Draft labour rules not only weaken worker protections but also hurt economy

The draft rules for four new labour codes, released for public consultation on December 30, further weaken workers’ rights. Taken together, the codes and the draft rules not only don’t expand the coverage of minimum wages, they also remove legal protections for a large number of workers (informalisation?), facilitate replacing permanent jobs with contractual ones, and notionally widen social security without substantive benefits.

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In other words, the codes and rules will make workers more precarious while enabling their employers to exploit more and fatten the bottom lines. These will eventually lead to seriously damaging the economy, as will be clear soon.

Before looking at the draft rules, it is important to first examine how the new labour codes laid the foundation for an anti-worker, pro-business environment.

How labour codes hurt workers

The Wage Code doesn’t expand minimum wage coverage. It adds none of the hitherto excluded workers, constituting 90 per cent of the total workforce, as reflected in the Periodic Labour Force Survey (PLFS) data, showing workers with no social security cover of any kind.

These include establishments engaged in agriculture and domestic work employing one to five workers; household helpers and other unpaid workers; gig, platform, and migrant workers; and MGNREGS, ASHA/ANM, and Anganwadi workers and helpers who work under Central government schemes but do not receive statutory minimum wages.

Elimination of permanent jobs

The Industrial Relations (IR) Code paves the way for the elimination of permanent jobs and dilutes legal protections against arbitrary firing, as well as safeguards related to workers’ health and safety.

It introduces a new category of workers in the “Standing Orders” for industrial establishments – Fixed-Term Employees (FTEs). Until now, five categories of workers existed: (i) permanent, (ii) temporary, (iii) apprentices, (iv) probationers, and (v) badlis (temporary substitutes for absentee workers).

There is no provision for making FTEs permanent, nor is their tenure fixed. They could be hired for a week, a month or a year and hence, even though they are entitled to pay and social security parity, including gratuity after a year, with permanent workers, none of it makes sense until they are hired for a continuous period of more than a year. Rather, FTE would encourage employers to stop hiring permanent workers, replacing them with FTEs even for “core” activities.

Contract labour in core activities

Notionally, the Occupational Safety, Health and Working Conditions (OSH&W) Code prohibits contract work in “core” activities, but sufficient leeway has been provided to bypass this restriction. Contract labour may be engaged in core activities if (a) the work does not require full-time employment for most of the year or there is a sudden increase in the volume of work, and (b) if the Centre declares an activity to be non-core.

The IR Code raises the threshold for prior government approval for hiring and firing from industrial units with 100 or more workers to those with 300 or more. This effectively removes legal protection for workers in units employing between 101 and 299 workers.

According to the Annual Survey of Industries (ASI) 2023–24, this places 18.5 per cent of workers in organised manufacturing outside protection against arbitrary firing. In total, 37.5 per cent of workers in organised manufacturing, those employed in factories with up to 299 workers, are now vulnerable to arbitrary dismissal.

The OSH&W Code also raises the threshold for mandatory health and safety provisions, increasing it from factories employing 10–20 workers to those with 20–40 workers, depending on whether power is used. This dilution of coverage weakens health and safety protections for a large section of workers.

Poor coverage

The Social Security Code pays lip service to coverage. Even though migrant, gig, self-employed, home-based, and platform workers are deemed eligible, benefits are effectively limited to (i) “establishments” with 10 or more workers, including migrant workers, and (ii) “factories” with 20–40 or more workers, depending on whether power is used.

By excluding establishments with fewer than 10 workers, the Code leaves 98.63 per cent of all establishments outside its ambit. According to the Sixth Economic Census (2014), 95.5 per cent of establishments employed 1–5 workers, while 3.13 per cent employed 6–9 workers.

The thresholds for providing provident fund (PF) and ESI coverage, as well as gratuity and maternity benefits, remain unchanged. While FTEs are entitled to gratuity after one year of continuous service, this applies only if they are given contracts longer than a year. The draft rules further weaken workers’ protections.

Protections delayed, risks immediate

The draft rules under the Wage Code do not specify daily or weekly working hours. Instead, they state that a “normal working day” will be “inclusive of one or more specified intervals” and determined “as per general or special orders, issued from time to time”.

In effect, the 8-hour working day is done away with, even though India is a signatory to the International Labour Organisation (ILO) convention that recognises an 8-hour day as the “normal” working day. Moreover, work beyond eight hours would not attract overtime pay, since the term “overtime” is used only in the context of work performed on a “rest day”.

