India has commenced the implementation of new labor codes, which consolidate 29 federal labor laws into four simplified codes. These reforms, approved by parliament in 2020, are now scheduled for uniform nationwide implementation following a five-year delay. The initiative aims to reduce the number of labor rules from approximately 1,400 to 350 and decrease the required company forms from 180 to 73.
Industry and Government Perspectives
Businesses have expressed support for these changes, attributing past restrictive labor practices to slow growth in the manufacturing sector. Nomura, a broking firm, views the changes as part of a broader government strategy to accelerate economic reforms, attract foreign direct investment (FDI), and integrate into global value chains (GVCs).
The government states the reforms are intended to modernize outdated laws, simplify compliance procedures, and protect workers' rights. Additionally, they aim to provide legal recognition for India's growing gig workforce for the first time.
Key Provisions and Areas of Contention
Worker-Friendly Measures: The new codes include several provisions aimed at worker welfare, such as:
- Mandatory appointment letters
- Uniform minimum wages
- Free annual health check-ups for workers over 40
- Gender-neutral pay
These measures, combined with strengthened social security and an expanded definition of employees to include gig workers, are seen by some experts as potentially contributing to the formalization of India's large informal economy. Arvind Panagariya, an economist at Columbia University and former chairman of the Indian government's think tank Niti Aayog, noted that the codes address previous inconsistencies where various definitions for the same rules were prevalent.
Contentious Clauses: Trade unions have raised objections to two specific provisions within the reforms:
- Layoff Threshold: The requirement for government permission before laying off employees now applies to factories with 300 or more workers, an increase from the previous threshold of 100 workers. Sudeep Dutta, national secretary of the Centre for Indian Trade Unions (CITU), stated that this change effectively excludes a significant portion of the workforce from labor legislation.
- Strike Notice: Workers are now required to provide a 14-day notice before initiating a strike. This rule was previously applicable only to state-run companies. Mr. Dutta argued that this provision diminishes workers' ability to engage in collective bargaining.
Economic Debate
Economists such as Prof. Panagariya argue that previous rules restricting layoffs in firms with 100 or more workers were restrictive, hindering India's competitiveness compared to other countries. He suggests that a flexible labor market is essential for India to attract entrepreneurs, capital, technology, and global connections, which can drive economic transformation. Economists at Nomura concur, stating that the increased worker threshold for retrenchment is expected to encourage companies to establish larger factories, thereby boosting the manufacturing sector and expanding employment opportunities.
Conversely, Prof. Arun Kumar asserts that labor restrictions alone do not account for India's competitiveness challenges or the slow pace of private-sector investment in new factories. He posits that inadequate demand, linked to low wages, is a more significant contributing factor, and that the new labor codes will not impact these aspects. Prof. Kumar also cautions against weakening workers' bargaining power, particularly in an environment of technological job displacement and high unemployment, emphasizing the importance of retaining existing worker rights.
Public Response
Demonstrations against the new codes have taken place across the country. A protest in Delhi, for example, saw 200-300 participants, primarily organized by left-leaning trade unions not aligned with the ruling Bharatiya Janata Party.