This report is taken from CNBC’s ‘Inside India’ newsletter this week which brings you timely and insightful news and market commentary on the emerging powerhouse. Subscribe here.
The big story
India lives in contradictions – think of landing a spacecraft on the moon but without improving basic infrastructure, or being the world’s fastest growing economy with millions struggling to make ends meet. The country’s labor market is another area that symbolizes this paradox.
While major corporations expressed dissatisfaction with the country’s strict labor market laws, many startups quickly became unicorns, taking advantage of the flexibility that came with hiring huge armies of independent workers, many of whom had no job protection or social welfare.
Last Friday, when the Indian Govt Announce Labor reforms, merging 29 separate labor laws into four comprehensive laws, attempted to address these contradictions – balancing business interests with employee welfare.
Women work in a leather factory in Kolkata, India, on November 25, 2025.
norphoto | norphoto | Getty Images
The implementation of the labor laws is the second major reform by the Indian government in less than 90 days, as it strives to boost an economy facing headwinds from US tariffs.
Goods and services tax Rationalization In September, the European Central Bank sought to boost domestic consumption, and labor market reform is expected to stimulate manufacturing and attract more investment.
Prime Minister Narendra Modi In a job on
HSBC said in a note on Wednesday that the reform is important for India because it addresses the problem of labor stagnation due to which companies “find it costly to grow” and are unable to benefit from economies of scale.
India aims to be sophisticated A country with an economy of $10 trillion by 2047. To achieve this goal, it needs to increase industrial production and attract investments from domestic and foreign companies. The country’s complex web of labor laws has been a major obstacle to achieving these goals.
“Global companies want to expand domestic manufacturing in India and sourcing from India,” said Richard Russo, senior adviser and head of India and Emerging Asia Economies at the Center for Strategic and International Studies. For that to happen, Russo said, companies need to see policy reforms including an easing of “draconian labor laws.”
Balancing act
India-based policy think tank And he called The labor law is India’s “largest structural reform” since the country liberalized its economy in 1991.
The recent GST reform affected 12 million enterprises, while labor laws are likely to involve 63 million enterprises, of which only 1 million are in the formal sector, ORF said. “The compliance leap from the informal to the formal system will now become easier, as the ease of keeping records and filling out forms reduces the tyranny of corrupt, rent-seeking bureaucracy.”
Under the new policy, independent workers will have access to Social Security benefits, and startups will be required to allocate up to 2% of their sales to build a social security net for these workers.
In addition, employees on fixed-term or contract contracts are now eligible for benefits available to permanent workers, including vacation, medical and social security.
On the other hand, according to a report by Nomura Research, the law makes it easier to cut workers and “harder for workers to conduct strikes legally.”
Trade unions backed by opposition political parties organized on Wednesday Intermittent protest All over the country, demanding a rollback of reforms.
G Sanjeeva Reddy, president of the Indian National Trade Union Congress, who led a protest in Hyderabad, a major IT hub in India, told CNBC they want the reforms to be scrapped, claiming 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 minimum requirement to obtain government permission for staff reductions to 300 employees from 100, and allows states to raise that amount further.
Experts said that this flexibility will give countries an advantage in their competition to attract large foreign and domestic industrial investments, similar to what provinces do in China.
Under the Wages Act, the central government will soon fix the minimum basic rate, with states also having the option of setting minimum wages above this rate.
“While the Codes are intended to create a uniform national framework, states retain the power to set many operational rules,” said Preeti Sharma, partner in global employer services at business consultancy BDO India.
“Given the competitive investment climate, some differences are possible, especially around procedural and local procedural requirements,” she added.
Transient pain?
Each state could implement the law differently, and that could be an “initial headache for employers” but this is likely to be a temporary issue, said Arjun Paleri, a partner at Mumbai-based law firm BTG Advaya. Both state and central governments can formulate business rules in India.
Labor reforms are also expected to lead to higher operating costs for companies that rely on fixed-term employees such as those in the manufacturing or construction sectors, as well as companies that employ temporary workers.
Over the past few years, India has seen a sharp rise in the number of startups hiring temporary workers for food and goods delivery, express commerce, personal concierges, and home services.
according to Government estimatesThe number of gig workers in India is expected to rise to 23.5 million by FY 2030, from about 10 million in FY 2025.
New minimum wage rules, with states having the flexibility to set their own thresholds, could impact this growth in the gig economy.
“E-commerce industries will be severely impacted as operating costs rise due to the formal recognition of gig workers and platform workers,” said Gerald Manoharan, partner at law firm JSA.
He added that social benefits and contributions to social welfare funds by aggregators are bound to impact the operating margin of these companies, before the costs are passed on to customers.
However, major aggregators such as Zomato, Swiggy and Amazon have “welcomed” the reforms, saying they are evaluating the changes.
Under the new labor laws, fixed-term employees will be eligible for benefits equal to permanent workers, including vacation, medical and social security, which could lead to increased costs for manufacturing, infrastructure and real estate companies that employ a higher share of fixed-term or contract employees.
“Labor cost already constitutes approximately 25% to 30% of our total project cost,” said Sujay Kalili, founder and CEO of Mumbai-based True Realty, adding that his company expects the core labor cost to increase by 5% to 10% over the next 18 months.
However, he said updated provisions around workforce flexibility, smoother exit thresholds and longer shift options from 8 to 12 hours, could partially offset cost escalation through productivity gains.
Top TV picks on CNBC
Sumit Retulia, senior research analyst at Kpler, said that Indian refiners… will be modified Their purchases of Russian oil instead of stopping them completely.
Tan Teck Ling, Executive Director of UBS Global Wealth Management and APAC FX and Macro Strategist, said: His basic issue It is for the Reserve Bank of India to cut interest rates again.
Aditya Suresh, head of India equity research at Macquarie Capital, expects the country’s flash trading companies to see strong growth. To suffer losses “For several years,” beyond the one-year horizon expected by other analysts.
Need to know
India’s $33 billion defense production ambition is on track. Although the Indian-made Tejas fighter jet recently crashed at an air show in Dubai, Investors are optimistic on New Delhi’s defense ambitions as the country seeks to double its military production to 3 trillion rupees (about $33 billion) by 2029.
International companies want to list their units in India. International companies are Rush to list their local business units In one of the world The busiest IPO Markets.
Apple opposes India’s new antitrust penalty law. The law, passed in 2024, allows the Competition Commission of India to use a company’s global sales volume while imposing fines, and could expose the iPhone maker. To a penalty kick Up to $38 billion, according to a Reuters report.
Quote of the week
We have more than 20 exporters coming to our office, because they have lost orders from Europe and America in the past two months. they [exporters] They want to shift their business to local players, which benefits us.
— Akash Agarwal, CEO, V2 Retail
In the markets
India’s benchmark indices hit record highs on Thursday. the Stylish 50’s It crossed 26,284, while the BSE Sensex reached 86,026.18. Both indices last reached record highs in September 2024.
The Nifty 50 index is up 11% year-to-date, while the BSE Sensex is up nearly 10%.
The yield on the country’s benchmark 10-year bond rose 1 basis point to 6.503% on Thursday, after falling more than 7 basis points in the first three days of this week.
– The light of the wisdom of Muhammad Ali
Coming
November 28: GDP data for the July-September quarter; Industrial production data for October
December 1: HSBC Manufacturing PMI for November
December 3: HSBC Services PMI for November
Every weekday, CNBC’s ‘Inside India’ news show brings you news and market commentary on powerful emerging companies and the people behind their rise. Stream the show live on YouTube and catch highlights here.
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2025-11-27 23:38:00
