Implementing Labour Reforms in India

As India prepares to implement its new labour codes, it stands at a decisive moment in redefining the social contract between the state, workers, and enterprises. The consolidation of 29 fragmented labour laws into a more coherent and predictable framework holds the promise of wider social security, greater formalisation, and enhanced inclusion of women and gig workers. However, this ambitious transformation unfolds within a persistent ecosystem of complex compliance requirements that continue to deter scale, investment, and the creation of productive jobs.

What are the Key Features of the New Labour Codes in India?

• Code on Wages, 2019: The Code merges four wage-related laws to create a single, uniform wage system for all workers, including those in the unorganised sector. 
  • It guarantees a statutory minimum wage, backed by a national floor wage below which states cannot fix wages. 
  • The minimum wage fixation now considers skill levels, geographical differences, and working conditions, ensuring fairness across all sectors. 
  • The Code promotes gender-neutral employment, mandates timely wage payments, and ensures overtime at twice the normal rate. 
  • Compliance becomes simpler through a uniform wage definition, a friendly Inspector-cum-Facilitator system, and monetary penalties instead of criminal prosecution for minor offences.
• Industrial Relations Code, 2020: This Code streamlines the laws on trade unions, industrial disputes, and standing orders, aiming for industrial harmony, predictability, and labour flexibility. 
  • It formalises Fixed Term Employment, granting contract workers full wage parity and gratuity after one year. 
  • The threshold for layoffs, retrenchment, and standing orders rises from 100 to 300 workers, making scaling easier for industries. 
  • Collective bargaining becomes stronger through formal negotiating unions/councils, while disputes are settled faster through enhanced Industrial Tribunals and direct access after failed conciliation. 
  • The Code regulates strikes with a 14-day notice, recognises "mass casual leave" as strike action, and encourages full digitisation of employment records.
• Code on Social Security, 2020: This Code consolidates nine social security laws and extends social protection to unorganised workers, gig workers, and platform workers, marking a major expansion in India’s welfare net. 
  • It widens ESIC coverage nationwide, mandates it for hazardous occupations, and simplifies EPF procedures with time-bound inquiries and lower appeal deposits. 
  • Gig and platform workers are included through mandatory aggregator contributions and a dedicated Social Security Fund covering life, health, maternity, and old-age benefits.
  • The Code creates a uniform definition of wages, covers commuting accidents under employment injury, and grants gratuity to fixed-term employees after one year.
  • Compliance becomes easier through digital records, randomised inspections, and compounding of minor offences.
• Occupational Safety, Health and Working Conditions (OSH) Code, 2020: The OSH Code merges 13 laws to create a unified, modern framework for workplace safety, health, and welfare. 
  • It introduces one registration, one licence, and one return for establishments, significantly reducing paperwork and compliance burden. 
  • Coverage is expanded to even single-employee hazardous establishments, while migrant workers benefit from travel allowances, PDS portability, and inclusion in a national database. 
  • The Code promotes women’s employment by allowing night work with safety measures and mandates annual health check-ups and formal appointment letters for all workers.
  • It strengthens workplace safety through safety committees, a national OSH Advisory Board, and higher thresholds for factory applicability. 
  • Working hours are fixed at 8 hours/day and 48 hours/week, backed by a shift from imprisonment to monetary penalties for violations.

What are the Major Challenges Faced in Governing Labour Issues in India?

• Fragmented and Complex Regulatory Environment: Prior to consolidation, India had 29 central labour laws, many overlapping and contradictory. 
  • The large number of rules was a major compliance burden; studies estimate firms faced over 69,000 compliances annually under 1,536 legal provisions.
  • This excessive complexity, especially for MSMEs, discouraged formalisation and compliance. 
  • Even after consolidation into four codes, uneven state-level rules and slow adoption of unified digital platforms perpetuate regulatory fragmentation.
  • State labour departments are often understaffed and lack capacity for monitoring, inspection, or dispute resolution.
• Large Informal Workforce: More than 90% of Indian workers remain informal, lacking access to minimum wages or social security. 
  • Micro and small enterprises often perceive formal registration and compliance costs as outweighing benefits. 
  • The labour codes extend social security and formal employment frameworks to gig, platform, migrant, and fixed-term workers, but these entitlements require on-ground enforcement, employer buy-in, and incentives for micro-businesses that dominate the informal economy.
• Low Female Labour Force Participation: Female labour force participation in India rose to 41.7% in 2023–24, but a disproportionate number of women remain concentrated in agriculture and informal sectors, limiting access to high-paying and stable jobs.
  • The share of rural women working in agriculture increased from 71.1% in 2018–19 to 76.9% in 2023–24, while their participation in industry and services declined. This shift has been exacerbated by social norms, safety concerns, and the lack of supportive infrastructure such as childcare facilities.
  • Though the codes allow women to work night shifts and mandate equal pay, structural barriers persist, requiring investments in safe transport, workplace facilities, and community awareness.
• Inclusion of Gig and Platform Workers: Gig and platform work is growing rapidly but remains poorly regulated. 
  • The labour codes legally recognise gig workers and require aggregators to contribute 1–2% of turnover to social security, yet specifics for portable benefits, minimum guarantees, or claim processes are still evolving. 
  • There is a need for innovative, platform-agnostic, digitally-enabled benefit systems suited to the gig economy.
• Youth Unemployment and Skill Mismatch: Despite India’s demographic dividend, youth unemployment remains a critical challenge, with the youth unemployment rate (ages 15–29) hovering around 14.6%, nearly three times the national average. 
  • Female youth unemployment is even higher at 17.8%, indicating persistent gender disparities. 
  • Additionally, urban youth unemployment remains more volatile and elevated, at nearly 19%, underscoring structural labour-market gaps.
  • Education and vocational training often do not match industry needs. 
  • While the codes include reskilling funds and skill development responsibilities, on-ground execution remains limited, particularly for informal and contract workers.
• Resistance from Trade Unions and Political Opposition: Labour reforms face resistance from trade unions fearing erosion of worker protections, citing concerns over layoff thresholds and fixed-term contracts viewed as precarious.
  • Ten large trade unions have strongly opposed the four new labour codes implemented in November 2025, calling them “anti-worker” and a “deceptive fraud,” alleging a significant erosion of worker protections.
  • These conflicting pressures cause protests, delayed state notifications, and hinder consensus-building necessary for smooth implementation.
• Data Poverty and Policy Blindspots: India’s labour governance suffers from severe data poverty, with outdated, fragmented, and incomplete labour statistics. 
  • The absence of a unified Labour Market Information System (LMIS) limits real-time, evidence-based policymaking. 
  • Key surveys like PLFS and NSSO fail to fully capture the 90% informal workforce, while migration data remains weak despite migrants forming one-third of the labour force.
  • Structural policy blind spots persist as labour rigidity, compliance burdens, and credit constraints prevent small firms from scaling, creating the “missing middle”, a landscape dominated by micro-units and a few large firms, with very few medium-sized enterprises that generate stable jobs.

