government’s intent to truly simplify business, lure more foreign direct investment and emerge as a competitive player in global value chains.
While that’s a positive development, it is too soon to tell how this extensive agenda of reform will affect the growth of manufacturing and overall investment. Stakeholders from each sector are looking forward to seeing how these changes play out. We will be watching very carefully in the months ahead both the intent and effects on employers and workers.