India’s New Labour Codes 2025: A Balanced Reform or a Shift in Power?

Introduction: The Long-Awaited Consolidation

After more than five years of legislative preparation, drafting of rules by states, and repeated delays, the Government of India finally notified the four new labour codes in November 2025, paving the way for nationwide implementation in phases beginning early 2026. The Codes on Wages (2019), Industrial Relations (2020), Social Security (2020), and Occupational Safety, Health and Working Conditions (2020) replace 29 archaic central labour enactments and over 10,000 overlapping rules and regulations with just four comprehensive laws and approximately 350 streamlined provisions.

The stated objectives are straightforward: simplify compliance for employers, extend social security to millions of unorganised and platform workers, improve workplace safety, and strike a modern balance between flexibility for businesses and protection for workers. Yet, as with any major structural reform, opinions remain sharply divided. Employer organisations have largely welcomed the changes as long-overdue modernisation, while several trade unions and worker-rights advocates fear an erosion of hard-won protections.

India’s New Labour Codes 2025: A Balanced Reform or a Shift in Power?

The Four Pillars of the New Framework

1. The Code on Wages, 2019

This is the only code already partially in force since 2019. It universalises the concept of minimum wages across all sectors (organised and unorganised), mandates timely payment, and standardises the definition of “wages”. Crucially, basic pay plus dearness allowance must now constitute at least 50% of gross salary (earlier practice varied between 30–40% in many firms). The remaining 50% can comprise allowances, bonuses, and statutory contributions. While this raises the base on which provident fund, gratuity, and overtime are calculated (benefiting long-term savings), it simultaneously reduces take-home salary in the short term for many salaried employees because more money is diverted into retirement and social-security funds.

2. The Industrial Relations Code, 2020

Perhaps the most debated of the four, this code governs hiring, termination, layoffs, retrenchment, closure, trade unions, and industrial disputes. Key changes include:

Raising the threshold for government permission for layoffs, retrenchment, and closure from 100 workers to 300 workers.
Introduction of fixed-term employment (FTE) as a formal category, giving employers legal certainty for seasonal or project-based hiring.
Mandatory 14-day notice (extendable to 60 days in some cases) before any strike, even in non-essential services, and inclusion of “mass casual leave” within the definition of strike.
Recognition of a single negotiating union or council in establishments with multiple unions.

3. The Code on Social Security, 2020

For the first time, gig and platform workers (delivery executives, drivers, etc.) are formally recognised and brought under a social-security net. The code aggregates nine earlier laws covering provident fund, employees’ state insurance, maternity benefit, gratuity, and employee compensation. Notable expansions:

Gratuity eligibility reduced from five continuous years to one year for fixed-term employees.
Mandatory registration of all establishments (including those with even one worker) on the forthcoming national portal.
Creation of social-security funds for unorganised and gig workers, to be financed partly by employers, aggregators, and government contribution.

4. The Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code)

This consolidates 13 laws on factories, mines, plantations, contract labour, and inter-state migrant workers. Important provisions:

Single registration and licensing instead of multiple licences.
Raising factory definition thresholds in some cases from 10 to 20 workers (with power) and 20 to 40 (without power).
Formal appointment letters mandatory for all workers, including casual and contract workers.
Legal permission for women to work night shifts, subject to consent and stringent safety measures.
Daily working hours can be spread over 12 hours (including rest intervals), though weekly hours remain capped at 48 in most interpretations.

Intended Benefits: The Government’s Case

From New Delhi’s perspective, the reforms address decades-old rigidities that ranked India poorly on global “ease of doing business” indices until the mid-2010s. Overlapping laws, inspector raj, and unpredictable union action had deterred manufacturing investment, especially labour-intensive export sectors that powered East Asia’s growth miracle. By reducing compliance burden (from 180+ forms to around 70) and providing hiring-and-firing flexibility to firms with fewer than 300 workers (which constitute over 95% of Indian establishments), the government hopes to attract fresh capital and generate millions of formal jobs.

The inclusion of gig workers, portability of benefits, and a cleaner wage definition are genuine progressive steps. Extending gratuity to fixed-term employees and mandating appointment letters for casual workers are measures that previous governments repeatedly promised but never delivered.

