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Implementing the four labour Codes creates a win-win-win for workers, entrepreneurs, and the government, reduces the compliance burden, and boosts worker welfare.
In a year marked by global economic uncertainty due to geopolitical tensions, wars, and tariff assaults amid the groundwork for creating a new world order, India closes a turbulent 2025 with its biggest structural reform since 1991. On 21 November 2025, the Union government made effective the four labour codes on wages, industrial relations, social security, and worker safety. For a country effecting a manufacturing push, this reform will cushion the impact of geopolitical headwinds, give wings to Indian entrepreneurs, and facilitate, accelerate, and incentivise the formalisation of the informal economy. All through, it recognises and handholds a new and evolving labour dynamic by granting 21st-century workers much-needed 21st-century protections.
Such is the potential impact of the Codes that they overtake the Goods and Services Tax (GST) as the biggest structural reform in India. The GST applies to 12 million enterprises. The Codes potentially engage 63 million enterprises, of which only 1 million are in the formal sector. The compliance leap from informal to formal will now be easier, as the ease of maintaining registers and filling forms reduces the tyranny of a corrupt and rent-seeking bureaucracy. This reform will enable, even incentivise, a huge chunk of the remaining 62 million enterprises to embrace a formal future in tune with a rising India. If the GST nudged them towards formalisation, the Codes will accelerate the transition.
On 21 November 2025, the Union government made effective the four labour codes on wages, industrial relations, social security, and worker safety. For a country effecting a manufacturing push, this reform will cushion the impact of geopolitical headwinds, give wings to Indian entrepreneurs, and facilitate, accelerate, and incentivise the formalisation of the informal economy.
Read together, the Codes deliver a five-fold stream of reforms:
The Codes represent a paradigm shift in regulatory architecture, delivering ease of doing business on a scale not seen before. The legislative foundation has been substantially rationalised. The 1,436 rules in the 29 laws have been reduced by 75 percent to 351 rules. In terms of reporting, the 181 forms have been cut by 60 percent to 73. Finally, the 84 registers for returns have been consolidated to eight, a fall of 90 percent. Most importantly, digitisation in record-keeping, filings, and registrations has become the central foundation of the new architecture.
The Codes have harmonised definitions, such as those of wages, workers, and establishments. For the entrepreneur, the Codes have delivered a common meaning and description of items. Earlier, these varied across different laws, were executed over several registers, and put into a compliance file brimming with subjective interpretations. With the Codes, workers will benefit from simplified and consistent calculations of gratuity, social security, bonuses, and statutory contributions. Simultaneously, entrepreneurs will gain from simplified and streamlined compliance requirements.
The registration and licensing framework has undergone a fundamental shift. Different registrations, such as those under the Factories Act, Mining Act, Contract Labour Act, Apprentices Act, ESI Act, or Provident Fund Act, have been consolidated into a single registration, single license, single return framework.
A uniform 10-employee threshold replaces the previous tiered structure. Earlier, a small or medium-sized enterprise with 15 employees would have been subject to certain obligations, such as those under the ESI, Apprentices Act, or Factories Act, but not others, such as Provident Fund and POSH, creating confusion about what specifically applied. This was identified as a significant barrier to formalisation. Record-keeping requirements have been rationalised from 48 distinct labour registers to fewer than 10.
Most significantly, the regulatory paradigm has shifted from an enforcement model to one of facilitation and enablement. Inspectorates have been repositioned as advisory partners rather than enforcement agents, signalling a transition from punitive compliance to proactive, corrective engagement at the factory level and a hurdle to enabler at the macro level.
Labour laws are one of the seven categories of legal frameworks that govern doing business in India. However, their quantitative burden was disproportionately large. They contributed almost half (47 percent) of all compliance obligations, with nearly seven out of 10, or 68 percent, of all criminal liabilities embedded into the country’s business laws. On the factory floor, the 29 labour laws had morphed into 32,542 discrete compliance obligations across the 28 States and the eight Union Territories.
This punitive architecture, combined with ambiguous legislative definitions (such as those of wage, worker, and establishment), fragmented applicability thresholds; redundant record-keeping mandates created a compliance infrastructure fundamentally misaligned with the aspirations of a 21st-century modern Indian enterprise.
