India’s New Labour Codes: Beyond the Binary of Public Debates

Introduction

Closing 2025, the central government announced the implementation of the 4 labour codes, effective from 21st November, 2025. In an overhaul of the existing national labour regulatory system, the new labour codes rationalize 29 existing labour laws into 4 codes – the Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; and the Health and Working Conditions Code, 2020.  With most of the items such as social security, labour, industrial disputes, or trade unions falling within the concurrent list or with shared legislative jurisdiction of both central and state governments, it is likely that the new labour regulations will become effective soon, all pervasively, with majority of the states onboarded with intent to follow suit (Mondal, 2025; PTI, 2025; PTI, 2025a).

The new labour codes were first introduced and passed in the Parliament in 2020 and have faced a considerable backlash from the central trade unions of India, ever since, delaying its implementation. Currently, even as the trade unions pledge to oppose the new labour codes tooth and nail, it is unlikely that they would be able to further deter the consensus to overhaul the Indian labour regulatory mechanism, partly due to their own internal contradictions but partly due to the strong consensus that pushes for its passage (Sharma & Mehrotra, 2025; Sarkar, 2025; Mishra, 2025)[1].

The regulatory complexity and inconsistency of the older regime is best stated by Prof. Arvind Panagariya who has written that “you could not implement 100% of the Indian labour laws without violating 20% of them”!  Many have traced the advocacy for such an overhaul since the beginning of the twenty first century, when the first decennia of the macroeconomic reforms had started showing results. The Second National Labour Commission Report of 2002 had put forth the need to rationalize and simplify the complex web of labour laws in India in no uncertain terms, and, by that time, such opinions started proliferating the public discourse in India, regardless of the tilt of such proposed reforms (Second National Commission of Labour, 2002, pp. 12-13; Ahlwalia, 2002; Ghosh, 2004/ 1).

A student of Indian labour history, however, can peg the need for such reforms since even before. Although the First Labour Commission of 1969 had desisted from advising for such an overhaul, leaving the matter to be within the competency of a law commission, it did inadvertently note the inconsistencies of definitions under the various labour laws on fundamental terms such as ‘industry’, ‘workmen’, ‘strike’, ‘wage’, ‘appropriate government’, etc. (National Commission of Labour, 1969, pp. 481-84). Later, by the eve of the macroeconomic reforms, no decisive changes were brought in labour laws, but there existed a strong opinion amongst the policy makers to ‘simplify and rationalize’ the national labour regulatory mechanism[2]. The consensus that is obtained pushing for labour reforms in India today enjoys a strong historical pedigree, thus.

Apart from the considerations to further the ease of doing business in India, the weight of the historical consensus is also due to the peculiar nature of the Indian labour market, segmented into a formal and an informal sector specifically due to the regulatory coverage (Sundar, 2019). With over 90% of the Indian labour force deemed ‘informal’ or ‘unorganized’, the labour codes along with the recently announced labour and employment policy of the government, intends to minimize this informality. We will present a brief overview of this aspect, below.

In the rest of the paper, we shall attempt to decode a peculiar condition of the public debate on the labour reforms in India with reference to a methodological basis of an academic debate which continues to inform our attitudes to labour reforms, even currently. We argue that both sides of the debate are heavily ideologized and rather than taking positions on whether the labour reforms are ‘good’ or ‘bad’ and for whom as such, and since all policies are best adjudged in their empirical evaluative analysis, asking another question of why has the government taken so long for labour reforms? – a better route to take to understand the current policy development. In what proceeds we will not go into the minutiae of the new laws and comparison with the earlier laws, in general, and as has been the trend in most of the recent writings on the new labour codes which we characterize as heavily polarized, but rather do so only inasmuch as it informs our positions[3].

How Does Labour Regulations Influence Informality and Productivity?

(In)Formality of Enterprises and Labour Laws—The Case of Occupational Safety and Health

In India, labour laws influence informality in two ways – one, on an enterprise level and, two, on individual employer-employee contractual level. Firstly, on an enterprise level, many believe that the complex regulatory mechanism under a myriad of labour laws were such that it disincentivized firms to expand beyond a certain size (Ravi, 2025; Hasan & Jandoc, 2013)[4]. Comparing simply the data from Annual Survey of Industries and the Annual Survey of Unincorporated Industries, from 2022-23 shows the relative size differences of the formal and the informal sectors, respectively, across certain industry groups[5],

Table 1: Relative Size across Indicators of the Registered and Unregistered Sectors in Specific Industry Groups

(Value figures in INR)

Source: (NSSO, MoSPI, 2024; National Statistics Office, MoSPI, 2024)

From the above, two readings are important. Firstly, across all industry groups, in terms of average value figures, the formal, registered sector is much bigger than the informal, unregistered sector on account of not merely value added but also in terms of the emoluments for the persons engaged. Thus, this, apart from generally advocating for a formalized, registered sector, also makes for a strong case of ‘trickle-down’, i.e., the more productive an industry is, the better are its workers, in terms of wages. Secondly, and importantly, one sees that whereas there are more establishments per industry group within the informal, unregistered sector, the persons engaged in them dramatically rises for the labor-intensive sectors such as textiles, apparel, and food-processing. Whereas there may be many other constraints working in tandem with the labour regulations that pushes a larger informal sector in terms of participation, simply speaking, there has been a strong argument that labour regulatory mechanism has hindered both, formal jobs and job creation, in general.

