India’s new labour framework is a historic reform but laws alone can’t create jobs and lend the job market dynamism

The notification marks the culmination of a reform process initiated in 2015, with years of tripartite consultation and delay due to the rule-making responsibilities of states under the Constitution’s Concurrent List.

The move is being described by the government as a “historic simplification" of India’s labour governance—intended to reduce compliance burdens for employers, widen social protection and make the country’s labour market more responsive to a changing economy.

The respective states of India must now pass their own rules and regulations to ensure the four labour codes are fully implemented within their jurisdictions

Reform objectives: Whose flexibility and whose protection?

Labour reforms in India, considered one of the ‘big’ pending reforms, have always been ideologically contested. Are the Codes meant to protect labour, provide flexibility to employers, formalize the workforce, or spur job creation?

In truth, they seek to do all four at once, though tensions among these goals remain.

• For employers, the new regime promises ease of compliance: a single registration, licence and return system instead of dozens of filings; higher thresholds for layoffs and closures; and fixed-term employment that enables time-bound hiring.

• For workers, it offers wider protection: a national floor wage, written appointment letters, health and safety coverage, maternity and provident-fund benefits for gig, platform and contract workers.

• For the state, it offers a path to job formalization: digitized e-Shram cards, portable benefits and a unified inspection and facilitation system.

In short, the Codes try to replace the rigid dualism of India’s labour market—where a small formal segment enjoys heavy protection and elite status, while the vast informal majority has none—with a continuum of graded protections linked to digital identity and compliance. This continuing and entrenched dual structure, a phenomenon called ‘casualization of labour,’ has had sometimes ugly and violent manifestations, endangering social stability and harmony.

What changes on the ground

According to the government’s notification and supporting documentation:

• All workers must receive appointment letters, ending informal oral contracts.

• Universal social security now extends to gig and platform workers, with aggregators contributing 1–2% of their turnover to welfare funds.

• Women may work night shifts in all sectors, including mining and IT, provided safety measures are assured.

• Free annual health check-ups are mandated for workers over 40.

• Fixed-term employees gain parity with permanent staff, including gratuity after one year (instead of five).

• A National Occupational Safety and Health (OSH) Board will unify safety standards; the ‘inspector-cum-facilitator’ model replaces punitive inspections with guidance.

The Codes also envisage faster dispute resolution through two-member tribunals and portability of provident fund (PF) and Employee State Insurance Corp (ESIC) benefits across states—critical for India’s 120 million odd migrant workers.

The labour union critique and wage debate

The rollout has not been without dissent. Trade unions, including the Bharatiya Mazdoor Sangh (BMS), which is ironically affiliated with the ruling BJP, have expressed mixed reactions. While they welcome codification, they lament what they call “unimplemented promises" and the lack of tripartite dialogue before final notification.

In a detailed memorandum to Union labour minister Mansukh Mandaviya, the BMS urged that immediate attention be paid to pension ceilings, welfare cess restoration and regularisation of contract and scheme workers.

Other central trade unions went further, demanding a repeal of all four Codes, arguing that they weaken collective bargaining and legitimize contractualization. They fear that de-registering a union might become easier and the requirement of a single negotiating union with 51% labour representation might fragment their voice.

They have called for a statutory minimum wage of ₹26,000 per month (indexed to inflation) and criticized the government for not revising the National Floor Level Minimum Wage (NFLMW) since 2017—a lapse also noted by a Parliamentary Standing Committee.

This debate over minimum wages reveals a core tension: the Codes create the framework for a national floor, but without periodic revision and strong enforcement, the promise risks remaining symbolic.

Labour reform is not the same as job creation

The government’s hope is that streamlined regulation will encourage firms—especially small businesses—to scale up and hire formally. Yet, employment generation depends on far more than labour laws.

India’s unemployment challenge arises from a skills mismatch, inadequate infrastructure, rigid land markets and policy uncertainty as much as from labour regulation. The new Codes can reduce transaction costs, but cannot by themselves create demand for labour. Job creation requires:

• Human-capital development: expansion of apprenticeship programmes, skill-certification linked to industry needs and integration of vocational courses into mainstream education.

• Infrastructure and logistics: efficient transport, reliable power and digital networks that lower operational costs for manufacturing and services.

• Ease of doing business: predictable taxation, faster dispute resolution and simplified compliance across all regulatory fronts—not just labour.

• Export competitiveness: integration with global value chains and labour-intensive manufacturing growth (textiles, footwear, electronics) that can absorb semi-skilled youth.

Without these enablers, easier hiring and firing may only formalize precarious jobs rather than expand stable employment.

Formalization and social justice

Where the Codes could be transformative is in bringing India’s 90% informal workforce into the net of formal jobs. Appointment-letter requirements, digital wage payments and mandatory social-security registration make informality more visible—and therefore governable.

For millions of construction, plantation and domestic workers, universal ESIC coverage and portability of benefits promise a first experience of state-backed security.

If successfully implemented, the Codes could expand India’s social-security coverage from 64% of the workforce in 2025 to near-universal levels within a decade.

But formalization will also increase compliance costs for small firms and may push some marginal enterprises back into informality unless the shift is accompanied by simplified digital systems and fiscal incentives.

The missing part: Dialogue and trust

Labour reforms succeed only when grounded in social partnership. The delay in convening the Indian Labour Conference (last held in 2015) has eroded institutional dialogue.

As the BMS noted in its November 2025 letter, “economic, technological and industrial reforms must advance in tandem with labour reforms." Without ongoing consultation, even well-designed laws can breed resistance or token compliance.

Restoring trust between unions, employers and government is thus essential. Implementation committees at the state level, joint awareness campaigns on the Codes and transparent grievance mechanisms could bridge the gap between legislative intent and workplace reality.

India’s quest for a dynamic labour market

The long-term test of these reforms lies in whether they can make India’s labour market dynamic yet humane—encouraging enterprise while ensuring dignity and security for workers.

A genuinely dynamic market requires both flexibility in hiring and predictability in livelihoods. The Codes tilt towards flexibility, but they also plant the seeds for universal protection. The challenge is to ensure that flexibility does not turn into vulnerability.

If effectively enforced—with regular wage-floor revisions, expanded ESIC coverage and genuine collective bargaining—the four Labour Codes could move India closer to the model of ‘flexicurity’ seen in advanced economies: combining adaptability for firms with assurance for workers.

Governance test

The implementation of the four Labour Codes marks the end of a legislative journey and the beginning of a governance test. It symbolizes a shift from colonial-era statutes to a unified framework designed for a digital, mobile and globalizing workforce. It represents a long overdue upgrade of labour laws to reflect current reality and of the nature of work and of employment relationships in the future. It tries to respond to the maxim, that in the age of AI and automation, there will be ‘plenty of work but not enough jobs.’

Yet, laws alone do not create jobs. A dynamic labour market does. And so does a workforce equipped with human capital for the 21st century. India’s employment renaissance will depend on skills, investment and productivity growth as much as on codified rights. If this reform is accompanied by parallel investments in education, skilling, infrastructure and enterprise support, it could indeed become the cornerstone of inclusive growth.

An important challenge not to be missed is ensuring women’s participation in the paid workforce, on par in participation and pay parity with men.

In essence, the success of India’s labour reform will not be judged merely by the number of laws repealed, but by whether it delivers what the Constitution’s Directive Principles envisioned: “just and humane conditions of work" alongside “the right to adequate means of livelihood."

The author is senior fellow with Pune International Centre.