India’s labour code overhaul: A step forward with shadows still unseen

Applauding the Reform Momentum

India’s recent labour reforms mark a historic step. The Indian Government put into effect four consolidated labour codes, replacing 29 fragmented laws in one stroke to formalise jobs, strengthen worker protections, and slash compliance hassles. The reform includes an integrated wage system and social security scheme (PF, ESIC, etc.) for all workers in the country, along with relaxed work hours (Flexible work hours), compulsory online registration of all workplaces in the country, and higher redundancy thresholds (increased from 100 to 300 workers). Such efforts will strengthen the foundation of a future-ready workforce and streamlining the manufacturing sector. Aligning India’s labour ecosystem with global standards. Even preventive healthcare has been foregrounded – for example, employers must now provide free annual medical checkups for workers over 40. The result should be a more competitive industrial landscape, supporting India’s ambitions on the world stage.

The Rationale Behind the Reform

The overhaul was clearly overdue. India’s labour framework had been tangled in a web of 29 outdated laws, imposing a heavy regulatory burden on businesses. More than 90% of India’s workers were outside any formal protections, especially in manufacturing, construction and technology sectors. MSMEs and even pharma/health-tech firms have long demanded flexibility to hire dynamically and control costs. By introducing a single registration and return system, the codes aim to ease compliance and spur job creation. In effect, the reforms tie directly into ’Make in India‘ and broader productivity goals – India is eyeing leadership in global manufacturing by mid-century – while the digital governance push (e-records and online inspections) should help extend social security to workers previously in the shadows.

Overlooked and Unspoken Gaps

Yet, as with any reform, what’s left out can be as important as what’s included.

• Subcontracting Loopholes and Informal Chain Leakage: The Codes make principal employers liable if contractors fail to pay wages and must provide welfare to contract workers. In practice, however, India’s deep, multi-layer subcontracting networks can dilute accountability. Sub-contractors in industries like pharmaceuticals, chemicals and nutraceuticals – or even textile units – often fly under the radar. This means many low wage workers remain outside the formal system, losing the minimum wage guarantees or social security. Enforcement across such complex supply chains is weak, so the very workers’ reforms aim to protect can still slip through the cracks.
• No Distinction for High Skill R&D or Project-Based Experts: The new Industrial Relations code allows fixed-term contracts with full pay parity and even faster gratuity accrual (eligible after one year). Yet it treats short-term specialist hires the same as routine staff. A biotech firm hiring a scientist for a 6-month project still must follow all rules (and the scientist must wait a year before any gratuity). In practice, there’s nothing carved out for innovation-driven roles. This could discourage the top sectors like pharmaceutical research & development, deep-tech start-ups, and the aerospace industry from having the best and the brightest talent on short-term visits.
• Misalignment with Cleanroom or HazardControlled Operations: The codes cap normal shifts at 8 hours/day (with overtime only by consent). However, the one-size-fits-all all approach in the codes ignore the specialised nature of the work environment. In areas where the risk of worker fatigue is very high, like cleanroom sterile pharmaceutical production or the operations involved in biosafety labs, working for longer hours (even if compensated for the same through overtime rates) could impact both the health of the worker and the purity of the end-product.
• Labour Digitisation Without Data Protection Architecture: The Codes push hard on digital compliance – unified e-registration, electronic attendance records, and a national database of workers – to improve transparency. Yet they are silent on data privacy. All the workforce data (biometrics, health check records, and finance details) can be collected online without mandatory encryption or ethical use policies. In sectors like healthcare, manufacturing or chemical plants, sensitive personal data might be exposed. Without the clear emphasis on anonymity in the process of implementation, the shift towards digital might prove counter-productive by decreasing the confidence of the very people the new technology aims to protect.

Need to Close the Reform Loop

• Smart supply chain enforcement: Integrate labour compliance scoring into digital vendor on‑boarding. For example, require every supplier to upload audit-ready labour records and build a blockchain-backed ledger tracing subcontractor chains. This way principal firms can verify labour conditions across tiers before procurement, making informal leakages visible and deterred.

• R&D-specific carve outs: Innovation-linked short-term jobs should be defined as a special category of research roles. Only high-tech organisations — such as those in pharma R&D, biotech, or AI research — should be allowed to register their projects under this category. This would let them hire specialised experts for short durations, while also allowing these experts to receive pro-rated gratuity for the innovation work they carry out.

• AI-driven hazard safety scheduling: Use AI and real‑time monitoring to tailor working hours in sensitive environments. A factory could deploy analytics on production data and biometric sensors. If extended shifts are flagged (due to high fatigue risk or contamination rates), the system automatically suggests additional breaks or rotating extra staff. Regulators could pilot an ’extended‑shift approval‘ system where an AI risk score must clear any overtime beyond safe thresholds, ensuring flexibility only when it’s safe.

• Worker data ethics protocols: Mandate that all digitally collected labour data be encrypted and anonymised by default. Access should be role-based (only HR or authorised auditors) and usage strictly bound. For example, health check data could be stored in de-identified form unless a compensable work injury occurs. Regular audits and penalties for misuse would protect workers’ privacy. Embedding such measures into the codes would align labour digitisation with global data protection standards, preserving trust in the system.

Conclusion

India’s new labour codes are a breakthrough, but they are only the first draft of reform. Left unaddressed, these blind spots – from hidden workers in supply chains to unprotected personal data – could inadvertently widen inequities or dull our industrial edge. The solution lies in iterative collaboration: industry leaders working with policymakers to refine and customise the rules.