India’s new labour codes—four sweeping laws meant to replace 29 fusty statutes—promise to simplify compliance, broaden social security and grant firms the flexibility to hire, fire and grow. But then, India has a habit of announcing reforms that look splendid on paper but get bungled on execution. Will the new labour code join this tradition? The country’s recent economic reforms have followed this predictable arc: ambitious legislation drafted in Delhi, halting implementation in the states and an eventual outcome far removed from the intent.
The Insolvency and Bankruptcy Code (IBC), for instance, was intended to be a swift and fearsome mechanism for disciplining errant borrowers. It soon became bogged down in court delays, procedural squabbles and corruption. Delays and gaming the system look common.
The Real Estate (Regulation and Development) Act (RERA), designed to protect home-buyers, dissolved into a patchwork of diluted state-level regulations.
Even the goods and services tax (GST), the most dramatic fiscal reform in decades, continues to be a work-in-progress with complex rules and uneven enforcement.
We also know what happened to grandiose 'Missions'—Swachh Bharat Mission, Namami Gange and Smart Cities.
The first obstacle is India’s federalism. Though the codes are Central legislation, labour sits on the concurrent list, meaning states must craft their own rules and do the actual enforcing. In similar other cases, some have been diligent; many have not. Most of them are interested in political theatre rather than regulatory housekeeping. A worker in one state might enjoy benefits unavailable in another; a factory might be regulated differently across state lines. The new codes promise to smoothen these wrinkles. But if states drag their feet or carve out bespoke interpretations, the code will fall short of its intent.
The second problem is the capacity and quality of governance. The labour codes assume the existence of digital systems for worker registration, algorithms for risk-based inspections and administrators capable of handling millions of online compliance filings. The reality is less flattering.
India’s government machinery, usually poorly trained, badly supervised and undermined by corruption, cannot enforce even modest regulations, let alone a generational overhaul. Digitisation is uneven; portals often crash under pressure.
The Employees Provident Fund Organisation (EPFO) is causing untold harassment to millions. The IBC’s collapse under the weight of overwhelmed tribunals should have served as a warning. Instead, the labour codes seem to have borrowed its ambitions without its lessons.
The labour codes’ architects place much faith in digital compliance: electronic filings, online grievance systems, Aadhaar-linked social security accounts. But India’s digital landscape is uneven. GST filings continue to be a headache for many small businesses. Millions of workers lack reliable connectivity. Those in the informal sector—construction workers, drivers, domestic staff—possess scarcely any reliable documentation.
India has already produced several digital welfare schemes that function more as databases than delivery systems. The e-Shram portal for informal workers remains incomplete, riddled with duplicates and missing beneficiaries. The construction workers’ welfare funds sit unspent in many states for want of clean data, as a government audit found out. Expecting the new labour codes to succeed where these programmes have stumbled looks optimistic, if not fantastical.
Then there is populist politics which is ready to undermine any reform. Any economic downturn, significant layoffs or industrial accident could prompt politicians to dilute or delay implementation.
Reform in India often depends less on economic logic than on political risk-aversion. RERA became weaker through state-level amendments; GST rates proliferated thanks to political compromises. Labour reform could easily face similar political recalibration.
The codes earn credit for recognising gig and platform workers, but here India’s regulatory ambition outruns its practical capabilities. Definitions are broad; contribution mechanisms vague' and enforcement pathways unclear. Gig workers operate across multiple platforms, with shifting identities and little documentation.
Tracking contributions or verifying employment histories would challenge even well-staffed regulators. Also, will gig-worker protections turn into the labour equivalent of India’s various cess funds: money collected, rarely disbursed, and largely inaccessible to those it was meant to help?
Of course, the labour codes are not doomed. India’s reforms rarely fail outright. Rather, they succeed in bits, stumble in others, and settle into an untidy, middling equilibrium. GST merely became overcomplicated. IBC became slow and uneven. RERA did not disappear; it became toothless in parts.
The labour codes may follow a similar trajectory: partially effective in a handful of states, effectively ignored in others, inconsistently enforced everywhere. They may help formal manufacturing more than services, large companies more than MSMEs, and the already-documented workforce more than the informal majority.
A successful modern labour regulation requires vast quantities of reliable data—on employment, earnings, safety, benefits and compliance. Countries like Japan and South Korea operate such systems with clinical efficiency. In India, statistics are patchy; administrative records inconsistent; surveys infrequent. The codes assume a data regime that India has not built.
IBC’s tribunals struggled partly because the government lacked a sharp focus on outcomes and failed to make timely and determined interventions when they vastly deviated from expectations. The problem started with wrong appointments. RERA’s enforcement remains patchy across states.
Labour reform, which depends on tracking millions of workers and firms, demands even higher standards of enforcement. India’s new labour codes hold the promise of a more productive, formalised economy. But a law is only as good as the State that enforces it, and India is not known for rigorous, outcome-driven administrative discipline.
(This article first appeared in Business Standard newspaper)
While it is agreed that all ambitious reforms have met with little or no success thanks to the political interventions, unwillingness to reform, clumsy authorities who see everything as an opportunity to engage in harassment rather than implement and show utter lack of understanding of the intentions, there is still hope that over a period of time these codes will work. Challenges are many with opposition parties stubbornly derail all good intentions .
One wonders how a security guard who works for one company during day and another company during night be treated? This is just one example of the ground reality.
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