As per the government’s claim, the regulatory mechanism put in place under the new labour codes is much simpler. It reduces over 1400 rules to 351 rules, 31 returns to a single electronic return, 181 forms to 73 forms, 84 registers to 8, 8 registrations under Factories Act, Building and Other Construction Workers Act, Contract Labour (Abolition and Regulation) Act, Plantations Act, ESI and EPF Acts to a single registration, 4 licenses to a single license and has eased the non-compliance penal provisions from criminal liability to improvement and non-criminal modalities of penalization.

So how has this simplification and rationalization been achieved, in concretion? Let us take a specific example of occupational safety and health (henceforth, OSH). Across the codes, the functional threshold mandated by the Factories Act of 1948 for registration of establishments has been retained [see, for example, Code on Wages, section 2, clause (n); or the Industrial Relations Code, section 2, clause (m)(i); or the Occupational Safety, Health and Working Conditions Code, Section 2, clause (u)(v)]. However, what has changed, to take the specific example of OSH, is the registration modality (still mandatory). Whereas the Factories Act mandated prior permissions before commencement of operations in a covered establishment, the new code mandates application for registration within 60 days after commencement of operations[6].

Then, look at the comparison between the new OSHWC Code and the older Factories Act, on the issue of Safety Committees. Whereas there is no difference of its constitution in terms of representation of employees and employers, a slight difference is that in the factories act, each establishment where a hazard existed, needed to have a safety committee which could be exempted by the order of an appropriate government (Section 41G); and in the OSHWC Code, such a committee may be mandated by an order of the appropriate government in an establishment or a class of establishments, with the prior mandate having been waived off (Section 22)[7].

Similarly, look at the provision for creches under the chapter on welfare provisions. Whereas in the Factories Act, it was mandated for the employer to provide creche facilities if there were 30 or more women workers employed in an establishment, in the OSHWC Code, this mandate is waived off, and the appropriate government may, by an order or rule, mandate a creche for an establishment wherein more than fifty workers, are ordinarily employed[8]. Finally, lets look at the issue of working hours, whereby the Factory Act mandated that no adult worker shall be required or allowed to work for more than 48 hours a week, and the new OSHWC code merely leaves it to the discretion of appropriate government(s).

Whether these changes are pro-employer or pro-worker, or alternatively, anti-worker or anti-industry, respectively, is better adjudged by the reader but I will urge reservation of judgement after going through the next section. However, clearly, it seems that they are pro-government which in a tripartite industrial relations model is concerned with ensuring minimizing the conflict between employer-employees for the benefit of economic and sustainable growth and also, with the reduction in the cost of governance. To draw out my argument better, reference may be drawn to the issue of inspections and penalization – an important aspect of enforcement of policy.

Thus, whereas there can be no doubt that there has been a reduction of criminalization of offences under labour and industrial laws, in the spirit of Jan Vishwas, the new codes are criticized for diluting the inspectorate powers of the government (Dewan, 2025). There are two changes in the new OSHWC code vis-à-vis the older factories act. One, the inspector in the earlier law is now termed as the “inspector-cum-facilitator” whose powers remain the same vis-à-vis the older Factories Act (compare chapter 9 in OSHWC Code with Chapter 2 and 9 of Factories Act). What has changed, apparently, is that in the inspection procedures the new codes have added self-certification and third-part audits at the behest of the employers (see section 37 in OSHWC). However, when one considers policies under various state governments such as Haryana’s Transparent Inspection Policy or Maharashtra’s similar policy, one realizes that such a development is not new but has been an existing trend within the older regime, too, and which is legitimized for curbing arbitrary and corruptible discretion of local inspectorate of the industrial relations machinery.

Whether such ‘rationalizations’ will be able to boost the employers’ confidence enough to ‘scale’ their operations, create jobs and augment productivity which will benefit both workers and employers, will be determined in the coming days. However, it seems that the tilt of the new codes is a belief in ‘trickle-down’ economics along with rationalization of the government processes relating to labour, incorporating trends which were already existent and in practice. There is a strong chance that this will benefit employers more, but whether that, in turn, doesn’t benefit the workers and the workforce too, is an open question[9].

