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Rollout of India’s Labor Reform Uncertain Due to Political Complexity

Two years after India's parliament passed legislation aimed at streamlining India's labor laws, the changes have yet to take effect after numerous attempts. The rollout of the four labor codes has been complicated as the ruling party won in the state of Gujrat and lost in the state of Himachal Pradesh in the assembly election. If the new codes are not implemented by the financial year beginning in April, it is unlikely to happen before the general elections in 2024. 

A key element of the reforms is a provision making it easier for small and midsize businesses to lay off employees. Under the previous law, industrial establishments with 100 or more workers needed government permission to lay off even a single employee, whether permanently or temporarily, or to shut down sites. The revised legislation raises this threshold to 300 and allows each state to set an even higher threshold than 300. Additionally, the new wage code will require basic pay to account for at least 50% of employees’ gross income, which raises the cost for employers. 

Certain states are skeptical that these changes will drag their feet on changing their own regulations. Under India’s constitution, revisions to national legislation in these areas cannot take effect unless they align with state laws.

Published on: January 4, 2023

Authors: Dilpreet Singh, Rohit Dhawan

Topics: India

Dilpreet Singh

Chief Advisor, India, HR Policy Association

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Rohit Dhawan

Resource Manager, HR Policy in India, HR Policy Association

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