Areas of Concern: The Trade Union Critique

Despite these positives, several provisions have attracted strong criticism:

Easier Layoffs and Closures: Raising the threshold to 300 workers effectively places the vast majority of Indian firms outside prior government scrutiny for retrenchment. Critics fear this could encourage “hire-and-fire” practices, especially in a country with weak unemployment insurance.
Curbs on Collective Action: The expanded definition of illegal strikes and the requirement of prior notice even in non-public-utility services are seen as diluting the right to strike. The negotiating-union mechanism may marginalise smaller unions and centralise bargaining power with management-friendly unions.
Take-Home Salary Impact: The 50% floor on basic wages will increase provident fund and gratuity contributions, reducing monthly cash-in-hand for many middle-income employees until salaries are restructured.
Working-Hour Flexibility: Allowing a 12-hour spread-over (with overtime pay beyond eight hours) has raised fears of exploitation, particularly when combined with weakened strike provisions.
Women’s Night Shifts: While legally empowering, implementation of safety and transport provisions remains uncertain in many states, potentially exposing women to coercion or unsafe conditions.
Living Wages vs Minimum Wages: The codes continue to focus on statutory minimum wages rather than transitioning to a “living wage” framework as envisaged in the Directive Principles of State Policy (Article 43). In 2025, seventy-five years after the Constitution, most states still fix minimum wages well below credible living-wage estimates.

Implementation Status as of December 2025

As of early December 2025, the Central Government has notified all four codes and published draft central rules. Most states and union territories have pre-published or finalised their own rules (labour being a concurrent-subject matter). A high-level tripartite meeting in November 2025 reportedly fixed tentative rollout dates:

Code on Wages: already largely operational.
Remaining three codes: phased implementation from 1 April 2026, with some states possibly starting earlier.

A unified national e-portal for registration, returns, and inspections is under final testing.

Will the Reforms Deliver?

Historical evidence is mixed. States that liberalised labour regulations earlier (Gujarat, Rajasthan, Madhya Pradesh) did see some increase in factory-sector employment, but national-level job creation remained sluggish because infrastructure, skill gaps, and bureaucratic hurdles outweighed labour-law rigidity as constraints.

Conversely, southern states with relatively stronger worker protections (Kerala, Tamil Nadu) continue to attract investment because of superior human capital, industrial peace achieved through dialogue rather than confrontation, and better governance.

The success of the 2025 codes will therefore depend less on the text and more on:

Robust unemployment insurance and reskilling mechanisms (still underdeveloped).
Effective tripartite consultation at state level.
Strict enforcement of safety and social-security provisions for gig and contract workers.
Willingness of employers to restructure salaries so that workers do not suffer short-term pay cuts.

A Delicate Balancing Act

India’s new labour codes represent the most ambitious attempt since 1947 to modernise a colonial-era legal architecture. They contain genuine progressive elements—universal minimum wages, recognition of platform workers, portable benefits, and simpler compliance—that could, if implemented fairly, benefit millions.

Yet they also tilt the balance towards managerial prerogative in ways that previous generations of Indian policymakers avoided. In a country with chronic job scarcity and weak social safety nets, any dilution of dismissal protection or collective-bargaining rights carries risk.

The ultimate test will be empirical: over the next five years, do formal manufacturing and service jobs grow significantly? Do real wages rise? Does the share of workers receiving provident fund, health insurance, and gratuity increase markedly? Only time will provide definitive answers.

For now, the four new labour codes stand as a bold but contested experiment—one that reflects India’s continuing struggle to reconcile the competing demands of rapid economic growth and decent work in the twenty-first century.

How India Reached the 2025 Labour Codes

India’s labour law framework in 2025 is the outcome of nearly eight decades of post-Independence policy evolution, colonial inheritance, and repeated (mostly unsuccessful) attempts at comprehensive reform. Understanding this long history is essential to evaluate whether the four new codes mark genuine progress or merely repeat past patterns.

