New Labour Codes: The main challenge with Indian policy is its execution

India's new labour Codes promise sweeping reform, but weak state capacity, patchy data, and political risk may once again turn ambitious legislation into uneven, middling execution

India’s new labour Codes — four sweeping laws meant to replace 29 fusty statutes — promise to simplify compliance, broaden social security, and grant firms the flexibility to hire, fire, and grow. But then, India has a habit of announcing reforms that look splendid but get bungled on execution. Will the new Codes join this tradition? The country’s recent economic reforms have followed this predictable arc: Ambitious legislation drafted in New Delhi, halting implementation in the states, and an eventual outcome far removed from the intent. The Insolvency and Bankruptcy Code (IBC), for instance, was intended to be a swift and fearsome mechanism for disciplining errant borrowers. It soon became bogged down in court delays, procedural squabbles, and corruption. Delays and gaming the system look common. The Real Estate (Regulation and Development) Act (Rera), designed to protect homebuyers, dissolved into a patchwork of diluted state-level regulations. Even goods and services tax (GST), the most dramatic fiscal reform in decades, continues to be a work in progress with complex rules and uneven enforcement. 

The first obstacle is India’s federalism. Though the Codes are central legislation, labour sits on the Concurrent List of the Constitution, meaning the states must craft their own rules and do the actual enforcing. In similar other cases, some have been diligent; many have not. Most of them are interested in political theatre rather than regulatory housekeeping. A worker in one state might enjoy benefits unavailable in another; a factory might be regulated differently across state lines. The new Codes promise to smooth these wrinkles. But if states drag their feet or carve out bespoke interpretations, the Codes will fall short of their intent. 

The second problem is capacity and quality of governance. The Codes assume the existence of digital systems for worker registration, algorithms for risk-based inspection, and administrators capable of handling millions of online compliance filing. The reality is less flattering. India’s government machinery, usually poorly trained, badly supervised, and undermined by corruption, cannot enforce even modest regulations, let alone a generational overhaul. Digitisation is uneven; portals often crash under pressure. The Employees Provident Fund Organisation is causing untold harassment to millions. The IBC’s collapse under the weight of overwhelmed tribunals should have served as a warning. Instead, the Codes seem to have borrowed its ambition without its lessons. 

Their architects place much faith in digital compliance: Electronic filing, online grievance systems, and Aadhaar-linked social-security accounts. But India’s digital landscape is uneven. GST filing remains a headache for many small businesses. Millions of workers lack reliable connectivity. Those in the informal sector — construction workers, drivers, and domestic staff — possess scarcely any reliable documentation. 

India has already produced several digital-welfare schemes, which function more as databases rather than delivery systems. The e-Shram portal — for informal workers — remains incomplete, riddled with duplicates and missing beneficiaries. Construction workers’ welfare funds sit unspent in many states for want of clean data, as a government audit found. Expecting the new Codes to succeed where these programmes have stumbled looks optimistic, if not fantastical. 

Then there is populist politics, which is ready to undermine any reform. Any economic downturn, significant layoffs, or industrial accident could prompt politicians to dilute or delay implementation. Reform in India often depends less on economic logic than on political risk-aversion. Rera became weaker through state-level amendments; GST rates proliferated thanks to political compromises. Labour reform could easily face similar political recalibration. 

The Codes earn credit for recognising gig and platform workers, but here India’s regulatory ambition outruns its practical capabilities. Definitions are broad, contribution mechanisms vague, and enforcement pathways are unclear. Gig workers operate across multiple platforms, with shifting identities and little documentation. Tracking contributions or verifying employment histories would challenge even well-staffed regulators. Also, will gig-worker protections turn into the labour equivalent of India’s various cess funds: Money collected, rarely disbursed, and largely inaccessible to those it was meant to help? 

Of course, the Codes are not doomed. India’s reforms rarely fail outright. Rather, they succeed in bits, stumble in others, and settle into an untidy, middling equilibrium. GST merely became overcomplicated. The IBC became slow and uneven. Rera did not disappear; it became toothless in parts. The Codes may follow a similar trajectory: Partially effective in a handful of states, effectively ignored in others, inconsistently enforced everywhere. They may help formal manufacturing more than services, large firms more than micro, small, and medium enterprises, and the already documented workforce more than the informal majority. 

A successful modern labour regulation requires vast quantities of reliable data — on employment, earnings, safety, benefits, and compliance. Countries like Japan and South Korea operate such systems with clinical efficiency. In India statistics are patchy; administrative records inconsistent; and surveys infrequent. The Codes assume a data regime that India has not built. The IBC’s tribunals struggled partly because the government lacked a sharp focus on outcomes and failed to make timely and determined intervention when they vastly deviated from expectations. The problem started with wrong appointments. Rera’s enforcement remains patchy across states. Labour reform, which depends on tracking millions of workers and firms, demands an even higher standard of enforcement. The Codes hold the promise of a more productive, formalised economy. But a law is only as good as the state that enforces it, and India is not known for rigorous, outcome-driven administrative discipline. 

The writer is editor of www.moneylife.in and a  trustee of the Moneylife Foundation; @Moneylifers