The Hindu Editorial Analysis
13 March 2026
Economic Survey promises, impact of new labour codes
(Source – The Hindu, International Edition, Page no.-10 )
Topic: GS Paper 3 – Indian Economy (Labour Reforms, Employment
Introduction
India’s labour reforms, consolidated into four labour codes, aim to simplify regulations, promote formalisation, and improve labour market efficiency. The Economic Survey 2025–26 presents an optimistic outlook, suggesting that these reforms could increase formal employment, boost female labour participation, and contribute significantly to economic growth. However, structural challenges in India’s labour market raise questions about whether these outcomes will materialise.
I. Objectives of the New Labour Codes
India has consolidated 29 labour laws into four labour codes, namely:
- Code on Wages (2019)
- Industrial Relations Code (2020)
- Occupational Safety, Health and Working Conditions Code (2020)
- Social Security Code (2020)
The reforms aim to:
- Simplify compliance procedures for businesses
- Encourage job creation and investment
- Expand social security coverage
- Increase labour market flexibility
According to the Economic Survey, these reforms could:
- Increase formalisation from 60.4% to 75.5%
- Generate 77 lakh jobs
- Reduce unemployment
- Increase GDP by 1.25% by 2029–30
II. Structural Reality of India’s Labour Market
Despite reform efforts, India’s labour market remains heavily informal.
Key facts include:
- Around 80% of workers are in the informal sector.
- Informal workers lack job security, social protection and labour rights.
- Firms often avoid formal employment due to compliance costs.
Between 2011 and 2023, trends show:
- Decline in permanent factory jobs.
- Increase in contract and casual workers.
- Shrinking organised sector employment.
Thus, structural informality remains a major challenge.
III. Expansion of Fixed-Term Employment
One major feature of the labour reforms is the expansion of fixed-term employment.
This allows firms to hire workers for short-term contracts instead of permanent jobs.
Advantages include:
- Greater flexibility for employers
- Faster hiring processes
- Some benefits for workers such as gratuity eligibility
However, concerns include:
- Reduced job security
- Weakening of collective bargaining power
- Rise in precarious employment conditions
Fixed-term contracts may blur the distinction between formal and informal employment.
IV. Changes in Labour Regulation
The new labour codes also introduce regulatory changes aimed at easing business operations.
Examples include:
- Raising the threshold for defining factories under the Occupational Safety Code.
- Increasing limits for layoffs requiring government approval under the Industrial Relations Code.
- Expanding contract labour thresholds.
While these measures reduce regulatory burden for firms, they may also reduce worker protections.
V. Issues in Implementation
Several areas of the labour codes remain unclear.
1. Gig Worker Protection
Platform companies are required to contribute 1–2% of annual turnover for gig worker welfare.
However, several issues remain unresolved:
- Benefit eligibility
- Coverage scope
- Claim mechanisms
2. Reskilling Funds
Employers must deposit 15 days’ wages per worker for retrenched employees.
But details on training programs and fund utilisation remain unspecified.
3. Minimum Wage Framework
The Code on Wages proposes a national floor wage and national minimum wage.
However:
- The methodology for determining these wages is unclear.
- Greater administrative discretion may lead to inconsistencies.
VI. Weakening of Labour Enforcement
The reforms also redefine labour inspectors as “Inspector-cum-Facilitators.”
While intended to promote cooperative compliance, critics argue that:
- Enforcement mechanisms may weaken.
- Employers could compound serious violations by paying fines.
- Labour courts and unions remain weak in many sectors.
This may reduce accountability in labour markets.
VII. Structural Causes of Informality
A key critique is that the labour codes do not address the root causes of informality.
Informality persists because:
- It reduces labour costs for firms.
- Compliance remains expensive relative to benefits.
- Platform-based employment is expanding rapidly.
Making formal jobs more flexible does not necessarily lead to formalisation if informal employment remains cheaper.
Conclusion
India’s labour codes represent one of the most ambitious labour market reforms in recent decades. While the Economic Survey highlights their potential to boost formalisation and job creation, structural challenges in the labour market—especially widespread informality and weak enforcement—may limit their impact. Effective implementation, strong worker protections, and addressing the underlying drivers of informality will be essential for achieving meaningful labour market reform.