Compounding this complexity, the regulatory framework had weaponised criminal sanctions, with more than 17,000 of these carrying imprisonment clauses. Many of them prescribed imprisonment for procedural infractions and technical contraventions rather than substantive violations. This punitive architecture, combined with ambiguous legislative definitions (such as those of wage, worker, and establishment), fragmented applicability thresholds; redundant record-keeping mandates created a compliance infrastructure fundamentally misaligned with the aspirations of a 21st-century modern Indian enterprise.
The administrative burden of the past extended to prescriptive micromanagement, including provisions governing spittoons, gender-segregated facilities, clothing storage specifications, and limewashing requirements in kitchens and canteens. It exemplified regulatory overreach that diverted entrepreneurial focus from value creation to compliance management. As an illustrative case, an MSME manufacturing facility in a single state manages approximately 120 unique labour compliance obligations and more than 500 total compliance instances annually. Look closer and you will find substantial duplication, overlap, and redundancy in these record-keeping requirements, leading to day-to-day harassment.
The journey of labour reforms gathered intellectual steam in 2002, when the Report of the National Commission of Labour stated that the multiplicity of 44 labour laws in India needed to be rationalised and compressed into four or five codes. Only one of the 29 laws that have now been compressed into the four labour codes — the Unorganised Workers Social Security Act, 2008 — was enacted in the current millennium. Four were in force before India’s independence, four were enacted between 1947 and 1948, six in the 1950s, four in the 1960s, five in the 1970s, three in the 1980s, and two in the 1990s. An India that has undergone structural shifts in its composition from manufacturing to services and embraced the internet and now artificial intelligence, has been operating under laws written in the last millennium.
As the next critical step, the Union government should promptly notify the rules under all four Labour Codes to eliminate any ambiguity. Extensive consultations have already been conducted, making it timely to finalise these notifications. States, most of which are prepared, should follow suit with urgency to ensure seamless implementation and unlock the full benefits of these reforms.
Despite the urgency of labour reforms — as difficult a political move as farm laws were — there was legislative silence for almost a quarter century. This mirrors the evolving politics of the time. In 2004, Prime Minister Atal Bihari Vajpayee lost the mandate and labour reforms were collateral damage. Under Prime Minister Manmohan Singh, who was in charge for the next decade, the internal contradictions of the UPA (United Progressive Alliance) and its dependence on its Left partners left labour reforms untouched. In 2014, Prime Minister Narendra Modi did not have the majority needed in the Rajya Sabha to advance these reforms. In 2019, when he did, the Codes flowed through the legislative process — but it has taken him another five years to execute them.
As the next critical step, the Union government should promptly notify the rules under all four Labour Codes to eliminate any ambiguity. Extensive consultations have already been conducted, making it timely to finalise these notifications. States, most of which are prepared, should follow suit with urgency to ensure seamless implementation and unlock the full benefits of these reforms.
Stepping back, this was not an easy reform to deliver, and Modi and his team must be lauded for taking it on frontally. This is not surprising, given that Modi has repeatedly proven to be a reformer with conviction, as evidenced by the numerous economic reforms that have been streaming in from 2014 onwards — the Jan Dhan Yojana, the GST, the Insolvency and Bankruptcy Code, for instance.
By making the four labour codes effective, the government has strengthened the industry trinity of labour-capital-entrepreneur, which can now propel the country toward Viksit Bharat.
Labour reforms were necessary for a rising India. The rules that stood under the shadows of the 29 labour individual laws were out of sync with 21st-century industry. Now that domestic manufacturing has become a national priority, and the government is laying the foundations for industry through executive actions such as industrial corridors, faster connectivity, and quicker turnaround time at ports, businesses can finally be rid of legislative isolationism. By making the four labour codes effective, the government has strengthened the industry trinity of labour-capital-entrepreneur, which can now propel the country toward Viksit Bharat.
With this reform, the government has mostly delivered on what was required of it. The tail of this reform will be followed through in Jan Vishwas 2.0, currently under negotiation. The ball is now in the court of entrepreneurs. They may still face several problems. But labour and compliance are not among them. Anymore.
Gautam Chikermane is Vice President at the Observer Research Foundation.
Rishi Agrawal is Co-founder and CEO at Teamlease Regtech.
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Gautam Chikermane is Vice President at Observer Research Foundation, New Delhi. His areas of research are grand strategy, economics, and foreign policy. He speaks to ...
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