India’s 2025 Labor Code Reforms: Balancing Foreign Investment and Worker Protections
By: Nivedita Giani
Introduction
Countries modify their labor laws over time, driven by objectives such as enhancing compliance, increasing profits, and attracting foreign investment. On November 21, 2025, in a major change, the Indian government implemented four new labor codes that had been in development for five to six years. These new codes are especially significant as they consolidate 29 old central labor laws, some of which have been in effect since before India’s independence in 1947 (cmaknowledge).
The new labor codes are the Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety, Health & Working Conditions (OSHWC) Code. Combined, these four codes simplify compliance for employers and, in theory, extend worker protections, especially for fixed-term and unorganized workers (cmaknowledge).
However, the practical implications of these new laws have been varied. While they do appear to work in favor of employers, they are opposed by many large trade unions, who characterize them as “deceptive fraud” because they undermine long-term job security (cmaknowledge). In particular, the Industrial Relations Code (2020) raised the layoff threshold to 300 workers. This means that only companies with 300 workers or more would have to seek government approval to lay off workers. Prior to reform, it was a requirement for workplaces with 100 or more employees (Inamdar and Mukharji). While these new laws have received mixed reception domestically, there is also discourse on the impact of these laws on India’s ability to attract foreign investment as well as its competitiveness in the global market.
The Pro-Labor Code Argument
In short, those in favor of these new reforms argue that they are critical to attracting foreign investment. Among these experts is the economist Arvind Panagariya, Professor of Indian Political Economy at Columbia University.
Panagariya argues that restrictive layoff policies overturned by the Industrial Relations Code were excessively strict and inhibited India’s competitiveness relative to other countries in Asia, such as Bangladesh, Vietnam, and China. As such, he asserts that having a “flexible [labor] market” is essential for attracting foreign
investment and forging global partnerships, therefore facilitating India’s economic growth (Inamdar and Mukharji).
Economists from the Nomura Research Institute agree, arguing that the change in the layoff threshold in the Industrial Relations Code “speeds up the reform engine" by increasing the incentive for companies to build larger factories, which should facilitate economic growth and employment opportunities in the long run.
The Anti-Labor Code Argument
Opponents of the labor code reforms do not see them as an adequate method of attracting foreign investment. In particular, Professor Arun Kumar of Jawaharlal Nehru University claims that the amount of foreign investment India receives is not contingent on its labor laws. Rather, the low wages workers are paid hamper the mass demand for consumer goods (Inamdar and Mukharji). In other words, many Indian workers do not receive a sufficient amount to purchase more than the bare essentials, which is detrimental to the economic growth that would attract foreign investment.
Additionally, Kumar suggests that inhibiting workers’ bargaining power is unwise, considering that employment is currently high and technology is eliminating jobs (Inamdar and Mukharji). This supplements the idea that reducing the buying power of the Indian consumer base is antithetical to the objective of attracting investment.
Weighing Both Sides
These labor codes align with India’s strategy of creating special economic zones (SEZs) to attract foreign investment. In fact, as of the end of 2025, India ranks third in the world in terms of the number of SEZs, coming in at just under 400 nationwide (Sharma). Additionally, the corporate tax reduction from 30 to 22 percent and the consolidation of the goods and services tax also align with this economic strategy (Teekah and Balakrishnan).
This suggests that India’s newest labor reforms are, to an extent, a continuation of India’s efforts to attract foreign investment that have been ongoing since the early 2000s (Indian Department of Commerce). By consolidating the country’s labor codes, there is a possibility of creating a “more resilient and [formalized] economy,” making India more appealing to foreign investors (Lowy Institute). Additionally, the IMF has endorsed the changes proposed by the labor codes. Such a reputable organization recognizing the merits of these reforms is certainly a point in their favor. In simplifying its labor codes, India has paved clearer avenues for foreign investment and made it easier for multinational corporations to set up and scale operations by removing much of the proverbial red tape (Lowy Institute).
That being said, economic growth has slowed down. Since the demonetization policy of 2016, there has been a decline in private investment, despite the Indian government's efforts to ease the way for businesses (Teekah and Balakrishnan). Additionally, India is among the most unequal countries in terms of income. This has resulted in lower consumer demand from a significant percentage of the domestic market (Teekah and Balakrishnan). This demonstrates that while pro-business practices may be a measure to attract foreign investment, internal reforms addressing economic inequality are necessary for these to be successful, and the 2025 reforms do not appear to be an exception.
Specifically, the Indian economy is one of the most diversified in the world. However, growth has been slow due to limited job creation and difficulties in the manufacturing sector. Additionally, opportunities for unskilled laborers are largely stagnant (Teekah and Balakrishnan). Considering that these reforms reduce the agency of this demographic of workers, it appears unwise to appeal to businesses at their expense, as this may further worsen the consumer demand issues that India is already facing. Moreover, if these reforms exacerbate ongoing issues, they have the potential to create economic and social uncertainty that would be counterproductive to the motivation of these reforms: foreign investment.
Businesses understandably invest in stable and promising areas, and if harming workers contributes to the current problems India is facing, investors may have less incentive to pour funds into the Indian economy. Essentially, all things considered, it appears that boosting domestic demand is necessary to attract the FDI required for India’s goal of becoming a 5 trillion dollar economy by 2030. If they succeed, they would have “set a powerful new development template to emulate” (Lowy Institute).
To recap, there is potential in the intent behind these reforms. However, in alienating workers, the new labor codes may serve to exacerbate the economic issues India is still facing. This may contribute to instability that could discourage foreign investors and corporations from aiding India in achieving economic goals. Consolidating laws would be most effective when paired with internal changes that enfranchise workers and increase consumer demand, benefiting India as a whole.
Works Cited
cmaknowledge. “India Labour Codes: Impact and Implementation Explained (Updated – Nov 2025 - CMA Knowledge.” CMA Knowledge, 23 Nov. 2025,
www.cmaknowledge.in/2025/11/india-labour-codes-impact-and-implementation-explaine d-updated-nov-2025.html.
Inamdar, Nikhil, and Arunoday Mukharji. “India New Labour Codes: Unions Ask for Rollback after Sweeping Changes.” BBC, 28 Nov. 2025,
www.bbc.com/news/articles/cpwk28d5yzxo.
Indian Department of Commerce, Ministry of Commerce & Industry. “Home | Special Economic Zones in India.” Sezindia.gov.in, 2024, sezindia.gov.in/.
Sarma, Pratyush Paras. “India’s Economic Reforms: Domestic Resilience to Reshape Global Standing | Lowy Institute.” Lowyinstitute.org, 2025,
www.lowyinstitute.org/the-interpreter/india-s-economic-reforms-domestic-resilience-resh ape-global-standing.
Sharma, Vinay Prasad. “Top 10 Countries with the Most Special Economic Zones — See Where India Stands.” Wion, 2025,
www.wionews.com/photos/top-10-countries-with-the-most-special-economic-zones-see where-india-stands-1761565018326/1761565018331. Accessed 23 Mar. 2026.
Teekah, Ethan, and Pulapre Balakrishnan. “Economy of India.” Britannica.com, 29 Apr. 2025, www.britannica.com/money/economy-of-India.
