Will new labour codes bring transformative changes? Answer is not clear yet

While there is no official word on it, the sudden announcement of making four labour codes “effective from 21st November 2025” – after having put these into a limbo since 2019-2020 – is more likely influenced by the historic win of the NDA in the recently-concluded Bihar election.

These codes – the Code on Wages of 2019, Industrial Relations Code of 2020, Code on Social Security of 2020, and Occupational Safety, Health and Working Conditions Code of 2020 – were notified long ago, but their implementation was on hold because the Centre didn’t notify the rules (to make the codes operational), fearing strong backlash from opposition-ruled states and trade unions.

The Centre did circulate “draft” rules in 2020 for public opinion but didn’t notify post that. Now the Ministry of Labour & Employment says fresh drafts will be circulated in a week and put up for public opinion for 45 days. Once the final rules are notified, the codes will come into effect.

Stalling growth, tepid private investment, huge fall in FDI

The other factor for the sudden development may be attributed to the fact that growth is stalling, private investment remains tepid, and the FDI inflows dropped by 96 per cent in FY25 to $355 million. The first quarter GDP growth at 7.8 per cent surprised everyone and the mood is upbeat post the GST rate cuts, but despite that, the RBI’s projection for the next three quarters shows growth progressively slipping to 7, 6.4, and 6.2 per cent.

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Meanwhile, a business daily has reported that the private sector continued to withdraw investment plans for the fourth consecutive quarter ending in September – to the extent of Rs 14.3 lakh crore, surpassing the previous peak of Rs 13.4 lakh crore in March 2019. This withdrawal of investments announced earlier is attributed to trade-related uncertainties (50 per cent tariff imposed by the US, effective from August 27, 2025).

How much material difference the four codes will make on the ground – when it comes into effect about two months from now – remains to be seen. On the face of it, there are several pluses for both employers and workers.

Gains for employers

These codes provide more room for employers to operate. Some of the key ones are as follows:

• Working hours has been expanded from 8 hours to 12 hours a day, but the weekly cap remains at 48 hours. Given that the relief is for up to four days a week, it would have limited gains for seasonal businesses.

• Firing of workers is made easier with the threshold extended from establishments with 100 and more workers to 300 and more workers. This will provide relief for relatively smaller enterprises, not the big domestic businesses or MNCs.

• A new category of temporary workers has been added with the Fixed Term Employment (FTE) provision, in which case the worker will get wages, social security, etc. applicable to permanent employees but no provision to make her/him a permanent employee.

Also Read: Simpler for business, tougher for workers: Tamil Nadu debates impact of new Labour Codes

• Employer is defined in a way that allows her/him to double-up as contractor, providing flexibility in hiring – without the responsibilities of an employer.

• Strikes are virtually ruled out as the conditionalities imposed and the provision for fine and imprisonment for going on strike are stiff. Collective bargaining is not specifically facilitated but interfering in it by the employer is listed as unfair practice.

• Need for providing health and safety measures is now applicable for units with 20 or more workers (if operating without electricity) and 40 or more (if operating with electricity) – from 10 and 20, respectively.

Impact on workers

The codes relating to wages and social security promise universalising minimum wages and social security coverage but they come with several caveats.

For example, minimum wage coverage excludes those working in agricultural establishments with five or less workers (which employ a substantial number of workers in the informal farm sector). Gig/platform workers, home-based workers, Anganwadi, ASHA, and MGNREGS workers are not defined as workers for the purpose of minimum wages coverage.

This lapse will prevent millions of workers from getting better wages.

As for universal social security, it depends on the funds and schemes to be announced. Though aggregators are supposed to contribute up to 2 per cent of their annual revenue towards social security, whether that will generate enough funds is not clear.

Also Read: New labour codes: From gratuity after 1 year to equal pay, all you need to know

It remains a mystery as to why the Centre has not recognised gig/platform workers – their number is expected to rise to 23.5 million by 2030 – as ‘employee’ or ‘worker’ as the US and European countries have, to ensure they get legal protections. That would have provided meaningful support to such workers.

Given that 90 per cent of the Indian workforce is informal (PLFS reports) – no social security cover of any kind – a better option would have been for the Centre to combine minimum wages and social security cover for all those millions of workers. The codes are a positive start but don’t appear to be substantial enough to make the transformative changes that India needs to achieve “Viksit Bharat@2047” goal.

Codes without consultations

The codes were brought in with minimal consultations in 2019 and 2020 (pandemic lockdown year). The same happened now. Friday’s announcement came as a surprise for all – states and trade unions.

The Parliamentary Standing Committee on Labour, Textile, and Skill Development made a shocking disclosure when it tabled its report in March 2025.

It said, the panel was “dismayed to note” that for the past 10 years, the Centre had not held the tripartite Indian Labour Conference (ILC) – a platform that deliberates on all labour-related matters. The Centre didn’t even explain why or when it will hold such a conclave next “despite being specifically asked to do so”.

Also Read: Labour reforms: Critics warn of risks; govt says move to modernise workforce

It also raised questions about how such important decisions like the new labour codes were taken without holding the ILC. It asked the Centre to convene the ILC “at the earliest opportunity in the larger interest of the labour force”.

But the Centre ignored its suggestion and suddenly declared that the codes have come into immediate effect last Friday (November 21).

Due consultations would have made it far easier for the Centre to roll out the codes. It now faces a nationwide workers strike, beginning on November 26, which all central trade unions have declared (except for the RSS-affiliated Bharatiya Mazdoor Sangh).