In India 95 per cent of industrial firms employ fewer than 10 workers and many others exactly 99 employees. Also 42 per cent of the manufacturing work force are contract labour hired to perform specific limited tasks. The answer to this puzzle lies in the country’s byzantine labour laws which seemed unreformable because of potential political backlash.
On November 21, 2025 Prime Minister announced the biggest overhaul in labour laws since independence. Hiring and Firing was liberalised, compliances simplified and all-around flexibility increased.
The new Indian Labour Code now promulgated has been termed as revolutionary in this context. 29 Acts have been replaced with four and most of the irritants have been ironed out. While this has been called a revolution and Mother of all reforms, lot more needs to be done to ensure enterprises are not suffocated by arcane Labour Laws.
While the government tried to re-write India’s Labour Court five years ago, strong opposition to these reforms led them to defer the notification of the same. It is only now that these codes have been notified by the Central Government.
India’s Industrial Dispute Act passed in 1947 had made it near impossible for manufacturers with over 100 employees to fire workers. This had put off many firms from investing altogether and prevented factories from reaching economies of scale often found in China and East Asia. This had also skewed private sectors towards capital intensive businesses such as chemical plants and away from labour intensive ones. In a country desperate to provide employment to millions of people on a regular basis this situation is completely unacceptable.
The new Labour Court notified now has increased the cut off number of employees from 100 to 300 providing significant incremental in hassle free hiring and firing options. This should increase ease of doing business and facilitate incremental employment. Employees are also being safeguarded by introducing necessary provisions on basic wages, shorter entitlement for gratuity etc. While this may increase the cost for industry marginally, for the employees this will ensure acceptability of the new code and smoothen transition.
Since labour code is state subject, each state has to notify the codes separately and the on-ground implementation will happen once the same is done.
Interestingly to facilitate businesses, many progressive states have already notified the new provisions over the last few years and baring few oppositions ruled states which may drag their feet, most of the states are expected to notify the new Labour Court sooner than expected.
The steps initiated by the Government can be treated as a beginning of the Labour Code reforms and much more needs to be done to bring competitiveness in the Labour-Intensive sectors.
