This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse. Subscribe here.
The big story
India lives in contradictions — think landing a spacecraft on moon but not getting basic infrastructure right, or being the world’s fastest growing economy that has millions struggling to make ends meet. The country’s labor market is yet another area emblematic of that paradox.
While big businesses have bemoaned rigid labor market laws in the country, several startups have fast become unicorns, making use of the flexibility that came with employing vast armies of gig workers, many of whom have no employment protection or social welfare.
Last Friday, when the Indian government announced labor reforms, consolidating 29 separate labor laws into four comprehensive codes, it attempted to address these incongruities — balancing business interests with employee welfare.
Women work in a leather factory in Kolkata, India, on November 25, 2025.
Nurphoto | Nurphoto | Getty Images
The implementation of labor codes is the second big reform from the Indian government in less than 90 days, as it strives to boost an economy facing headwinds from U.S. tariffs.
The goods and services tax rationalization in September sought to boost domestic consumption and the labor reform is expected to catalyze industrialization and attract more investments.
Prime Minister Narendra Modi in a post on X hailed the measures, saying the new codes “will build a future-ready ecosystem that protects the rights of workers and strengthens India’s economic growth.”
The reform is important for India as it addresses the problem of labor rigidity due to which “firms find it expensive to grow,” unable to benefit from economies of scale, HSBC said in a note on Wednesday.
India aims to be a developed country, with a $10 trillion economy, by 2047. To achieve that target, it needs to ramp up industrial production and attract investments from local and foreign companies. The country’s complex web of labor laws have been a key hurdle to realizing those goals.
“Global companies would like to expand domestic manufacturing in India and sourcing from India,” said Richard Rossow, senior advisor and chair, India and Emerging Asia Economics, at the Center for Strategic and International Studies. But for that to happen, companies need to see policy reforms including easing of “rigid labor laws,” Rossow said.
Balancing act
India-based policy think tank Observer Research Foundation has called the labor code changes “the biggest structural reform in India” since the country liberalized its economy in 1991.
The recent GST reform impacted 12 million enterprises while the labor codes potentially engage 63 million enterprises, of which only 1 million are in the formal sector, ORF said. “The compliance leap from informal to formal will now be easier, as the ease of maintaining registers and filling forms reduces the tyranny of a corrupt and rent-seeking bureaucracy.”
Under the new policy, gig workers will gain access to social security benefits, and startups will be required to allocate up to 2% of their turnover toward building a social security net for these workers.
Additionally, fixed term or contract employees will now qualify for benefits available to permanent workers, including leave, medical, and social security.
On the flip side, according to a report by Nomura Research, the code makes it easier to retrench workers and “harder for workers to legally conduct strikes.”
On Wednesday, trade unions backed by opposition political parties organized sporadic protest across the country, calling for a roll back of the reforms.
G. Sanjeeva Reddy, president of the Indian National Trade Union Congress, who led a protest in Hyderabad, a major IT hub in India, told CNBC they want the reforms to be repealed, claiming the measures were “unilaterally approved by the government.”
India’s Ministry of Labor and Employment did not respond to CNBC’s request for comments.
The new code has raised the threshold for requiring government permission to undertake retrenchments to 300 employees from 100 and allows states to raise that further.
That flexibility will give an edge to states as they compete to attract large foreign and local industrial investments, similar to how provinces in China do, experts said.
Under the wage code, the central government will soon fix a minimum base rate, with states also having the option to set their minimum wage above this rate.
“While the codes aim 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 climate, some divergences are possible especially around threshold and local procedural requirements,” she added.
Transitory pain?
Each state could implement the code differently and it “may be an initial headache for employers” but that is likely to be a transitory issue, said Arjun Paleri, partner at Mumbai-based law firm BTG Advaya. Both state and central governments can draft labor rules in India.
The labor reforms are also expected to lead to higher operational costs for companies that rely on fixed term employees such as those in the manufacturing or construction sectors, as well as for firms that employ gig workers.
Over the last few years, India has seen a steep rise in the number of startups that employ gig workers for food and goods delivery, quick commerce, personal concierge and home services.
According to government estimates, the number of gig workers in India is expected to rise to 23.5 million by fiscal year 2030, from about 10 million in fiscal year 2025.
The new rules around minimum wage, with states having the flexibility to set their own thresholds could impact this growth in the gig economy.
“The e-commerce industries are going to get impacted heavily with much higher running costs given formal recognition of gig workers and platform workers,” said Gerald Manoharan, partner at legal firm JSA.
Social benefits and contribution to welfare funds by aggregators are bound to affect the operating margin of such companies, before the costs are passed on to the customers, he added.
Big aggregators such as Zomato, Swiggy and Amazon, however, have “welcomed” the reforms, saying that they are evaluating the changes.
Under the new labor codes, fixed-term employees will be eligible to receive benefits equal to permanent workers, including leave, medical, and social security, potentially raising costs for manufacturing, infrastructure and real estate companies that employ a higher share of fixed-term or contract employees.
“Labour cost already makes up close to 25%-30% of our overall project cost,” said Sujay Kalele, founder and CEO of Mumbai-based real estate firm Tru Realty, adding that his firm is expecting baseline labor cost to increase by 5%-10% over the next 18 months.
However, he said that updated provisions around workforce flexibility, smoother exit thresholds and longer shift options of 8-12 hours, could partly offset the cost escalation through productivity gains.
Top TV picks on CNBC
Sumit Ritolia, lead research analyst at Kpler, said that Indian refiners will be adjusting their purchases of Russian oil rather than stopping them entirely.
Tan Teck Leng, UBS Global Wealth Management’s executive director and APAC FX and macro strategist, said that his base case is for the Reserve Bank of India to cut rates one more time.
Aditya Suresh, Macquarie Capital’s head of India equity research, expects the country’s quick-commerce companies to suffer to losses for “several years,” beyond the one-year horizon that other analysts expect.
Need to know
India’s $33 billion defense production ambition is on track. Despite the recent crash of the India-made Tejas fighter jet at an airshow in Dubai, investors are bullish on New Delhi’s defense ambitions as the country seeks to double its military production to 3 trillion rupees (about $33 billion) by 2029.
Global companies want to list their India units. Global companies are rushing to list their local business units in one of the world’s busiest IPO markets.
Apple is contesting India’s new antitrust penalty law. The law, enacted in 2024, allows India’s Competition Commission to use a company’s global turnover while imposing fines and it could expose the iPhone maker to a penalty of up to $38 billion, according to a report by Reuters.
Quote of the week
We have more than 20 exporters coming to our office, because they are losing orders from Europe and America over the last couple of months. They [exporters] want to shift their business to domestic players, which is benefitting us.
— Akash Agarwal, chief executive officer, V2 Retail
In the markets
India’s benchmark indexes hit record highs Thursday. The Nifty 50 scaled past 26,284, while the BSE Sensex reached 86,026.18. Both the indexes had last hit record highs in September 2024.
The Nifty 50 is up 11% year to date, while the BSE Sensex has gained nearly 10%.
The country’s benchmark 10-year bond yield was up 1 basis point at 6.503% on Thursday, having declined over 7 basis points in the first three days of this week.
— Nur Hikmah Md Ali
Coming up
Nov. 28: GDP data for July-September quarter; industrial output data for October
Dec.1: HSBC manufacturing PMI for November
Dec. 3: HSBC services PMI for November
Each weekday, CNBC’s “Inside India” news show gives you news and market commentary on the emerging powerhouse businesses, and the people behind its rise. Livestream the show on YouTube and catch highlights here.
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