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big story
India lives in contradiction. Think of landing a spacecraft on the moon but not having basic infrastructure, or of millions of people struggling to make ends meet in the world’s fastest growing economy. The country’s labor market is another area that symbolizes this contradiction.
While big companies bemoan the country’s strict labor market laws, several startups have quickly become unicorns, taking advantage of the flexibility afforded by hiring large numbers of gig workers, who lack job protections and social benefits.
Last Friday, the Indian government announced labor reforms that sought to address these discrepancies by consolidating 29 separate labor laws into four overarching codes to balance business interests and employee welfare.
Women work at a tannery in Kolkata, India, on November 25, 2025.
Null Photo | Null Photo | Getty Images
The labor law is the second major reform within 90 days for the Indian government as it seeks to revitalize an economy facing headwinds from U.S. tariffs.
The rationalization of goods and services tax in September was aimed at boosting domestic consumption, while labor reforms are expected to boost industrialization and attract further investment.
Prime Minister Narendra Modi welcomed the move in a post on X, saying the new norms “will protect workers’ rights and create a future-ready ecosystem that strengthens India’s economic growth.”
HSBC said in a note on Wednesday that the reforms are important for India as they address the issue of labor rigidities “where companies find growth costly.”
India aims to become a developed country with an economy of $10 trillion by 2047. To achieve that goal, we need to expand industrial production and attract investment from domestic and foreign companies. The country’s complex labor laws pose a significant hurdle to realizing these goals.
“Global companies want to increase manufacturing in India and sourcing from India,” said Richard Rossow, senior advisor and chair of India and emerging Asian economies at the Center for Strategic and International Studies. But to achieve that, Rosseau said companies will need to consider policy reforms, including relaxing “draconian labor laws.”
balancing act
Observer Research Foundation, an India-based policy think tank, called the labor law reforms “India’s biggest structural reform” since the country liberalized its economy in 1991.
While the recent GST reforms affected 12 million businesses, the labor law could potentially affect 63 million businesses, of which only 1 million are in the formal sector, ORF said. “Easy to maintain registers and fill out forms will reduce the tyranny of corrupt rent-seeking bureaucracies, making the leap from informal to formal compliance easier.”
Under the new policy, gig workers will have access to social security benefits and startups will be required to allocate up to 2% of their sales to building a social security net for these workers.
In addition, fixed-term or contract employees may be eligible for benefits available to permanent employees, such as vacation, medical care, and social security.
On the other hand, the provision makes it easier to fire workers and “makes it harder for workers to legally strike,” according to the Nomura Research report.
On Wednesday, opposition-backed trade unions organized sporadic protests across the country, calling for the reforms to be reversed.
G. Sanjeeva Reddy, president of the Indian National Trade Union Congress, which led protests in Hyderabad, India’s main IT hub, told CNBC he wanted the reforms reversed, arguing that the measures were “unilaterally approved by the government.”
India’s Ministry of Labor and Employment did not respond to CNBC’s request for comment.
The new law raises the threshold for government permission to cut employees from 100 to 300 people, and allows states to go even higher.
Experts say this flexibility will give the province, as well as China’s provinces, an advantage as it competes to attract large-scale industrial investment from foreign and local sources.
Under the Wage Act, the central government will soon set a minimum standard rate, and states will also be given the option to set their minimum wage above this rate.
“While the Code is intended to create a uniform national framework, states retain the power to frame many operational rules,” said Preeti Sharma, partner in global employer services at business advisory firm BDO India.
“Given the competitive investment environment, there may be some differences, particularly with respect to thresholds and local procedural requirements,” he added.
Temporary pain?
Arjun Parelli, a partner at Mumbai-based law firm BTG Advaya, said that while each state may implement the provisions differently, “it may be a headache for employers initially,” but it is likely to be a temporary problem. In India, both state and central governments can draft labor regulations.
Labor reforms are also expected to lead to higher operating costs for companies in the manufacturing and construction industries that rely on fixed-term employees and for companies that employ gig workers.
In recent years, India has seen a surge in the number of startups hiring 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 increase from about 10 million in 2025 to 23.5 million by 2030.
New rules on minimum wages, which give states the flexibility to set their own standards, could impact this growth in the gig economy.
“If gig workers and platform workers are officially recognized, the e-commerce industry will be significantly affected by significantly higher running costs,” said Gerald Manoharan, a partner at law firm JSA.
Aggregators’ contributions to social benefits and welfare funds are bound to impact the operating margins of these companies before the costs are passed on to customers, he added.
However, major aggregators such as Zomato, Swiggy and Amazon said they “welcomed” the reforms and appreciated the changes.
Under the new labor law, fixed-term workers will be entitled to the same benefits as full-time employees, including vacation, medical care and social security, potentially raising costs for manufacturing, infrastructure and real estate companies with high proportions of fixed-term or contract workers.
“Labor costs already account for close to 25% to 30% of the overall project cost,” said Sujay Karere, founder and CEO of Mumbai-based real estate firm True Realty, adding that the company expects benchmark labor costs to increase by 5% to 10% over the next 18 months.
But he said updated regulations regarding employee flexibility, smoother termination criteria and the option of longer shifts of 8 to 12 hours could partially offset the higher costs through increased productivity.
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Sumit Ritoria, principal research analyst at Kpler, said Indian refiners would adjust their purchases of Russian crude rather than halting them completely.
Tan Teck Leng, executive director and Asia-Pacific currency and macro strategist at UBS Global Wealth Management, said the base case is for the Reserve Bank of India to cut rates one more time.
Aditya Suresh, head of India equity research at Macquarie Capital, expects the country’s quick commerce companies to suffer losses for “several years”, beyond the one year expected by other analysts.
need to know
India’s $33 billion defense production target is on track. Investors are bullish on New Delhi’s defense ambitions as it aims to double military production to 3 trillion rupees (about $33 billion) by 2029, despite the recent crash of an Indian-made Tejas fighter jet at a Dubai airshow.
Global companies want to list their Indian bases. Global companies are rushing to list their business units on one of the world’s busiest IPO markets.
Apple is challenging India’s new antitrust law. The law, enacted in 2024, allows the Competition Commission of India to exploit a company’s global sales while imposing fines, and could expose the iPhone maker to fines of up to $38 billion, Reuters reports.
Quote of the week
More than 20 exporters come to our office. This is because orders from Europe and America have been decreasing in recent months. They (exporters) want to shift their business to domestic players and that is benefiting us.
— Akash Agarwal, CEO, V2 Retail
at the market
India’s benchmark index hit a record high on Thursday. of nifty 50 BSE Sensex touched 86,026.18 while it crossed 26,284. The last time both indexes reached record highs was in September 2024.
The Nifty 50 is up 11% since the start of the year, while the BSE Sensex is up nearly 10%.
The country’s benchmark 10-year bond yield rose 1 basis point to 6.503% on Thursday, but has fallen more than 7 basis points in the first three days of this week.
— Nur Hikma MD Ali
very soon
November 28: GDP data for July-September period. October industrial production data
December 1st: HSBC November Manufacturing PMI
December 3: HSBC releases November PMIs
Every weekday, CNBC’s Inside India brings you news and market commentary about powerful emerging businesses and the people behind their rise. Live stream the show on YouTube and watch highlights here.
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