Last week, India announced it would implement what many say are its most far-reaching economic reforms in decades – compressing 29 federal laws that regulated labour into four simplified codes.

As a result, the number of rules that govern labour have now come down from a staggering 1,400 to around 350, while the number of forms companies had to fill in this regard have reduced from 180 to 73 – drastically lightening the regulatory burden on businesses.

The laws got a parliamentary nod in 2020 but are finally set to be uniformly implemented across the country after a five-year delay and much political wrangling.

Companies – which have long blamed restrictive labour practices for the atrophy in India’s manufacturing sector – have given the changes a rousing welcome.

“This is part of a broader trend by the government to hasten economic reforms, especially in the wake of Trump’s 50% tariffs, and an important signal that it is keen to ease doing business in India, attract more FDI [foreign direct investment] and integrate into GVCs [global value chains],” said Nomura, a broking house.

But trade unions are asking for their withdrawal and calling the codes the most “sweeping and aggressive abrogation of workers’ hard-won rights and entitlements since [India’s] independence”.

The changes have triggered demonstrations across the country, with 200-300 people turning up at a protest in capital Delhi on Wednesday, led largely by left-leaning trade unions not aligned with Prime Minister Narendra Modi’s ruling Bharatiya Janata Party.

At the protest site, Akashdeep Singh, a 33-year-old factory worker employed at an international beverage company on the outskirts of Delhi, told the BBC that “the laws will benefit only the employers and not workers like us”.

Several others expressed similar anxieties.

The government says the long-pending reforms aim to modernise outdated laws, simplify compliance, and protect workers’ rights – while giving legal recognition to India’s growing gig workforce for the first time.

Several worker-friendly measures – mandatory appointment letters, uniform minimum wages, free annual health check-ups for those over 40, and gender-neutral pay – are welcome steps.

Coupled with fewer compliance burdens, stronger social security, and an expanded definition of employees to include gig workers, these reforms could help formalise India’s vast informal economy, experts say.

The new codes also iron out glaring inconsistencies, such as varied definitions of the same rules that were prevalent in the previous laws, according to Arvind Panagariya, economist at Columbia University and former chairman of the Indian government’s think tank Niti Aayog.

“You could not implement 100% of the Indian labour laws without violating 20% of them,” Prof Panagariya wrote in the Times of India newspaper.

But even with the many welcome provisions, two contentious clauses in the reforms have particularly irked unions.

These include rules that will make it easier for companies to fire workers and also harder for workers to legally conduct strikes.

Earlier, factories with 100 or more workers needed the government’s permission before they could lay off employees. Now, that threshold has been increased to 300.

“Why is the government trying to exclude a huge section of the workforce from the labour legislation?” Sudeep Dutta, national secretary of CITU (Centre for Indian Trade Unions), told the BBC.

“Pending grievance cases for labourers are already in millions. Cases are not being registered… workers are not able to lodge their complaints and now the government is bringing in a labour code which is trying to exclude a huge section of the workforce,” he added.

Mr Dutta also said the new rules which ask workers to give a 14-day notice before going on strike – earlier applicable only to state-run companies – are further snatching away workers’ powers to collectively bargain.

Economists like Prof Panagariya argue that the old rules barring layoffs in firms with 100 or more workers were “draconian,” hampering India’s competitiveness compared to countries like Bangladesh, Vietnam, and China.

He writes that a flexible labour market is key for India to attract entrepreneurs, as China did decades ago, to bring capital, technology, and global links – catalysts for economic transformation.

Nomura economists agree, saying that the increase in worker threshold limit for retrenchment/closure “should encourage firms to build larger scale factories, boosting the manufacturing sector, and expanding employment opportunities over time”.

But economists like Prof Arun Kumar argue that labour restrictions alone do not explain India’s weak competitiveness or the slow private-sector investment in new factories.

“Inadequate private investment is not due to these laws but due to inadequate demand, as wages [in India] are low, so mass demand remains low,” Prof Kumar told the BBC.

“The new labour code will not have any impact on these aspects.”

He warns against weakening workers’ bargaining power, especially as technology displaces jobs and unemployment remains high.

“It is an issue of retaining the few rights that existed under the old system even though it was highly flawed,” said Prof Kumar.

While ideological differences remain, experts broadly agree that the outdated and complex codes – often used by inspectors to harass factory owners – needed simplification.

With over half of India’s working-age population out of the labour force and nearly 60% of workers self-employed, it’s clear the old rules were failing.

The impact of the new rules on India’s manufacturing growth and investment remains uncertain, but in the short term, the transition will pose challenges for companies.

“Organisations will need to prepare for changes to wage structures, HR systems, social security provisioning and compliance governance,” according to staffing agency BDO India.

Since labour is regulated by both state and central rules, employers may face dual compliance for a while, says BDO India, even as the government deals with ongoing resistance from unions.

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