The Debate on Labour Reforms in India: Balancing Flexibility and Protection

India’s labour laws have long been a subject of intense debate – too rigid for employers trying to grow, yet too weak for workers trying to survive. For decades, businesses complained about a regulatory maze that made hiring and firing complicated, while trade unions warned that any loosening of rules would expose workers to exploitation. That tension reached a decisive point on 21 November 2025, when the Government of India formally implemented four consolidated Labour Codes, replacing 29 fragmented central labour laws with a unified framework covering wages, industrial relations, social security, and occupational safety. The debate this triggered – across factory floors, Parliament corridors, and courtrooms – captures the core dilemma of labour reform in any developing economy: how do you make industry competitive without making workers vulnerable?

Why India needed labour reforms in the first place
The four Labour Codes: what changed
Code on Wages, 2019
Industrial Relations Code, 2020
Code on Social Security, 2020
Occupational Safety, Health and Working Conditions Code, 2020
The case for reform: flexibility and global competitiveness
The case against: workers’ rights under threat
The unorganised sector and gig workers: the biggest test
What a balanced approach looks like

Why India needed labour reforms in the first place

India’s labour law framework was largely inherited from the colonial era, with several key legislations dating back to the 1930s and 1940s. While these laws served an important purpose in protecting workers after Independence, they were drafted for a very different economy. Over time, the accumulation of overlapping laws – each with its own definitions, thresholds, and compliance requirements – created a system that was ad hoc, complicated, and mutually inconsistent. Employers, especially small and medium enterprises, struggled with compliance. Workers, paradoxically, were often left unprotected because many laws only applied to establishments above a certain size, leaving out the vast majority of India’s workforce in the unorganised sector.

The Second National Commission on Labour, appointed as far back as 1999, had recommended consolidating central labour laws into broader umbrella legislation. International financial institutions like the IMF and the World Bank had also argued that India’s relatively rigid rules around retrenchment and factory closures were impeding investment and employment growth. Reforming the system, however, was easier said than done – every proposed change became a flashpoint between industry and labour.

The four Labour Codes: what changed

The government’s solution was to consolidate 29 laws into four comprehensive codes, each addressing a distinct area of labour regulation.

Code on Wages, 2019

This code merged four existing wage-related laws, including the Minimum Wages Act, 1948 and the Payment of Bonus Act, 1965. Its most significant change was extending the right to a statutory minimum wage to all workers across both the organised and unorganised sectors – not just those in “scheduled employments” as before. The code also introduced a national floor wage, below which no state can set its minimum wage, creating a baseline income standard across India.

Industrial Relations Code, 2020

This code merged three major laws governing trade unions, standing orders, and industrial disputes. One of its most contested provisions is the increase in the threshold for prior government approval for layoffs, retrenchment, or closures – from 100 workers to 300 workers. This means establishments with fewer than 300 workers can now retrench employees without seeking government permission. Supporters argue this gives businesses the flexibility needed to respond to market conditions; critics call it a legalisation of hire-and-fire. The code also introduced a clear pathway for trade union recognition, requiring 51% membership support for a union to be recognised as the sole collective bargaining agent.

This code consolidated nine existing social security laws and made a landmark move by formally recognising and extending social security coverage to gig and platform workers for the first time. Aggregators like ride-hailing and food delivery platforms are required to contribute between 1% and 2% of their annual turnover to a welfare fund for these workers. Fixed-term employees now become eligible for gratuity after just one year of service, down from the earlier requirement of five continuous years.

Occupational Safety, Health and Working Conditions Code, 2020

Consolidating 13 laws, this code sets unified safety and health standards across industries. It standardises working hours at 8 to 12 hours per day and 48 hours per week, mandates free annual health check-ups for workers above 40, and formally permits women to work night shifts across all establishments – subject to their consent and mandatory safety measures.

The case for reform: flexibility and global competitiveness

From the perspective of Indian industry and economic policymakers, the reforms address genuine structural problems. Manufacturing’s share in India’s GDP has remained stubbornly below 20%, and foreign investors have frequently cited complex, inconsistent labour laws as a reason for choosing other destinations. The new codes reduce over 1,400 rules to approximately 350, simplify compliance into a single registration and a unified return, and create a more predictable regulatory environment.

Economists have also pointed to the long-term potential of extending social security. Analysts from India Ratings and Research noted that while the changes may initially strain small and informal firms, greater access to minimum wages and social security could strengthen household incomes and consumption over time. The government has emphasised that the reforms are intended to bring India’s labour framework in line with global standards, framing them as central to the vision of Aatmanirbhar Bharat – a self-reliant India.

The gig economy statistics make the social security expansion particularly significant. NITI Aayog projects that India’s gig and platform workforce will grow from around 10 million in 2024-25 to over 23.5 million by 2030. Without a legal framework that covers these workers, a rapidly growing segment of the labour force would remain entirely outside the social protection net.