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While the earlier rules under the Wage Code allowed a “spread over” of work up to 16 hours a day, this provision does not find a place in the current draft, though it can always be notified in the future. It can also be reasonably assumed that many states will continue extending the working day to 10–12 hours as “spread over” time, as several of them, such as Rajasthan, Maharashtra, Gujarat and Uttar Pradesh, have already done.

The weekly working hour, however, is capped at 48 hours in the draft rule 34 (1) under the OSH&W Code (another ILO convention benchmark India has signed).

Here is a warning.

This cap of a 48-hour week is no safeguard. It can easily be subverted by employing two sets of workers – one set working for, say, 12 hours a day for four days in a week (48-hour week) and another for 12 hours a day for the rest three days, without breaking the law.

Minimum wage, social security

Both minimum wage and social security coverage will come without a specified timeline. To provide for minimum wages, a “technical committee” to fix work standards and a Central Advisory Board to fix the floor wage are needed. Similarly, for social security, a Social Security Fund needs to be set up and schemes to be framed.

For unorganised workers to access social security, employers are required to register on “designated” portals, such as the Shram Suvidha Portal or any other portal that may be notified, and workers must also register on these portals and obtain Aadhaar-linked cards.

These are time-consuming processes, as migrant workers have already experienced. This can be gauged from the fact that the e-Shram portal has failed, even after five years, to ensure access to free rations, as directed by the Supreme Court in 2020.

For gig and platform workers, eligibility requires being “engaged” for a minimum of 90 to 120 days, depending on whether they work with a single aggregator or multiple aggregators.

Ironically, when the codes and rules are enforced, sometime in March-April 2026, all the advantages for employers (in firing, providing health and safety measures, etc.) will take immediate effect. For workers, however, the promise of minimum wages and social security coverage may be delayed by months or even years.

Why hurting workers hurts the economy

Multiple global studies have shown that longer working hours are directly linked to low wages for workers and profit maximisation for businesses.

An ILO study in 2024 on China’s ‘996’ work culture said that “insufficient wages” and a “lack” of protections and benefits forced workers to put in long hours to “meet basic living needs”. In India and similar economies, another ILO report from 2022 said longer working hours were “driven mainly by low hourly wages and/or a desire to maximise earnings”, meaning workers often worked long hours “just to make ends meet”.

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Several studies show that long working hours lead to lower innovation and productivity. A 2023 ILO report said longer hours of work were “generally associated with lower unit labour productivity”.

Indian workers are already overworked and stressed by global standards. The 2022 ILO report cited earlier said 51 per cent of Indians worked more than 49 hours a week and were among the most overworked in the world.

Why the sudden push?

The Centre passed the four labour codes in 2019 and 2020, but did not operationalise them. What prompted it to spring a surprise on November 21, 2025?

It was surely emboldened by the dramatic electoral victory in Bihar earlier in the month. But it was not necessarily because of mounting economic concerns – falling consumption, industrial production, tax collections, deflation (headline inflation below 2 per cent since June 2025), and FDI and FPI leaving India – that it chose to weaken labour laws to boost business confidence.

Consider the following.

Labour laws have never been a concern for businesses in recent decades. In 2015, the World Bank published a survey of Indian enterprises (manufacturing and services) on labour law “rigidity” while preparing its ‘Ease of Doing Business’ report. It found that 35.7 per cent of firms surveyed considered it a “minor obstacle”, 17.3 per cent a “moderate obstacle”, and only 10.4 per cent a “major obstacle”. Businesses were far more worried about other issues.

The deeper insight

To get a clearer sense of what actually troubles Indian business, consider the 24-page report released by NITI Aayog on the night of January 2, 2026, following the prime minister’s review of infrastructure projects under ‘PRAGATI’.

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While national dailies gave extensive coverage to the review, they missed what was plainly evident: Administrative clearances delayed 51 per cent of infrastructure projects.

In all, the PRAGATI review report listed eight issues, dominated by administrative hurdles:

• Administrative approvals/clearances: 51 per cent. Breakdown: Forest/wildlife/environmental approval (20 per cent), right of use/way approval (18 per cent), construction approval (7 per cent) and power utility approval (6 per cent).

• Land acquisition: 35 per cent

• Law and order: 3 per cent

• Financial issues: 3 per cent

• Others: 8 per cent

The category “Others” is not explained. Nor does the report mention labour law rigidity or worker-related issues.

Why, then, did the Centre rush through the codes and rules, this time as it did in 2019-2020, but couldn’t dare to operationalise for more than five years?

Your guess is as good as mine.