What Measures can India Adopt to Strengthen Labour Governance in India?

• Simplify and Digitize Compliance Procedures:  India must accelerate the implementation of unified digital platforms, single registration, licensing, and consolidated returns to reduce the overwhelming compliance burden. 
  • Drawing lessons from countries like Singapore and South Korea, where integrated digital labour portals ease employer compliance, India can reduce paperwork and promote formalisation. 
  • The government should expedite state-level notifications and provide technical support to MSMEs for digital adoption, fostering a culture of compliance.
• Promote Formalisation with Incentives for Micro and Informal Enterprises:  To bring over 90% informal workers into the formal sector, financial and regulatory incentives like tax relief, access to credit, and simplified procedures should be offered to bridge the “missing middle” in India’s industrial structure.
  • Models from Brazil and Indonesia show that formalisation accelerates when accompanied by social security benefits and reduced compliance costs.
  • Linking formalisation to targeted schemes such as MUDRA loans and digital identity-based social security can encourage voluntary registration and contribute toward inclusive growth.
• Enhance Women’s Labour Participation through Infrastructure and Social Support: Beyond legal provisions in labour codes, India must invest in safe and affordable transport, gender-segregated workplace amenities, and quality childcare facilities as prioritized in the National Gender Resource Centre framework.
  • Public campaigns to shift societal attitudes alongside strengthening laws against workplace harassment (POSH Act) are critical. 
  • International examples from Scandinavian countries indicate that such holistic support significantly improves female labour participation.
• Innovate Social Security Frameworks for Gig and Platform Workers:  The gig economy’s dynamism requires designing portable, technology-driven social security schemes with minimal administrative friction. 
  • India should institutionalize aggregator contributions with transparent, blockchain-enabled benefit tracking, inspired by pilots in the EU and Canada.
  • Government-backed digital wallets and apps to access health, retirement, and insurance benefits can enhance coverage and trust among gig workers.
• Strengthen Enforcement Capacity with Training and Technology:  Investing in capacity building of state labour departments is vital to close enforcement gaps. 
  • This involves recruiting skilled inspectors, providing digital inspection tools and AI-enabled analytics for real-time monitoring. 
  • Establish a unified, real-time LMIS and strengthen data on informal and migrant workers to enable accurate, evidence-based labour policymaking.
  • Collaborative platforms for grievance redressal and dispute resolution, modeled on the Labour Courts of Germany, can increase transparency and worker confidence. Regular audits and independent assessments will ensure adherence and accountability.
• Align Skill Development with Labour Market Needs:  Expanding and aligning vocational training under schemes like Pradhan Mantri Kaushal Vikas Yojana (PMKVY) with evolving industry requirements is crucial to resolve youth unemployment.
  • Partnerships with industry associations for apprenticeships, and leveraging Artificial Intelligence for personalized skill mapping and training recommendations, can raise employability.
  • International apprenticeship frameworks, such as Germany’s dual system, offer valuable blueprints.
• Engage and Build Consensus with Trade Unions and Employers:  Sustained dialogue platforms involving labour unions, employers, and government at state and national levels can balance worker protections with business flexibility. 
  • Lessons from the UK’s social dialogue model highlight how tripartite agreements support smoother implementation and acceptance of reforms. 
  • Transparent communication on the benefits of the new labour codes, coupled with grievance redressal mechanisms, can mitigate resistance.

Conclusion:

India’s new labour codes mark a transformative step in modernising labour governance, promoting formalisation, social security, and inclusion. As ILO Director-General Gilbert F. Houngbo states, “Social dialogue among government, employers, and workers is essential to ensure reforms benefit both workers and businesses.” Moving forward, India must prioritize cooperative federalism, digital compliance, and inclusive skilling to bridge gaps between policy and practice, enabling a resilient workforce that drives equitable economic growth.

Drishti Mains Question:  Labour markets are central to India’s development trajectory. Discuss the key challenges and policy measures needed to strengthen labour governance in India.