India File: Historic labour law revamp speeds up reforms

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25/11/2025 05:02

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Nov 25 - By Ira Dugal, Editor Financial News, with global Reuters staff

Last week, India pushed through its biggest labour overhaul since Independence nearly eight decades ago, invoking federal powers to end years of wrangling with states.

Donald Trump's tariffs might have been the final push Prime Minister Narendra Modi's government needed. The reforms aim to bolster growth amid global trade headwinds. But what will the changes mean for workers, companies and the economy? That's our focus this week.

And the U.N. wildlife trade body reverses a call for India to curb animal imports, a saga connected to Asia's richest family. Scroll down to read more on that.

THIS WEEK IN ASIA

* China says Japan sent 'shocking' wrong signal on Taiwan

* Trump touts 'extremely strong' China relations after call with Xi

* Singapore court clears way for $2.7 bln suit against Standard Chartered over alleged role in 1MDB fraud

* Yen intervention looms large, but it may not work

* Bitcoin mining in China rebounds, defying 2021 ban

BALANCING THE INTERESTS OF BUSINESSES AND WORKERS

The Modi government has pushed through a nationwide revamp of labour rules, ending a five-year effort to secure state-level consensus on a reform seen as key to supporting India’s nearly $4 trillion economy.

Facing U.S. President Trump's steep trade tariffs and an uncertain global backdrop, Modi has accelerated domestic reforms, including an overhaul of consumer taxes, rationalising quality norms for key manufacturing sectors, and liberalising financial sector regulations.

The implementation of new labour codes now leads that list.

"The focus is on worker welfare and a reduced regulatory burden for businesses, as the government speeds up the reform engine," Nomura economists said in a note.

     Labour reforms have been seen as particularly crucial for the manufacturing sector, whose share in the economy has remained close to 15% despite decades of efforts to boost the number.

Key benefits from the new reforms for manufacturers, according to Deepti Thakkar, leader of the employment and human resources practice at law firm Nishith Desai Associates, include the ability of enterprises with up to 300 workers - compared with up to 100 earlier - to retrench staff without government permission, offer fixed-term contracts and allow women to work night shifts.

A few large industrialised states, such as Maharashtra in the west and Tamil Nadu in the south, had already liberalised rules, but these will now be uniformly implemented, she said.

Large manufacturing firms, like homegrown conglomerates  Tatas and Mahindras, have increasingly relied on contract workers as reducing the workforce has been a challenge.

Recognition of fixed-term contracts with benefits, and increasing the threshold for government approvals for layoffs will help in formalising the workforce, Kotak Institutional Equities said in a note.

Less than 22% of India's workforce is salaried, government data for 2023-24 shows, and 42% of workers in the organised manufacturing sector are on contract, double the share of such workers in 1999-2000.

While some provisions of the new labour codes give employers greater flexibility, many benefit workers.

A national minimum wage - still to be determined - will ensure some parity in earnings in different parts of the country, written contracts will become mandatory, gig workers will get social security benefits and employees will be eligible for a lump-sum payment for their years in employment after one year of service.

Over the medium term, this will be positive for consumption in the economy by improving worker welfare and social security coverage, UBS economists said in a note, without offering an estimate of the size of economic dividend from the reforms.

BUMPY RIDE AHEAD

The implementation of the new laws, however, will not be smooth.

Workers' unions, who have opposed these changes for years, are threatening agitations starting this week. These bring back memories of farm reforms that the government had to ditch four years ago after widespread protests by farmers.

"The notification of these codes, amidst (a) deepening unemployment crisis, (and) rising inflation is nothing short of declaration of war on the working masses," a collective of unions aligned with opposition political parties said in a statement.

Businesses may also struggle to implement the many changes that kick in immediately and costs will rise for those that relied heavily on gig and informal workers.

For instance, food delivery firms and other platforms that largely use gig workers will need to contribute 1%-2% of annual turnover, capped at 5%, for worker welfare.

For Swiggy SWIG.NS, and Eternal ETEA.NS, which runs popular food delivery platform Zomato, this could mean an additional cost of 1 rupee per order, according to CLSA, which expects this to be passed on to the end customer.

Smaller units will also have to ensure they meet newly prescribed safety and grievance redressal rules, while ensuring timely payment of wages and overtime mandated under the new rules, said Vinod Kumar, president of the India SME Forum.

Will the implementation of labour laws be disruptive for the economy in the short run? Write to me at ira.dugal@thomsonreuters.com

MARKET MATTERS

The Indian rupee fell to a record low on Friday as a delay in a trade deal with the U.S. continued to weigh on the currency.

The rupee had been propped up by dollar sales from the central bank over the last few weeks and the absence of the Reserve Bank of India's support spooked traders.

The central bank returned to the market on Monday, steadying the currency, but analysts said a bearish undertone persists.

THIS WEEK'S MUST-READ

A U.N. wildlife trade body has decided not to restrict India from importing endangered animals, reversing an earlier stringent recommendation.

The proposal had followed allegations from non-profit and wildlife groups of improper imports of some animals by Vantara, a 3,500-acre zoo in Gujarat run by the philanthropic arm of the Reliance conglomerate led by billionaire Mukesh Ambani and his family.

India, the U.S., Japan and Brazil had opposed the recommendation.

Read here for more.

Rupee has weakened past the 89/USD mark https://reut.rs/4oa63jt

India's workforce continues to be dominated by informal workers https://reut.rs/4ieAVxU

 (Reporting by Ira Dugal; Editing by Muralikumar Anantharaman)

 ((Ira.Dugal@thomsonreuters.com; +91-9833024892;))