(In)formality of Employment and the “Contract”

The idea of labour laws determining (in)formality of employment relations – the contract between individual employees and employers – is much more common. In India, the legal safeguards that workers enjoy is best understood as a spectrum of rights covered under various labour laws (in the pre-codified framework of labour regulations) with exclusion criterion built into each layer of regulations. Thus, the right of timely payment of wages was covered under Payment of Wages Act of 1936, the right to minimum wages (in a scheduled employment[10]) was covered under Minimum Wages Act of 1948, right to occupational health and safety and other welfare provisions under the Factories Act, the right to social security under the Employee State Insurance Act of 1948 and the Employee Provident Fund Act of 1951[11], the right to collective bargaining under the Trade Unions Act of 1926[12], right against unfair retrenchment under the Industrial Disputes Act of 1947[13], etc.

In actual practice, however, apart from the exclusion through the thresholds specified under the Factories Act, there has been noted a huge informalization of the employees within the formal sector itself, as was argued by National Commission for Enterprises in the Unorganized Sector Report of 2009, the Challenge of Employment in India, amounting to over 90% of the Indian Workforce, estimated from 2009-10 to 2016-17 (National Commission for Enterprises in the Unorganised Sector, 2009, p. 138). This constituted basically the condition of workers not having a written job contract, which excluded them from making any claims to safeguard their legal worker rights since they cannot establish that they are workers in the first place, or having no social security benefits (National Commission for Enterprises in the Unorganised Sector, 2009, p. 14). Most recently, according to the Periodic Labour Force Survey of 2023-24, ~60% of the regular/ salaried employees had no written job contract across rural and urban sectors in the non-agricultural sector; ~48% of the same demographic were not eligible for paid leave and ~54% of the same did not have any specified social security benefit (NSSO, MoSPI, 2024, p. 17). When qualified that these regular/ salaried workers are themselves ~22% with 60% being self-employed and ~20% being casual workers (in the usual status), the picture of informalization of employment that emerges is rather grim (NSSO, MoSPI, 2024, p. 13).

Clearly, a failing on the part of the existing labour regulatory regime, the new labour codes intend to minimize this coverage through a number of means. Self-admittedly, they mandate written employment contracts for all categories of work and workers, universalization of social security but further tighten the right to collectivization and raise the threshold for ease of ‘hiring and firing’ by the employers. We have, in this regard, a mixed bag of changes which although promote establishing a ‘minimum floor’ of worker protection[14], but also envision greater flexibility for employers by reducing their labour costs and easing the processes of (dis)engagement of labour.

The Binary of Public Debate on Labour Codes in India

One of the reasons why we have reserved judgement, ourselves, and urged the reader to do so too for determining who does the labour code benefit more – the workers or the employers – is because of the specific binary nature of the public debate around the same in India. The contours of it are that one can either be pro-new labour codes or against them based on the notion of a zero-sum game between workers and employers where either the labour codes are pro-employer and anti-worker[15] or they are either pro-employer and not categorically anti-worker[16]. Whereas the former camp is trenchant and almost unanimous in its articulation, the latter argues that the new labour codes, by being pro-employer have positive spillover effects on the Indian labour market but not necessarily on the existing labour force. For the latter, the new codes may curb inter-state distress migration for employment by removing the roadblocks of labour regulations and creating jobs in ‘source’ states, fasten the formalization of employment and provide the workers with better protections, curb the formation of a labour elite, provide a much-needed push for equilibrium in the labour market, fasten the female labour workforce participation, etc. The latter, reiterating the notion of ‘trickle-down’, believes that by improving the ease of doing business in India, the new labour codes are to benefit the India, macroeconomically, a country which has been unable to mobilize the abundance of labour as a comparative advantage for its economic growth.

More basically, the debate seems to be that the labour reforms in India can either be pro-employer or pro-worker, which is conversely, anti-worker or anti-industry, respectively.  The germ of this binary belongs to the earlier years of the twenty first century when a curious methodological maneuver was gaining grounds in trying to make sense of the regional disparities in India, following the macroeconomic reforms. It was being noticed that certain states had performed well, comparatively and significantly, and one of the reasons for the same was the flexibility that state labour law amendments had provided to the employers (Besley & Burgess, 2004; Stern, 2002; Ahlwalia, 2002; OECD, 2007). The usual argument is best captured in the seminal work of Besley and Burgess who wrote,

“In India, the hand of the government has been at least as important as the invisible hand in determining resource allocation. This has provoked heated debate about which aspects of this role have constituted a brake on development. It is apparent that much of the reasoning behind labor regulation was wrong-headed and led to outcomes that were antithetical to their original objectives… Our results show that pro-worker labor regulation resulted in lower output, employment, investment, and productivity in the formal manufacturing sector. Output in the informal sector increased. We also find that pro-worker labor regulation is also associated with increases in urban poverty” (Besley & Burgess, 2004)

