Overview of India's New Labour Codes
The introduction of India’s new labour codes, with draft rules released in December 2025, is portrayed as a reform with transformative potential. However, there are significant concerns about its effectiveness in addressing the challenges posed by informal employment.
Expected Outcomes and Projections
- Formalisation Increase: Projected rise from 60.4% to 75.5%.
- Job Creation: Expected generation of 77 lakh jobs.
- GDP Contribution: Predicted addition of 1.25% by 2029-30.
These projections are based on the assumption that simplifying compliance will encourage formalisation.
Current Challenges and Trends
- Over 80% of India’s workforce remains in the informal sector despite the new codes.
- Companies tend to shift away from formal employment when given flexibility.
- Direct factory employment declined from 61% to 47% between 2011 and 2023.
- Contract workers now constitute 42% of the factory workforce.
Key Features of the Labour Codes
- Raising Protections Thresholds:
- Definition of “factory” increased from 10 to 20 workers with power and from 20 to 40 without power.
- Contract labour threshold raised from 20 to 50 workers.
- Lay-off prior approval threshold increased from 100 to 300 workers.
- Fixed-term Employment: Allows firms to hire on short-term contracts, impacting job security.
Concerns and Criticisms
- The shift from inspectors to "Inspector-cum-Facilitators" may weaken enforcement.
- Penalties for violations are low, making non-compliance a viable business decision.
- The codes do not address the structural reasons for persistency in informality.
Conclusion
The new labour codes are optimistic about increasing formalisation and improving worker conditions. However, they may not effectively address the profitability of informality and could lead to a rise in precarious employment rather than genuine formalization and job quality improvement.
