| In 2025, India can Finally Enjoy the Fruits of Surplus Labour | | | From Independence through the late 20th century, India operated under a tightly regulated labour framework designed for a protected economy. Even after liberalisation, this was one field left untouched. Its consequence was stark: in a labour-surplus country, firms avoided labour-intensive investment.
That imbalance of labour law restricting labour absorption finally was corrected in 2025. Labour reforms and VB-G RAM G finally makes it possible for India to absorb our surplus labour in our formal economy in both urban and rural India. Labour law, social security, rural employment and enterprise policy are aligned for the first time, moving India towards a system that protects workers while enabling formal employment and scale.
Learning from Other Labour-Surplus Economies
Let’s start with countries that faced the same challenge as India: a surplus of labour. In the 1990s and early 2000s, China, Vietnam and Indonesia designed labour laws to absorb workers into large-scale manufacturing by making hiring predictable and compliance manageable.
India moved the other way, building a maze of permissions and penalties that discouraged labour-intensive investment and pushed firms towards informality.
That path now reverses, in both urban and rural labour markets. By consolidating 29 labour laws into four labour codes, India has simplified compliance more than its peers, matched them on worker protections, and gone further on hiring flexibility.
In rural areas, the shift from MGNREGA to the Viksit Bharat–Rozgar and Ajeevika Mission (Gramin) aligns employment with productivity, introduces a 60-day pause during peak sowing and harvesting to prevent farm-labour shortages, and links work to durable assets. The result is a labour regime that is more investment-ready than China, Vietnam or Indonesia, combining ease of compliance, broad social security and scalable hiring, without weakening safeguards, across both factory floors and farmlands.
Labour reform: from fragmentation to function
Consider a small manufacturing unit with around 100 workers. For years, growth came with anxiety. Hiring a few more hands meant navigating a maze of labour laws, filing multiple registrations, maintaining thick registers, responding to inspections from different authorities, and facing the risk that even a minor procedural lapse could invite criminal liability. Many businesses made the same calculation: it was safer to remain small, informal, and understaffed than to scale.
That mindset begins to change in 2025. By consolidating 29 central labour laws into four Labour Codes, the system moves away from regulatory clutter towards clarity. Compliance is simplified through single registrations, licences and returns; inspections shift from fault-finding to facilitation; and routine errors no longer attract criminal consequences.
Crucially, simplification does not come at the cost of worker rights. Wage protections are universal, gender equality is built into law, social security extends to gig and platform workers, and migrant labour gains portability. Formal hiring no longer feels like a risk to be managed, but a step that can be taken with confidence, making growth, protection and scale possible together.
PARAMETER EARLIER REGIME: NEW LABOUR CODES
NUMBER OF LAWS / CODES 29 Laws 4 Codes
RULES 1,436 351
RETURNS 31 Single (Electronic)
FORMS 181 73
REGISTERS 84 8
REGISTRATIONS 8* Single
LICENCES 4 Single
COMPOUNDING OF OFFENCES Not available Introduced for the first time
IMPROVEMENT NOTICE Not available Introduced for the first time
Enabling enterprises to grow and hire
For years, growth itself carried a penalty. Consider a manufacturing firm approaching scale: once it crossed ₹4 crore in paid-up capital, it lost small-company status and was pushed into heavier compliance just when it needed to hire more workers, such as mandatory cash-flow statements, additional board and audit requirements, and more detailed annual filings with the Registrar of Companies. Many businesses responded by capping size, splitting operations or staying informal.
That equation changes in 2025. Firms can now grow up to ₹10 crore in paid-up capital while remaining small companies, while MSME investment limits rise 2.5 times and turnover limits 2 times. Growth no longer triggers a compliance shock; it creates room to formalise, scale and hire, making enterprise-led job creation a rational choice rather than a regulatory risk.
For years, labour laws discouraged formal hiring, as employers avoided enrolling workers in the provident fund due to the risk of retrospective liability, backdated dues, and steep penal damages even for defaults linked to a worker’s previous employer.
This uncertainty made formal employment risky, while rigid withdrawal rules left workers unable to access their savings during distress. That changed in 2025, when the Employees’ Provident Fund Organisation allowed a one-time enrolment of previously excluded workers without past penalties and simplified withdrawals. With eligibility standardised at 12 months and up to 75% of the corpus now accessible, the reforms lowered hiring risk and accelerated formalisation..
Rural employment: updating a 2005 framework for a 2047 economy
The second major labour reform of 2025 made opposition breathing in fury for all wrong reasons. Nobody argued against the fact that MGNREGA helped raise rural incomes, but its also plain as day that it did not create durable assets and failed to keep pace with a rapidly changing rural economy. When the scheme was introduced in 2005, over 2 in 5 rural Indians lived below the poverty line; today, fewer than 2 in 50 do—a tenfold decline. Meanwhile, MGNREGA works scheduled during peak sowing and harvesting have created artificial labour shortages and raised farmers’ costs. These shifts made reform unavoidable.
Against this backdrop, the Viksit Bharat–Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025 represents a decisive reset. While raising the statutory guarantee is raised to 125 days, the new law has given a 60-day pause during sowing and harvesting seasons ensuring farmers have access to labour. |
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