In their study, Besley and Burgess correlated the data of the formal, registered manufacturing sector (from Annual Survey of Industries) from 1958 to 1992 with the state-level amendments to the Industrial Disputes Act of 1947 classified into pro-worker (+1), pro-employer (-1) or neutral (0) and came to the above conclusions, looking at the state-wise trends in India (Besley & Burgess, 2004). A rather virulent simplism of the complex political economy of industrial relations, the methodology of Besley and Burgess was picked up by subsequent authors who tried to correct it and deploy it for their own empirical analyses, making it almost staple for an entire ideological camp advocating for pro-employer labour regulations reforms. On the other hand, this produced a strong ‘pro-worker’ camp which came to equate ‘pro-employer’ with ‘anti-worker’ positions.

Though there is much that is methodologically inconsistent in this maneuver of Besley and Burgess, one of the sharpest and most comprehensive critiques came from Aditya Bhattacharjea who argued that this conflation of ‘dispute resolution’ mechanism with favorable business climate was a misreading of the IDA act, that there were several other important sections within the Act which were left out, that there were several other labor regulations which hold as much importance as the IDA Act and, most importantly, that there are several exogamous factors (apart from labour use) which impinged upon the metrics of investment, output, productivity and employment of industries (Bhattacharjea, 2019; Nagaraj, 2007). One of his most provocative claims is that no ‘corrected’ classification of labour laws can explain, satisfactorily, the trends of those indicators over the years and that the Indian labour market is marked by deteriorating outcomes for the workers and there is already a de facto flexibilization of labour-use in India, of late. Despite these, as anyone who follows the contemporary developments of Indian industrialization is aware, there is still not a satisfactory ‘taking-off’ that has been intended by successive policy regimes.

In fact, moving beyond the binary of the debate, both academically and publicly, it is worth asking why the labour codes were only implemented now, given the currency that they have had over the years, for at least three decades now. Many have said that this is due to the fact that coalition politics under the UPA-led regime until 2014 or the Vajpayee regime before, restricted the labour reforms or that, in addition to this, a major chunk of the reforms had already been set in motion under the various state governments. Moreover, apart from the fact that India stands at that cusp of her demographic dividend journey where most of the workforce is youth and which has been largely ignorant of the historical struggles which shaped the earlier labour regulations in India, coupled with a strong tendency of informalization of employment, across both formal and informal sectors, and the fact that the trade unions have been unable to garner the popular support to delay and dismantle the agenda for labour reforms, I believe, the timing of the policy development visa-vis other industrial affairs and policies, provides a key.

2025 has been a difficult year for Indian Industry where apart from the reciprocal tariff shocks from the West (Mishra, 2025; Tharoor, 2025; ENS Economic Bureau, 2025), several commentators have started calling into question the dismal effect of the various de facto industrial policies that were introduced by the NDA-led government, since 2014. Popular amongst these have been the cuts in Corporate Taxes, Production Linked Incentives (Dhar, 2024; Mishra, 2025), the Make in India Policy (Nagaraj, 2024; Raghavan, 2024), the Skill India Program (Sharma, Behera, & Mehrotra, 2025; Bansal, 2025), amongst others. Scholars have pointed towards a worrisome de-industrialization effect that is shaping up and an equally negative pattern of investments (Nagaraj, 2025; Kumar, 2025) along with rather poor labour market outcomes for the Indian workforce (Mehrotra, 2025; Bharati, 2025; Sinha, 2024; Mishra, 2025). In amidst such trends, the ‘hurried’, unilateral decision to enforce the new labour codes, rather than inspiring confidence, may just be a symptom of industrial and, ergo, macroeconomic sickness; the burden of whose reversal may be too much to carry for a regulatory mechanism known historically for its weak ‘on-ground’ efficacy.

Conclusion

A number of voices in the public sphere have called the new labour codes as an undoing of the victories that the historical labour rights movement had been able to secure in India. Depending on one’s ideological inclination, this has been considered as a problem of the newly implemented labour codes or its promise since it intends to unleash the productive allocation of resources in the Indian economy, creating more jobs and formalization. Which side will posteriority favor as correct is yet to be seen.

In this article, however, we have tried to show that in all probability, the result will be a mixed bag given that the projections are an accretion of a rather methodologically ideologized wedge. Whereas there may be a greater formalization of employment, it is also likely that the benchmark of formality would have changed. Similarly, although it may boost employment generation by removing the constraints of capital, there may emerge new constraints marked by political economic instability. Besides, one must also contend with the fact that a major chunk of the labour reforms agenda had already been achieved at the state level due to the fact of its jurisdiction falling within the concurrent or state lists under the constitution. However, in all probability, as we have argued, the labour codes are not enough to remedy the problems of industrialization that India has started showing and much more headway would be needed in the allied policies to drive the reforms towards its intended objectives.