In a landmark decision poised to reshape India's economic landscape, the government has officially notified the implementation of four new labour codes. This move, finalized on Friday, marks the most significant overhaul of the country's labour laws in decades, replacing a complex system of 29 separate statutes with a unified and modern framework.
A Welcome Shift from Regulatory Maze
For years, the intricate web of labour regulations imposed massive costs on businesses and stifled economic growth. A key issue was regulations tied to firm size, which actively discouraged companies from expanding. This created a perverse incentive for businesses to remain small, particularly in labour-intensive manufacturing sectors.
A study by ICRIER highlighted this problem, revealing that a majority of manufacturing firms in India employ fewer than 10 workers. This fragmentation has had severe implications, limiting formal job creation and trapping workers in low-productivity roles within the informal sector. The new codes aim to dismantle this maze, easing the compliance burden and encouraging the emergence of larger, more competitive firms.
Key Benefits and Wider Implications
The newly implemented codes are designed to achieve multiple objectives. They seek to modernise labour market regulations, widen the social security net for all workers—including those in the gig and platform economy—and encourage the formalisation of millions of jobs.
Notably, the reforms also aim to boost female labour force participation and ensure that fixed-term employees receive benefits and conditions on par with permanent staff. This transition to a simpler, more predictable framework is a welcome change. It aligns with the needs of a labour-abundant economy that has, paradoxically, seen a trend towards capital-intensive and labour-saving production processes, as noted in the India Employment Report 2024.
The Road Ahead: Beyond the Labour Codes
While the notification of the labour codes is a critical first step, experts and the government's own editorial advise that it should not be the last. The broader challenge of regulatory complexity remains immense.
A report from Teamlease titled 'Compliance 3.0' paints a staggering picture: a typical Indian firm must comply with 1,536 acts, fulfill 69,233 compliances, and make 6,618 filings across various government levels. Recognising this, efforts are underway at both the central and state levels. As per an Axis Bank report, 16 states have implemented 38 complementary reforms covering land, labour, licensing, and decriminalisation of minor offences.
The Union Budget 2025-26 had also emphasised the need for further regulatory reforms, particularly concerning inspections and compliances. Addressing this wider regulatory maze is now the urgent next step to fully unlock India's economic potential.