1. The Colonial Legacy (1850–1947)

Most pre-2019 central labour laws originated in the British colonial period and were designed not to protect workers but to discipline a restive industrial workforce and prevent disruption to colonial trade:

Workmen’s Compensation Act, 1923
Trade Unions Act, 1926
Payment of Wages Act, 1936
Industrial Disputes Act, 1947 (passed just months before Independence but rooted in wartime emergency powers)

These laws granted limited rights (compensation for injury, recognition of unions) while retaining strong state control over strikes and layoffs.

2. The Nehruvian Era (1947–1966): Pro-Worker Tilt

After Independence, the Indian Constitution (1950) incorporated progressive ideals in Part IV (Directive Principles of State Policy):

Article 39: equitable distribution of wealth
Article 41: right to work and education
Article 42: just and humane conditions of work
Article 43: living wage, decent standard of life

Under Jawaharlal Nehru and Labour Minister Jagjivan Ram, the 1950s and early 1960s saw the enactment of landmark protective legislation:

Industrial Disputes Act amendments (1953–56) making government permission mandatory for layoffs and closures in factories with 100+ workers (Chapter V-B, added in 1976 and later expanded)
Employees’ State Insurance Act, 1948
Employees’ Provident Funds Act, 1952
Minimum Wages Act, 1948 (extended to more sectors)
Bonus Act, 1965

This era deliberately tilted the balance towards workers, reflecting the socialist orientation of the Congress party and the influence of left-leaning unions (INTUC, AITUC, HMS).

3. The Emergency and After (1970s–1980s): Peak Rigidity

During the 1970s, especially after Indira Gandhi’s 1975–77 Emergency, labour laws became even more protective:

1976 amendment to Industrial Disputes Act extended Chapter V-B (prior government permission for layoffs) to all establishments with 300+ workers, later reduced to 100 in 1982.
Contract Labour (Regulation & Abolition) Act, 1970 gave inspectors wide discretionary power.
Frequent state-level amendments further tightened hire-and-fire rules.

The result was near-impossibility of closing loss-making factories (the famous “sick mill” phenomenon in Maharashtra and Gujarat) and a flourishing “inspector raj” where bribes became the only way to navigate compliance.

4. First Reform Attempts (1991–2002)

The 1991 economic liberalisation exposed the cost of labour-market rigidity. East Asian economies (South Korea, Taiwan, China) had surged ahead with export-led manufacturing because their labour laws were far more flexible. In contrast, India’s share of global manufacturing remained stuck below 2%.

1991: National Renewal Fund proposed to compensate workers laid off from public-sector restructuring (largely failed).
Second National Commission on Labour (2002, chaired by Ravindra Varma) made far-reaching recommendations: consolidate laws, raise layoff threshold to 300 workers, allow greater use of contract labour, introduce fixed-term employment, and shift from “minimum” to “living” wages. Almost none were implemented due to opposition from central trade unions and Left parties.

5. Incremental State-Level Experiments (2004–2014)

Frustrated by central inaction, several states began amending labour laws under Article 254(2) of the Constitution:

Rajasthan (2014, under BJP government) raised multiple thresholds and simplified inspections.
Gujarat, Madhya Pradesh, Maharashtra, and Andhra Pradesh introduced fixed-term employment and eased contract-labour rules.
These states saw modest increases in factory-sector employment, but national impact remained limited.

6. The Modi Era (2014–2025): From Promise to Notification

After the BJP’s 2014 victory, labour reform became a flagship agenda:

2015–2017: Early attempts to amend the Industrial Disputes Act and Contract Labour Act met fierce resistance and were withdrawn.
2019–2020: Instead of piecemeal amendments, the government adopted the consolidation strategy first recommended in 2002. Four codes were passed by Parliament:

Code on Wages (August 2019)
Industrial Relations Code (September 2020)
Social Security Code (September 2020)
OSH & Working Conditions Code (September 2020)

Implementation was repeatedly delayed because labour is a concurrent subject: the Centre could enact the laws, but states had to frame matching rules. Political calculations (assembly elections, farmer protests, COVID-19, and trade-union opposition) pushed the timeline from 2020 → 2021 → 2022 → 2024 → finally November 2025.

