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Big story
India lives in a paradox – think of landing a spacecraft on the moon but not getting basic infrastructure right, or having the world’s fastest growing economy struggling to provide for millions of people. The country’s labor market is another symbol of the paradox.
While big businesses have lamented the country’s rigid labor market laws, many startups have quickly become unicorns, using the flexibility that comes with employing a vast army of gig workers, many of whom lack job security or social welfare.
Last Friday when the Indian Govt announced The Labor Reforms, by consolidating 29 separate labor laws into four comprehensive codes, sought to eliminate these inconsistencies—balancing business interests with employee welfare.
Women work in a leather factory in Kolkata, India on November 25, 2025.
Photography | Photography | Getty Images
The implementation of labor codes is the second major reform by the Indian government in less than 90 days, as it seeks to boost an economy facing a headwind from US tariffs.
Goods and Service Tax Rationalization In September it sought to boost domestic consumption and labor reforms are expected to catalyze industrialization and attract more investment.
Prime Minister Narendra Modi In a post OnX lauded the move, saying the new codes will “build a future-ready ecosystem that will protect workers’ rights and strengthen India’s economic growth.”
The reform is important for India as it addresses the problem of labor rigidity that “makes it costlier for firms to grow,” HSBC said in a note on Wednesday.
India’s target a developed A country with a $10 trillion economy by 2047. To achieve that goal, it needs to increase industrial production and attract investment from domestic and foreign companies. A major obstacle to realizing those goals is the country’s complex web of labor laws.
“Global companies want to expand local manufacturing in India and sourcing from India,” said Richard Rosso, senior adviser and chair of India and Emerging Asia Economies at the Center for Strategic and International Studies. But for that to happen, companies need to see policy reforms, including relaxing “draconian labor laws,” Rosso said.
A balancing act
Observer Research Foundation, an India-based policy think tank has called The labor code changes represent “the biggest structural reform in India” since the country liberalized its economy in 1991.
The recent GST reform affected 12 million enterprises while the labor code potentially covers 63 million enterprises, of which only 1 million are in the formal sector, ORF said. “The leap from informal to formal compliance will now be easier, as ease of maintaining registers and filling forms reduces the tyranny of corrupt and rent-seeking bureaucracy.”
Under the new policy, gig workers will receive social security benefits, and startups will be required to allocate up to 2% of their turnover to create a social safety net for these workers.
In addition, fixed-term or contract employees will now be eligible for benefits available to permanent workers, including leave, medical and social security.
On the other hand, according to a Nomura Research report, the code makes it easier to lay off workers and “difficult for workers to legally strike.”
Trade unions backed by opposition political parties organized on Wednesday Sporadic opposition Across the country, calls for the amendment to be rolled back.
Indian National Trade Union Congress President G. Sanjeeva Reddy, who led the protests in Hyderabad, a major IT hub in India, told CNBC that she wanted the reforms scrapped, claiming the measures were “unilaterally approved by the government.”
India’s Ministry of Labor and Employment did not respond to CNBC’s request for comment.
The new code raised the threshold for requiring government permission to lay off employees from 100 to 300 and allows states to raise it further.
That flexibility would give states an edge as they compete to attract large foreign and domestic industrial investments, as China’s provinces do, experts said.
Under the Wage Code, the central government will soon set a minimum base rate, with states also having the option to set their minimum wages above this rate.
“While the codes are intended to create a unified national framework, states retain the power to frame many operational rules,” said Preeti Sharma, partner, global employer services at business advisory firm BDO India.
“Given the competitive investment environment, some deviations are possible, particularly around thresholds and local procedural requirements,” she added.
Momentary pain?
Each state may implement the code differently and it can be an “initial headache for employers” but it could be a temporary problem, said Arjun Paleri, partner at Mumbai-based law firm BTG Advaya. Both state and central governments can draft labor regulations in India.
Labor reforms are expected for companies that rely on fixed-term employees, such as those in the manufacturing or construction sectors, as well as for companies that employ gig workers.
In the last few years, India has seen a huge increase in the number of startups that employ gig workers for food and goods delivery, fast-paced commerce, personal concierge and home services.
According to Government estimatesThe number of gig workers in India is expected to grow to 23.5 million by FY 2030, from around 10 million in FY 2025.
New rules around the minimum wage, with states having the flexibility to set their own thresholds, could impact this growth in the gig economy.
“The formal recognition of gig workers and platform workers will have a huge impact on e-commerce industries with very high costs,” said Gerald Manoharan, partner at legal firm JSA.
Social benefits and contributions to welfare funds by aggregators impact the operating margins of such companies before the costs are passed on to consumers, he added.
However, major aggregators like Zomato, Swiggy and Amazon have “welcomed” the amendment and said they are evaluating the changes.
Under the new labor codes, fixed-term employees will be eligible for the same benefits as permanent workers, including leave, medical and social security, potentially increasing costs for manufacturing, infrastructure and real estate companies that employ a high proportion of fixed-term or contract workers.
“Labor costs already account for 25%-30% of our overall project costs,” said Sujay Kalel, founder and CEO of Mumbai-based real estate firm True Realty, adding that his firm expects baseline labor costs to rise 5%-10% over the next 18 months.
However, he said updated provisions around workforce flexibility, easier exit thresholds and longer shift options of 8-12 hours could partially offset the cost increase through productivity gains.
Top TV Picks on CNBC
Sumit Ritolia, principal research analyst at Kepler, said Indian refiners will be adjusted Instead of completely stopping their purchases of Russian oil.
Tan Teck Lang, Executive Director and APAC FX and Macro Strategist at UBS Global Wealth Management, said: Its base case Reserve Bank of India is due to cut rates one more time.
Aditya Suresh, head of India equity research at Macquarie Capital, expects the country’s companies to trade faster. bear the loss For “several years” beyond the one-year horizon that other analysts expect.
Need to know
India’s $33 billion defense manufacturing ambition is on track. Although an Indian-made Tejas fighter jet crashed at an airshow in Dubai recently, Investors are bullish on New Delhi’s defense ambitions as the country seeks to double its military output to 3 trillion rupees (about $33 billion) by 2029.
Global companies want to list their India units. There are global companies Rushing to list their local business units In one of the worlds Busiest IPO Markets
Apple is protesting India’s new antitrust penalty law. The law, enacted in 2024, allows the Competition Commission of India to use a company’s global turnover when imposing fines and could expose the iPhone maker. for fines Up to $38 billion, according to a Reuters report.
Quote of the week
More than 20 exporters have come to our office, as they have been losing orders from Europe and America in the last few months. They (exporters) want to shift their business to local players, which we are benefiting from.
– Akash Aggarwal, Chief Executive Officer, V2 Retail
in the markets
India’s benchmark index hit a record high on Thursday. This Nifty 50 26,284, while the BSE Sensex touched 86,026.18. Both indices last touched record highs in September 2024.
The Nifty 50 is up 11% year to date, while the BSE Sensex is up nearly 10%.
The country’s benchmark 10-year bond yield rose 1 basis point to 6.503% on Thursday, after falling more than 7 basis points in the first three days of the week.
– Noor Hikmah Mohammad Ali
coming up
November 28: GDP data for July-September quarter; Industrial production data for October
Dec.1: HSBC Manufacturing PMI for November
December 3: HSBC Services PMI for November
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