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India Overhauls Decades-Old Labour Laws in Bid to Boost Manufacturing
India has implemented its most extensive labour reforms in decades, consolidating 29 federal laws into four streamlined codes-a move the government claims will modernize regulations, attract foreign investment, and formalize the gig economy. The reforms, approved by Parliament in 2020 but delayed for five years, reduce labour-related rules from 1,400 to 350 and slash mandatory compliance forms for businesses from 180 to 73.
Industry Welcomes Changes as Unions Decry 'Erosion of Workers' Rights'
Business leaders and economists have hailed the reforms as a critical step toward easing India's notoriously rigid labour market, which has long been blamed for stifling manufacturing growth. Nomura, a global financial services firm, described the changes as part of a broader push to accelerate economic reforms, particularly in response to protectionist measures like the U.S. tariffs under former President Trump. The reforms, Nomura noted, signal India's intent to integrate deeper into global value chains (GVCs) and attract foreign direct investment (FDI).
Yet trade unions have condemned the overhaul as the most "sweeping and aggressive abrogation of workers' rights since independence," sparking protests nationwide. In Delhi, 200-300 demonstrators-led by left-aligned unions unaffiliated with Prime Minister Narendra Modi's ruling Bharatiya Janata Party (BJP)-gathered this week to demand the laws' withdrawal. Akashdeep Singh, a 33-year-old factory worker employed by an international beverage company near Delhi, told the BBC the reforms "will benefit only employers, not workers like us."
"Pending grievance cases for labourers already run into millions. Workers can't even lodge complaints, and now the government is excluding a huge section of the workforce from protections."
- Sudeep Dutta, national secretary, Centre for Indian Trade Unions (CITU)
Key Reforms: Gig Worker Rights, Wage Protections, and Controversial Layoff Rules
The new codes introduce several worker-friendly measures, including:
- Mandatory appointment letters for all employees,
- Uniform minimum wages across sectors,
- Free annual health check-ups for workers over 40,
- Gender-neutral pay standards, and
- Social security expansions covering gig workers for the first time.
Experts like Arvind Panagariya, a Columbia University economist and former chairman of India's Niti Aayog think tank, argue the reforms resolve long-standing contradictions in the old laws, where "you could not implement 100% of the rules without violating 20% of them." However, two provisions have drawn fierce opposition:
- Easier layoffs: The threshold for government approval before mass retrenchments has risen from 100 to 300 workers, a change critics call a direct attack on job security.
- Stricter strike rules: Workers must now give a 14-day notice before striking-previously required only for state-run firms-limiting spontaneous collective action.
"The old rules barring layoffs in firms with 100+ workers were draconian, crippling India's competitiveness against Bangladesh, Vietnam, and China. Flexibility is key to attracting entrepreneurs and technology."
- Arvind Panagariya, economist, Columbia University
Economic Debate: Will Reforms Spur Growth or Deepen Inequality?
Proponents, including Nomura economists, argue the higher retrenchment threshold will encourage firms to scale up operations, potentially boosting manufacturing and long-term employment. They point to China's labour flexibilities in the 1990s-2000s as a model for India's industrial expansion.
Skeptics like Arun Kumar, another economist, counter that weak private investment stems not from labour laws but from low wages and stagnant demand. He warned the reforms could further "weaken workers' bargaining power at a time when technology is displacing jobs and unemployment remains high." "The new code won't address these structural issues," he told the BBC.
Implementation Challenges: Dual Compliance and Union Resistance
While the reforms aim to simplify compliance, employers may face temporary dual regulatory burdens as states align with central rules, according to staffing agency BDO India. Companies must also adapt to changes in wage structures, HR systems, and social security provisions-all while navigating ongoing union resistance.
With over half of India's working-age population outside the formal labour force and nearly 60% self-employed, the old system's failures were evident. Yet the reforms' impact on manufacturing growth and investment remains uncertain, and the transition period is expected to test both businesses and workers.
What's Next?
The government has framed the changes as a balance between easing business operations and protecting workers, but the coming months will reveal whether the reforms can deliver on both promises-or deepen divisions between industry and labour.