The case against: workers’ rights under threat

Trade unions across India have pushed back sharply. Ten central trade unions issued a joint statement condemning the implementation as a “blatantly unilateral” act of “deceptive fraud” against workers, with coordinated protests held across more than 500 districts on 26 November 2025. The IndustriALL Global Union, an international federation, wrote to the government urging it to withdraw the codes and engage in genuine dialogue.

Their concerns fall into several categories. First, there is the question of retrenchment flexibility. Raising the threshold for government approval from 100 to 300 workers effectively means that most establishments can hire and fire without regulatory oversight, which unions argue deepens job insecurity. Under the new codes, standing orders that define basic service conditions will apply only to establishments with over 300 workers – according to union representatives, this could leave nearly 90% of workers in the organised sector without basic legal safeguards on service conditions.

Second, there are concerns about collective bargaining. The new requirement that a union must command 51% membership to be recognised as a sole bargaining agent is seen as setting an unrealistically high bar, particularly in industries where employer pressure can discourage union membership. The extension of mandatory 60-day strike notice requirements from public utilities to all industrial establishments is also criticised as potentially criminalising spontaneous collective action.

Third, unions question the procedural legitimacy of the reforms. Critics note that the Indian Labour Conference – the country’s apex tripartite forum bringing together government, employers, and workers – had not been convened since 2015, and that the consultations conducted were too brief and too one-sided. The three codes passed in 2020 were cleared by Parliament during a truncated session in which opposition parties were boycotting proceedings, raising questions about the depth of democratic deliberation behind the reform.

The unorganised sector and gig workers: the biggest test

The most significant and unresolved challenge of Indian labour reform is the unorganised sector. India’s unorganised or informal workforce constitutes roughly 85% of the total workforce, yet most labour protections have historically applied only to the organised sector. The new codes attempt to address this by extending minimum wage guarantees and social security coverage universally – but the gap between legislation and ground reality remains wide.

As of mid-2025, over 30.98 crore unorganised workers had registered on the e-Shram portal, a government database designed to bring these workers into the formal social protection net. Yet registration alone does not translate into protection – welfare schemes must be notified, rules finalised, and benefits actually disbursed. The Code on Social Security, passed in 2020, had already defined gig and platform workers in law, but its provisions could not be operationalised for years because state-level rules were not notified.

Several states have moved independently to address gig worker protection. Rajasthan, Karnataka, Bihar, and Jharkhand have all passed state-level laws providing registration, social security, and welfare benefits to platform workers. Karnataka’s law, for instance, mandates a welfare fee of 1% to 5% on every transaction between a gig worker and the platform. These state-level experiments are important, but as opposition leaders and labour activists have pointed out, India still needs a robust national legal and social security architecture for gig workers that goes beyond voluntary or piecemeal measures.

What a balanced approach looks like

The debate around labour reform in India is not simply a binary choice between protecting workers and enabling growth. Evidence from other economies suggests that labour market flexibility and worker protection are not mutually exclusive – they can coexist if reforms are designed carefully and implemented with strong enforcement mechanisms.

The new Labour Codes, on paper, attempt this balance. Universal minimum wages, portability of benefits through Aadhaar-linked universal account numbers, recognition of gig workers, and simplified compliance all represent steps in the right direction. But as economists and legal experts have warned, the real impact hinges on rigorous execution – governments must notify detailed state rules, employers must modernise HR systems, enforcement must be strengthened, and workers must actually be made aware of their rights.

The shift towards an “inspector-cum-facilitator” model – where labour inspectors are expected to guide and assist rather than just penalise – is a promising design choice. But without adequate training, resources, and institutional accountability, it risks becoming a mechanism that insulates non-compliant employers from scrutiny rather than one that genuinely helps workers assert their rights. The concerns raised by unions that enforcement and grievance redressal mechanisms have been weakened, not strengthened, will need to be addressed through transparent implementation and genuine tripartite dialogue.

India’s social security coverage has expanded dramatically – from about 19% of the workforce in 2015 to over 64% by 2025 – which shows that progress is possible. The task now is to ensure that the legal gains embedded in the Labour Codes translate into lived realities for the millions of workers – in factories, on delivery bikes, and in fields – whose economic security depends on getting this right.

What do you think? If a reform gives employers more flexibility to hire and fire workers while simultaneously promising better social security, does the net outcome benefit or harm the average Indian worker? And given that nearly 85% of India’s workforce is in the unorganised sector, can any labour law reform be considered truly effective if its strongest protections still apply mainly to the organised sector?

References

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Table of Contents

Why India needed labour reforms in the first place 🔗

The four Labour Codes: what changed 🔗

Code on Wages, 2019 🔗

Industrial Relations Code, 2020 🔗

Code on Social Security, 2020 🔗

Occupational Safety, Health and Working Conditions Code, 2020 🔗

The case for reform: flexibility and global competitiveness 🔗

The case against: workers’ rights under threat 🔗

The unorganised sector and gig workers: the biggest test 🔗

What a balanced approach looks like 🔗