Labour Codes may spur hiring as firms get more flexibility to restructure

India's journey towards comprehensive labour law reform has been a long and complex one, marked by a desire to balance worker protection with industrial growth. For decades, India operated under a labyrinthine system of over 40 central labour laws and numerous state-level regulations, a legacy of the post-independence era. This fragmentation often led to significant compliance burdens for businesses, particularly Micro, Small, and Medium Enterprises (MSMEs), and was frequently cited as a deterrent to investment and job creation. The Second National Commission on Labour, in its 2002 report, strongly recommended the rationalization of these laws into a few broad codes, setting the stage for the reforms we see today.

The current government embarked on a mission to consolidate these laws into four overarching Labour Codes: the Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions Code (2020). While these codes have been passed by Parliament, their full implementation awaits the framing of rules by both the central and state governments. The central idea behind these reforms is to simplify labour regulations, enhance ease of doing business, attract domestic and foreign investment, and ultimately spur employment generation, particularly in the manufacturing sector, aligning with initiatives like 'Make in India' and 'Atmanirbhar Bharat'.

The article specifically highlights a crucial amendment within the Industrial Relations Code (IRC) 2020: the increase in the threshold for government approval for layoffs, retrenchment, and closure of industrial establishments from 100 to 300 workers. This means that industrial establishments employing up to 300 workers will no longer require prior government permission for such actions. This provision, which amends the erstwhile Industrial Disputes Act, 1947, is designed to provide greater operational flexibility to firms, allowing them to adapt more quickly to changing economic conditions without bureaucratic hurdles. Historically, the rigidity of these labour laws was often blamed for discouraging firms from expanding beyond the 100-worker mark, leading to a phenomenon of 'dwarfing' where companies preferred to remain small or informal to avoid stringent regulations.

Key stakeholders in this reform include the **Government**, which champions these codes as essential for economic modernization and job creation. **Employers and Industry bodies**, especially MSMEs and mid-sized firms, largely welcome the changes, viewing them as a significant step towards reducing compliance costs and increasing business efficiency. They argue that greater flexibility in hiring and firing will encourage them to take on more workers, knowing they can adjust their workforce if market conditions change. Conversely, **Workers and Trade Unions** have expressed strong reservations and opposition. They fear that the increased threshold will erode job security, weaken workers' bargaining power, and make it easier for companies to dismiss employees arbitrarily, potentially leading to increased exploitation and precarity of labour. Economists and legal experts offer divided opinions, with some seeing it as a necessary, albeit potentially harsh, reform for long-term economic benefits, while others warn of its social costs.

The significance for India is profound. Economically, the reforms are expected to improve India's ranking in the 'Ease of Doing Business' index, making it a more attractive destination for investment. Greater flexibility could lead to increased formalization of the workforce, as firms may be more willing to hire formally. Socially, the impact is debated: proponents argue it will create more jobs, while critics fear it will lead to a 'hire and fire' culture, increasing income volatility for workers. Politically, these reforms represent a decisive shift towards a more market-oriented labour policy, contrasting with the historically protective labour laws. The fact that 'labour' falls under the **Concurrent List** of the Seventh Schedule of the Indian Constitution (**Article 246**) means both the Central and State governments can legislate on it. This allows states to potentially frame their own rules or even amend the thresholds, as some states like Rajasthan, Uttar Pradesh, and Madhya Pradesh had already moved towards higher thresholds even before the central legislation.

From a constitutional perspective, the reforms are often viewed through the lens of the **Directive Principles of State Policy (DPSP)**, particularly **Articles 39, 41, 42, and 43**, which advocate for a living wage, just and humane conditions of work, and the right to work. The government's argument is that by promoting economic growth and formal employment, these reforms indirectly contribute to achieving the DPSP goals, while trade unions argue they undermine the direct protections guaranteed by these principles. The future implications include the critical phase of rule-making and implementation by states. The actual impact on job creation, worker welfare, and industrial relations will depend heavily on the effectiveness of these rules, the robustness of social security provisions under the Code on Social Security, and the enforcement mechanisms put in place. The reforms could potentially lead to a more dynamic labour market, but also necessitate stronger social safety nets to protect vulnerable workers from the increased flexibility granted to employers.