OPINION | India’s Labour Law Reform: Building the foundation for Viksit Bharat

Labour Law

India’s labour law reform is more than just a regulatory update; it is a strategic enabler for the country’s economic transformation. By consolidating 29 central legislations into four comprehensive Labour Codes, the Government has created a unified framework that promises simplification, flexibility, and fairness. This reform comes at a critical juncture as India pursues its Viksit Bharat vision and aims to become a $10 trillion economy by 2035 — a goal that hinges on sustained employment generation and global competitiveness.

Simplification for Ease of Doing Business

For decades, businesses have navigated a maze of overlapping labour laws, creating inefficiencies and compliance risks. The new Codes replace this complexity with a streamlined structure: single registration, single licence, and consolidated returns. For example, contractors can now obtain one central licence instead of multiple state-level approvals, and companies can file a single return covering all four Codes. Digital filings and the Inspector-cum-Facilitator model further enhance transparency and reduce discretionary enforcement. These measures will lower transaction costs, improve predictability, and attract investment, strengthening India’s position as a global manufacturing hub.

Flexibility Without Compromising Worker Rights

The Codes introduce fixed-term employment and flexible daily working hours, allowing businesses to manage seasonal peaks and fluctuating demand while retaining weekly hour limits and overtime safeguards. This is particularly relevant for manufacturing SMEs and labour-intensive sectors like textiles and apparel, enabling them to optimise capacity utilisation. At the same time, mandatory overtime pay at double the wage rate and weekly caps ensure worker protection. These changes strike a balance between agility and fairness, critical for scaling industries and creating jobs.

Unlocking Talent and Elevating Safety Standards

One of the most progressive provisions is permitting women to work night shifts across all sectors, subject to consent and robust safety measures such as secure transport and safe working conditions. Employers must also provide annual health check-ups for workers over 45 years old and establish Safety Committees in establishments with 500 or more employees. These steps elevate workplace safety and inclusivity to global benchmarks, fostering trust and improving productivity.

Driving Equity Through Wage and Benefit Reforms

The Codes strengthen worker welfare through mandatory minimum wages and a national floor wage, reducing disparities like those seen in the NCR, where rates for unskilled workers range from ₹18,456 in Delhi to ₹11,021 in Uttar Pradesh. Harmonisation will raise incomes at the bottom of the pyramid and promote social equity. Gratuity provisions have also evolved: it will now be calculated on a broader wage definition (basic pay plus allowances), and fixed-term employees will qualify after just one year. While this increases employer liability, it reinforces fairness and formalisation — a cultural shift towards transparency.

Social Security for the New Workforce

For the first time, the Codes create enabling provisions for social security schemes for gig and platform workers, covering health, maternity, accident insurance, and old-age protection. Though these schemes are yet to be notified, their inclusion signals a commitment to bringing India’s informal workforce into the safety net critical for a digital-first economy and inclusive growth under Viksit Bharat.

How This Supports Viksit Bharat

The Labour Codes are designed to boost investment, drive job creation, and promote inclusivity. Simplified compliance reduces operational risk, making India more attractive for global investors. Flexible employment models encourage businesses to expand capacity and hire more workers. Gender-friendly provisions and social security for gig workers broaden workforce participation. Mandatory appointment letters, uniform wage definitions, and gratuity reforms strengthen transparency and trust. Together, these measures create a business-friendly environment with strong worker protections, positioning India as a competitive alternative to other Asian economies.

The Road Ahead

Reforms on paper must translate into action. Governments need to fast-track state rule notifications, build a central compliance dashboard, digitise labour courts, and run multilingual awareness campaigns. Industry must conduct impact assessments, upgrade HR and payroll systems, and educate employees. Public-private collaboration through task forces and pilot programmes will be vital to ensure smooth adoption.

India has taken a bold step towards a future-ready labour market. Now, the challenge is execution, and the opportunity is transformative. The Labour Codes are not just laws; they are the foundation for Viksit Bharat, where economic growth and social equity go hand in hand. 

- With contribution from Somya Rustagi, Senior tax professional.

(Puneet Gupta, Partner, People Advisory Services- Tax, EY India.)

Views are personal, and do not represent the stance of this publication.