7. The 2025 Turning Point

By mid-2025, 28 out of 36 states and union territories had pre-published or finalised their rules. Rising unemployment pressure (especially youth unemployment crossing 17% in some quarters) and the government’s desire to showcase a major structural reform ahead of the 2029 general election created the political window for notification in November 2025.

Thus, the four new labour codes are not a sudden revolution but the culmination of a 75-year debate between two competing visions:

Vision A (1947–1990): Strong worker protection as part of India’s socialist commitment.
Vision B (1991–2025): Labour-market flexibility as essential for industrialisation and job creation.

The 2025 codes represent the strongest shift yet towards Vision B since Independence, while retaining some protective elements to maintain political acceptability.

This historical arc explains both the optimism of reformers who see the codes as “1991 moment for labour laws” and the deep anxiety of trade unions who fear a return to the pre-1947 era of unregulated hiring and firing. The outcome will depend not only on the legal text but on enforcement, judicial interpretation, and whether India can finally build the social safety nets (unemployment insurance, universal health coverage, widespread skilling) that East Asian economies paired with their labour flexibility decades ago.

Comparing India’s 2025 Labour Codes with the East Asian Labour

How the Tiger Economies Liberalised Labour Markets – and What India Can Learn in 2025–2030

India’s new labour codes are frequently described by the government and business chambers as the “East Asia moment” for Indian manufacturing. The historical reference is clear: South Korea (1960s–1980s), Taiwan (1970s–1990s), Singapore (1965 onwards), Malaysia (1980s–1990s), and coastal China (1994 Labour Law and later flexibilisation) all introduced greater hire-and-fire flexibility, curbed militant trade unionism, and attracted massive labour-intensive export industry. Within one generation they moved millions from rural poverty into factory jobs and achieved 7–10% annual GDP growth.

Below is a systematic, evidence-based comparison between what those economies actually did and what India’s four new labour codes (notified November 2025) have achieved so far.

Dimension	South Korea (1961–1987)	Taiwan (1970–1995)	China (1994–2010)	Singapore (1965–present)	India 2025 Labour Codes	Key Gap / Similarity
Freedom to lay off / close plant	Until 1987: almost impossible without Ministry permission. After 1987 Great Labour Struggle: gradual easing; full flexibility only after 1997 Asian crisis	Very restrictive until mid-1980s; relaxed gradually; by late 1990s no prior permission required in most cases	1994 Labour Law required “economic grounds” + consultation; in practice local governments routinely approved closures from 2000 onward	Complete flexibility from day one (Employment Act 1968)	Threshold raised from 100 → 300 workers; still requires 15–60 days’ notice + retrenchment compensation. >300 workers still need government permission	India remains more restrictive than post-1997 Korea or China
Fixed-term / contract labour	Initially banned; legalised 1989, widely used after 1998	Allowed but limited until 1996 amendments	Exploded after 2008 Labour Contract Law ironically encouraged outsourcing/dispatch labour	Always permitted with almost no restrictions	Fixed-Term Employment formally recognised for first time; contract labour thresholds relaxed	India catching up, but East Asia went much further
Right to strike	Completely banned 1961–1987; legalised only after 1987 uprising	Heavily restricted until lifting of martial law (1987); still sector-specific bans	Strikes technically illegal without official union approval; tolerated only briefly in 2010 wave	Strikes require 14-day notice + secret ballot; very rare in practice	14–60 days’ notice mandatory in all sectors; “mass casual leave” counted as strike	India 2025 is actually stricter than post-1987 Korea/Taiwan
Trade-union structure	One government-controlled federation (FKTU) until 1987; independent unions legal only after 1987	Single party-union until late 1980s; multiple unions allowed post-1987	Only ACFTU (official) unions allowed; independent unions illegal	NTUC in symbiotic relationship with PAP government	Recognises multiple unions but creates “sole negotiating union/council” if one has ≥51% membership	India moving toward Singapore/Korea pre-1997 model
Wage bargaining	Government set guideline wages 1960s–70s; tripartite wage council from 1988	Centralised until 1980s; enterprise-level from 1990s	Local minimum wages; enterprise bargaining dominant	NWC (tripartite) issues annual guidelines that are non-binding but almost universally followed	Floor-level minimum wages fixed by Centre/states; no national tripartite wage council yet	India lacks Singapore-style coordinated flexibility
Social safety net during transition	Almost non-existent until late 1980s; national pension only 1988, unemployment insurance only 1995	Very limited until 1980s; Labour Insurance 1950 → National Health Insurance 1995	Hukou system restricted rural migrants until 2010s; unemployment insurance weak; relied on high growth to absorb laid-off SOE workers	CPF (provident fund) from 1955 acted as powerful forced-saving + housing + medical safety net	EPFO/ESIC being expanded; gig-worker funds announced but not operational; unemployment benefit still absent for most	India’s biggest lag – East Asia paired flexibility with strong contributory safety nets
Female night-shift work	Banned until 1980s; gradually relaxed	Restricted until 1990s	Allowed with local permission from 1994	Never restricted	Now allowed with consent + safety measures	India finally aligned
Actual outcome on manufacturing jobs	Manufacturing employment rose from 9% (1960) → 29% (1991)	Manufacturing jobs grew 5× between 1965–1995	100+ million rural migrants absorbed into factories 1995–2015	Manufacturing + high-end services; near full employment	Manufacturing still ~16–17% of workforce in 2025	India has not seen the East Asian job surge yet
GDP per capita trajectory	$158 (1960) → $6,500 (1990) → $12,000 (1997)	$180 (1960) → $13,000 (1995)	$300 (1980) → $4,500 (2010)	$500 (1965) → $60,000+ today	$2,400 (2025)	Gap remains huge

