As such, the labour codes are expected to enhance the welfare of the workers and improve social security coverage for the informal workforce. For businesses, they aim to simplify procedures, reduce compliance burden, and decriminalize minor offences, among other improvements.
From the perspective of industry, a critical question at this stage is: following the introduction of labour codes, how competitive is the Indian economy compared to peer nations such as Brazil, China, S Korea, Cambodia, Vietnam and Thailand? While overall competitiveness depends on reforms across multiple domains – including land, labour, infrastructure, power, logistics and the cost of capital – the availability of skilled, efficient, and cost-effective labour force remains central to both the ease and cost of doing business.
Labour law regulations and compliances in India have long been viewed as burdensome for investors and industry. Multiple licenses, registrations and return filings have often been cited by industry as contributing to this burden. The newly introduced labour reforms seek to streamline these processes through several measures, including single registration, single license, and single return for businesses; uniformity in definitions; greater flexibility to States to prescribe thresholds for lay-offs or retrenchments when required. Additionally, the provision for fixed-term employment (FTE) allows firms to hire workers based on evolving needs without fear of future legal complications. Taken together, these changes are expected to enhance competitiveness for Indian businesses.
Given the comprehensive nature of the labour codes, and assuming effective implementation, India can anticipate increased investment, greater job-creation, and improved labour productivity. Although the requirement to extend social security coverage may raise the cost of business for firms in the short term, these can be expected to be offset over time through higher labour productivity, improved ability of the firms to attract talent, and enhanced hiring flexibility – all of which contribute to greater cost-efficiency in production.
Overtime work regulations across countries constitute another factor in assessing labour-related competitiveness. The Economic Survey 2024-25 provides a comparative picture: India (Union) permits 75 hours of overtime per quarter, while the best performing State, Telangana, allows 156 hours. In comparison, Indonesia permits 182 hours, S Korea 156 hours, Vietnam 120 hours, Malaysia 312 hours, and Japan 240 hours. Under the labour codes, Indian States have the flexibility to determine their own quarterly overtime limits.This flexibility to raise overtime ceilings has the potential to reduce the cost, time and operational risks faced by Indian firms, while enabling them to reap greater economies of scale. It can also support the growth of smaller firms, while helping businesses fulfil seasonal export orders, and provide workers with the opportunity to earn more. Higher earnings, in turn, can strengthen household purchasing power and stimulate consumption demand within the economy.The combined advantages of flexible hiring under fixed-term employment (FTE), and higher permissible overtime limits will be especially beneficial for labour-intensive, export-oriented firms that receive seasonal orders, such as in garments, apparel, and textiles. Similarly, export-focussed businesses that deal in high value items, such as gems and jewellery, would gain from the ability to hire skilled workers with greater flexibility.
Further, leveraging new age technology to simplify compliance for businesses and for timely payment of wages, will enhance transparency and accountability in enforcement, while reducing operational costs for businesses. Industry experts note that India is competitively positioned on the labour-related parameters – such as minimum wage rates, permissible working hours, and mechanisms for dispute resolution – when compared with countries like Vietnam, Cambodia, and Laos. Positive outcomes are likely, if States implement the rules in a standardized manner that aligns with the spirit of the labour codes.
Labour codes bode well for India’s prospects of attracting larger volumes of domestic and foreign investments into manufacturing and services. They are expected to strengthen resilient supply chains, deepen integration with global value chains (GVCs), nurture globally competitive manufacturing, and enable the adoption of technology by firms in administrative operations. The reforms also hold significant promise for building a resilient, skilled, more productive labour force.
At the same time, for India’s GDP to grow at 10 percent and more annually, major states and high-growth sectors will need to deliver on the promise of even higher growth trajectories. Achieving this would require continued reforms, improved infrastructure and logistics, enhanced facilities within industrial clusters – including residential dormitories for workers – better access to technology and markets for MSMEs, and deeper specialisation among Indian businesses to strengthen their presence in global mar
The writer is former Labour Secretary to Government of India