Labour Codes to align wage growth with profits: CEA Nageswaran

Balancing Profits and Paychecks Through New Labour Reforms

India's Chief Economic Adviser, V Anantha Nageswaran, has highlighted a key goal of the country's recently implemented four Labour Codes: ensuring that workers' wages and benefits rise in tandem with corporate profits.

These codes, which consolidated 29 older labour laws, came into force on November 21, 2025, marking a significant overhaul of the nation's employment framework.

Nageswaran pointed out that this alignment addresses a longstanding gap where strong corporate earnings, which hit a 15-year high in FY24, outpaced wage increases and job creation, especially for entry-level workers.

By tying pay growth to profitability, the reforms seek to create a fairer distribution of economic gains, fostering stability for both businesses and employees across sectors.

The important thing is that labour codes also make it very clear that there has to be a balance in terms of the worker's rights and what the employers have been asking about. Labour codes will also do its own bit to make sure that wage growth and the benefit growth is commensurate with profitability growth. That is an important development that has happened since we wrote the survey last year.

Key Features Reshaping Wages and Worker Rights

At the heart of these changes is a redefined structure for wages under the Code on Wages, 2019. Now, allowances cannot exceed 50% of total compensation, meaning basic pay must form at least half of an employee's remuneration.

This shift impacts calculations for provident funds, gratuities, overtime, and bonuses, prompting many companies to rethink their salary packages.

A national floor wage, set by the central government, sets a baseline that states cannot undercut, though they can adjust upward based on local needs, offering predictability for multi-state operations.

Social security nets have expanded dramatically, covering all 740 districts under ESIC with a higher wage ceiling of Rs 21,000 monthly.

Gig and platform workers, previously in the shadows, now gain access to these benefits, with aggregators contributing 1-2% of their annual turnover to funds.

Mandatory appointment letters for all workers outline designations, pay, and entitlements, promoting transparency from day one.

Broader Impacts on Economy and Workforce

These labour codes promise ripple effects beyond immediate paychecks. They are poised to boost female workforce participation, formalize informal jobs, and enhance productivity, helping India tap its demographic dividend effectively.

Estimates suggest workers' disposable incomes could rise, potentially increasing consumption by around Rs 75,000 crore and fueling overall economic growth.

Recent data indicates early signs of reversal in the profit-wage imbalance, with encouraging trends in employment and pay.

Employers face new compliance demands, like restructuring contracts and extending coverage to fixed-term and migrant workers, but the framework balances these with streamlined dispute resolution and fixed-term employment options under the Industrial Relations Code.

Draft central rules issued late last year are refining implementation, with stakeholder input shaping final guidelines.

For international businesses, this means adapting to higher statutory costs but gaining a more skilled, secure workforce.

In summary, the Labour Codes represent a thoughtful push toward equitable growth, linking profits to prosperity for workers while supporting business viability. Early indicators point to positive shifts, setting the stage for sustained economic momentum.