Centre Notifies Four New Labour Codes

Labour Reform or Regulatory Labyrinth? India’s Labour Codes Come into Effect

On 21st November 2025, India officially entered a new era of labour regulation, replacing 29 fragmented labour laws with four consolidated Labour Codes. The government touts this as a landmark reform, promising simplified compliance, enhanced worker protections, and modernisation aligned with current economic realities. Yet, the very scale of this overhaul raises powerful questions about execution, equity, and the balance of power between employers and workers.

The Policy Instrument: Four Labour Codes

The four Labour Codes—Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and Occupational Safety, Health and Working Conditions Code (2020)—unite swathes of outdated legislation under new rubrics. Significant provisions include:

• Universal Minimum Wages: The Code on Wages guarantees a statutory floor wage, applicable nationwide, disallowing states from fixing substandard minimum wages.
• Gig Worker Integration: The Code on Social Security formally incorporates gig and platform workers, a significant demographic in the urban economy.
• Fixed-Term Employment: The Industrial Relations Code introduces contracts with parity in wages and benefits as a mechanism to meet dynamic business demands while protecting workers.
• Commuting Accidents Covered: The Occupational Safety Code expands liability to workplace-related injuries that occur during commuting.

While the scope of these reforms is commendable—particularly the inclusion of India's burgeoning gig workforce—the stark shift places enormous burdens on both administrative enforcement and state capacity. These codes rely heavily on the states' readiness to adopt uniform rules and the Centre’s ability to ensure compliance.

The Case For: Streamlined Regulations and Worker Protections

Proponents of the Labour Codes are correct to highlight the rationalisation of archaic laws, many of which date back to colonial governance and were staggeringly fragmented. For instance, the Code on Wages replaces four distinct statutes, including the Minimum Wages Act of 1948, with universal minimum wages applicable even to unorganised sectors. A statutory floor wage ensures that workers across states receive a basic, decent income.

Even more notable is the explicit recognition of gig and platform workers—a demographic that India’s labour laws had entirely overlooked until now. With the gig economy projected to grow from 7.7 million workers in 2023 to over 23 million by 2029, according to NITI Aayog, addressing their vulnerabilities is critical. Establishing a Social Security Fund to provide benefits like provident funds and maternity compensation shows promise.

Additionally, fixed-term employment under the Industrial Relations Code aligns India with global flexibility norms. Workers employed under such contracts now qualify for gratuity upon completing just one year—a stark improvement over traditional norms requiring five years.

The Case Against: Centre-Heavy Design and Implementation Gaps

However, where the Labour Codes streamline legislation, they risk creating new operational and institutional bottlenecks. Consider the Industrial Relations Code, which raises the threshold for requiring government permission during layoffs from 100 workers to 300. While businesses may see this as “ease of doing business,” the risk of unregulated retrenchment looms large for employees in mid-sized firms—especially in states unlikely to establish strong protections.

Skepticism grows regarding enforcement mechanisms. A key provision mandates annual health check-ups for workers above 40, under the Occupational Safety Code. Yet India’s inspectorates for factory and labour welfare—already stretched thin—are in no position to implement this nationally, particularly in districts struggling with labour shortages in compliance machinery.

The reliance on a universal floor wage, while guaranteeing adequacy, does not resolve longstanding issues of wage disparity between states with very different living costs. States like Kerala and Punjab can easily absorb higher wage floors. But for poorer states, this mandates could accelerate informalisation as businesses seek to reduce costs by evading formal labour contracts altogether.

International Comparison: South Africa’s Reform Template

South Africa’s 2018 Minimum Wage Act offers valuable lessons. Much like India’s Code on Wages, the law established a uniform minimum, though indexed to productivity growth and regional inequality. However, South Africa also complemented it with an aggressive subsidy program for small and medium enterprises (SMEs) to absorb rising labour costs without mass layoffs. Early assessments suggest fewer workers in informal labour due to public support for SMEs.

India's reform, on the other hand, lacks such calibrated safeguards. Without transitional compensatory mechanisms for industries grappling with dual challenges of compliance and high turnover, there is little evidence to suggest informalisation will recede in the short term.

Where Things Stand

India’s Labour Codes are at once bold and precarious. Much depends on the states, particularly poorer ones, in following through with identical vigour on these wide-ranging reforms. Even more critical is solving enforcement capacity—inspectorates at state levels form the spine of these changes, yet reforms here have remained largely overlooked.

While universalising protections like minimum wages and ESIC coverage is undoubtedly progressive, the aggressive push for deregulated layoffs and labour flexibility betrays a worrying tilt towards employer interests. In a democracy as large and unequal as India, the codes’ success will hinge less on their promise than on actual enforcement.

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