Critical Lessons for India in 2025–2030

1. Flexibility alone is not enough

East Asian miracles combined labour-market reforms with massive public investment in infrastructure, vocational training, and export incentives. India’s labour codes reduce one friction (compliance burden), but power shortages, poor roads, and skill deficits remain larger bottlenecks.

2. Safety nets were built in parallel or immediately after

Singapore’s CPF (1955), Korea’s national pension (1988) and unemployment insurance (1995), Taiwan’s NHI (1995) were introduced at the same time or shortly after flexibilisation. India still lacks any meaningful unemployment benefit and universal health coverage.

3. Strike curbs worked because growth delivered rising real wages

Workers tolerated restrictions on collective action because real wages rose 6–10% annually for two decades. If India’s growth remains consumption- and service-led rather than manufacturing-led, worker discontent could rise.

4. Local government discretion was key

In China and Korea, provincial or local authorities routinely approved layoffs and attracted investment with tax breaks. Indian states have rule-making power under the concurrent list, but many remain politically allergic to “hire-and-fire”.

5. Political legitimacy mattered

Singapore achieved industrial peace through a tripartite compact (government–employer–union). Korea and Taiwan liberalised only after democratisation in 1987. India is attempting major flexibilisation in a full democracy with strong regional labour traditions – a far harder political terrain.

Verdict in December 2025

India’s 2025 codes are the most significant pro-flexibility shift since 1947, but they are still considerably milder than the reforms East Asian economies enacted at comparable stages of development. Korea and Taiwan waited until per-capita income crossed ~$4,000–6,000 (in today’s dollars) before introducing full hire-and-fire freedom and unemployment insurance. India is attempting partial flexibilisation at ~$2,400 per capita without the accompanying safety net.

The East Asian experience suggests that India’s new codes are a necessary but highly insufficient condition for a manufacturing employment surge. Unless the Centre and states rapidly build unemployment insurance, universal health coverage, large-scale skilling programmes, and industrial infrastructure over the next five years, the 2025 reforms risk delivering more “fire” than “hire” – and repeating the 1991–2014 story of modest formal job growth despite liberalisation.

The codes have opened the door. Whether India walks through it into an East Asian-style jobs miracle or merely creates a more investor-friendly environment without mass employment creation will be decided not in Parliament, but in budget allocations, state-level enforcement, and the speed with which the promised social-security funds for gig and unorganised workers become operational.