Why the next phase of labour reforms should aim to modernise workplace regulations

On July 9, 2025, over 250 million workers participated in a country-wide strike helmed by major central trade unions to protest a number of issues, including labour-related policies. Workers, both formal and informal, from sectors ranging from agriculture, factories and mining to banks and railways, joined, indicating a discontent in the country’s diverse and teeming labour force. Some of the issues included rising unemployment, underemployment, consolidation of Labour Codes, lack of labour protection, and shortage of fixed-term employment opportunities.  

A Double-Edged Sword

It was not a one-off strike. Labour issues have proved to be a headache for successive governments with workers taking to the roads time and again.

On the other end of the spectrum, domestic and foreign investors have been seeking a review of India’s cumbersome labour laws and copious compliances, some dating back to the pre-Independence era, as part of ease of doing business initiatives, all of which are necessary to attract capital which, in turn, can create jobs; seven to eight million workers join the country’s workforce every year.

Creating jobs and ensuring a conducive environment for investors are key asks for the government given that India has seen years of high economic growth but with low job creation and high unemployment rates. However, labour unions and workers say reforms could deprive them even of the few safeguards and little access to social security and insurance they have in their current jobs. Nearly 90% of India’s 610-million labour force works in the informal sector, giving them little in terms of job security, retirement benefits, and insurance, even as wages depend on the whims of the employer.

Alakh N. Sharma, Professor and Director, Institute for Human Development (IHD), says labour reforms, particularly the implementation of the Labour Codes, have been a contentious issue. “One of the most fiercely opposed provisions is the higher threshold for retrenchments without government approval,” he says .

Take Amazon workers in India. Last year, according to media reports, the workers at the company’s Haryana warehouse said they were denied bathroom breaks and were overburdened with work. Or gig workers, who rush through traffic in blistering heat and incessant rain to meet our daily needs within guaranteed time. In the formal sector, too, employees are increasingly complaining of overwork and burnout.

In a high-pressure environment, advancing labour reforms poses a significant challenge for governments, as it is nearly impossible to satisfy all stakeholders.

An attempt at balancing interests of employers and employees was made when the 29 central labour laws were codified into four labour codes—the Code on Wages, the Code on Social Security, Occupational Safety, Health and Working Conditions Code, and the Industrial Relations Code. While these were passed by Parliament in 2019 and 2020, implementation continues to be delayed amid stiff opposition from some states and trade unions even though they are a mix of labour reforms and worker protection measures.

The new codes include provisions that would enable women to work at night, raise the threshold for retrenchments without government approval from 100 to 300 workers, and cut down on compliances—measures critics see as anti-worker. But they have also introduced provisions for social security for gig workers and a proposal to cap allowances at 50% of the salary to increase the provident fund contribution.

While over 31 states and Union territories have published the draft rules needed to notify the codes, the actual implementation has not taken off. With this deadlock continuing, several states have amended their own laws to take forward some of these provisions to attract investments.

The Way Forward

Beyond this ongoing stalemate, it would be important to see how India moves forward with its labour reform agenda in the coming decades. The country will have to ensure it does not lose out on harnessing its demographic dividend while ensuring well-paying jobs with a “living wage” and adequate social security amid an aging workforce.

The India Employment Report 2024, published by the International Labour Organization, had pointed out that a large proportion of the population is of working age, and India is expected to be in the potential demographic dividend zone for at least another decade. “But the country is at an inflection point because the youth population, at 27% of the total in 2021, is expected to decline to 23% by 2036,” the report had highlighted.

The report also listed problems that need to be addressed urgently. These include unemployment and underemployment, low female participation, stagnant or declining wages, and earnings, rising migration rate, and slow transition to non-farm employment.

Sharma, one of the authors of the report, highlights that the government needs to work on ensuring social security for migrant workers as migration has become a big trend.

Santosh Mehrotra, labour economist and former professor of economics at JNU, says there must be more focus on the informal sector. “The biggest challenge with the Labour Codes is that they largely do not apply to the unorganised sector, which accounts for nearly 90% of India’s labour force. Only the Code on Wages and parts of the Code on Social Security extend to informal workers,” he points out.

Universal social security, which would serve workers not only during retrenchment, but also once they retire, is a key agenda of the labour and employment ministry. However, its financing and implementation will be the key.

Attempts are also being made to come up with a Labour Market Information System to match workers with jobs across the country, helping employers as well as workers. More frequent monthly data through the Periodic Labour Force Survey—conducted by the National Statistical Office to collect data on key employment and unemployment indicators—is also helping policymakers understand market dynamics and tweak policies.

To incentivise employers and bring more workers into the formal sector, the government has also rolled out schemes like the Employment Linked Incentive Scheme and the Prime Minister Internship Scheme, the impact of which is yet to be assessed. Surely, youth employment and employability will have to remain a focus and priority of the government in years to come.

To be a superpower, India needs to find a balance between bold reforms and workers’ security. 

@surabhi_prasad