The Great Consolidation: India’s labour reset gains momentum

NEW DELHI: For over 70 years, India’s labour market functioned under a labyrinth of 29 separate central laws and over 100 state regulations. It was a system where compliance was a full-time job, and “protection” often meant stagnation.

The operationalisation of the four comprehensive Labour Codes — Wages, Industrial Relations, Social Security, and Occupational Safety — is not just a legal cleanup; it is an economic reset button.

As detailed in the government’s latest press release (PRID 2192524), this consolidation is pitched as the bridge between “Ease of Doing Business” for India Inc. and “Ease of Living” for the workforce. But to understand the true scale of this shift, we must look beyond the rhetoric and into the numbers.

Macro picture: Reforms inevitable

The context for this reform is a labour market undergoing tectonic shifts. Our analysis based on Periodic Labour Force Survey (PLFS) Annual Reports (2017-18 to 2023-24), released by the Ministry of Statistics and Programme Implementation (MoSPI), indicates a net addition of 16.83 crore jobs between 2017-18 and 2023-24, with the unemployment rate compressing significantly from 6.0% to 3.2% in the same period.

However, the quality of this growth has been the subject of intense debate. A significant portion of India’s workforce remains informal. These codes are the government’s answer to that formalisation gap. By simplifying the regulatory framework, the aim is to accelerate the trend seen in 2024-25, where over 1.29 crore new subscribers joined the Employees Provident Fund Organisation (EPFO), signalling a migration from informal to formal employment.

Gig economy: Formalising future

The most radical departure from the past is the Code on Social Security, 2020. It finally acknowledges the “Gig” and “Platform” worker — a segment projected to swell to 23.5 million workers by 2030.

Previously, these delivery partners, consultants, and freelancers existed in a legal grey zone. The new code introduces a concrete funding mechanism: aggregators will now contribute 1-2% of their annual turnover (capped at 5% of the amount paid to workers) into a dedicated Social Security Fund.

This is a game-changer. It creates a safety net for millions who previously had none, covering life, disability, and health benefits. If implemented effectively, this could serve as a global template for regulating the gig economy without stifling its flexibility.

Breaking ‘300-worker’ ceiling

For decades, Indian manufacturing suffered from “industrial dwarfism” — firms intentionally staying small to avoid stringent labour laws that kicked in once they hired 100 workers. The Industrial Relations Code, 2020, raises this threshold to 300 workers for seeking government permission for retrenchment or closure.

Critics argue this empowers “hire and fire” policies. Proponents, however, point to the economic reality: by removing the fear of scaling up, medium-sized enterprises can finally grow into large corporations. This is crucial for India’s ambition to become a global manufacturing hub. To balance this, the code introduces Fixed Term Employment (FTE), which mandates that contract workers receive the same wages and social security benefits as permanent employees — including gratuity after just one year of service, rather than the traditional five.

Unlocking 50% women's talent

One of the most promising statistics driving these reforms is the rise in the Female Labour Force Participation Rate (LFPR), which has nearly doubled from 23.3% in 2017-18 to 41.7% in 2023-24.

The Occupational Safety, Health and Working Conditions Code seeks to capitalise on this momentum by removing the archaic ban on women working night shifts. Women can now work in all establishments at night (before 6 AM and beyond 7 PM), provided the employer guarantees safety and consent. By legally expanding the definition of “dependents” to include parents-in-law, the code also acknowledges the social realities of working women in India.

The end of “inspector raj”?

The compliance burden in India has historically been staggering. The new codes promise to replace this with a system of “One Licence, One Registration, and One Return.”

By introducing a single electronic registration for establishments and decriminalising minor technical offences, the government is betting on a “high-trust” regulatory environment. The shift from a punitive “inspector” to a supportive “inspector-cum-facilitator”, backed by randomised, algorithm-driven inspections, is designed to reduce harassment and corruption. If successful, this could slash compliance costs for MSMEs (Micro, Small, and Medium Enterprises), which contribute roughly 30% to India’s GDP.

A historic cleanup since 1991

The consolidation of 29 laws into 4 codes is a historic cleanup operation, arguably the most significant since 1991. The data — 4.67 crore jobs added in just the last fiscal year and a booming gig economy — suggests the engine is revving.

However, laws are only as good as their enforcement.

The success of these codes will depend on two factors: the seamless collection of the gig worker cess from aggregators and the genuine cultural shift of the labour bureaucracy from “policing” to “facilitating.” India has built a modern chassis for its labour market. Now, it has to drive it.

Dr Badri is Fellow, NITI Aayog.

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