Pradeep S. Mehta and Tasmita Sengupta | It’s Time For New Compact For The Welfare Of Labour All Across India

The early part of 2026 has already witnessed a wave of protests as factory workers in Noida took to the streets over low wages, delayed payments, and deteriorating working conditions.

Far from being isolated incidents, these reflect a deeper pattern of industrial unrest, towards a structural default in India’s growth trajectory. Over the years, real wages have remained largely stagnant, with workers often earning nearly 25 per cent less while working up to 50 per cent more hours.

This reveals a broader labour market paradox. While India’s unemployment rate has remained relatively low at around 3.2 per cent (PLFS 2023-24), yet an estimated 30-35 per cent of workers live in poverty despite being employed. The critical problem, therefore, is not merely the availability of jobs, but the quality of employment, measured through dignified wages and working conditions. Despite the introduction of the Code on Wages which aims to simplify regulation and address wage suppression, minimum wages have seen only limited or marginal improvement.

As labour is a Concurrent List subject in the Constitution of India, the framework hinges on a Centrally-determined floor wage, with the various states expected to revise respective minimum wages periodically, adjusted to inflation rates. In practice, however, these revisions have failed in keeping pace with skyrocketing prices, leading to a steady erosion of real incomes.

This disconnect reflects a broader misalignment between productivity gains, corporate performance, and worker compensation. As per the ASI (2023-24), profits per factory rose by seven pr cent, while wages per worker increased by only 5.5 per cent. Further, the government’s Economic Survey (2024-25) highlighted that corporate profitability was at a 15-year high even as wage growth was stagnant.

As India moves towards its ambition of becoming a developed economy by 2047, these trends call for a critical re-assessment of the nature of its growth. With the current growth rate at 6.3 per cent, against the estimated requirement of 7.8 per cent, bridging this gap will require not just faster industrial expansion, but a more inclusive, employment-led growth model, one that ensures economic progress translates into good and better jobs.

Anchored in Endogenous Growth Theory, investing in human capital correlates with productivity gains, central to which has been the wage component.

However, there has been a stark productivity gap between small and large firms, with SMEs operating at just 1/24th the productivity of their larger counterparts. Despite the intent, these enterprises are often trapped in a low-level equilibrium. High input costs and regulatory burdens limit their ability to pay better wages and invest in human capital development.

Rising land and power costs, unequal access to credit, rent-seeking practices, high logistics costs along with the complex compliance burden, among other factors, have increased operational pressures. As a result, firms compress labour costs, undermining productivity and worker welfare in order to maintain their profit margin.

This has further contributed to the trend of contractualisation. The evidence suggests that stringent labour regulations along with the increase in factor costs have pushed firms to shift towards contract-based employment, reducing the share of formal workers. This led to the weakening of job security and eroded employer-employee relationships, thus impacting minimum wages. The Supreme Court has interpreted payment below statutory minimum wages as a form of forced labour.

To address these challenges, SMEs must be incentivised to generate and sustain quality employment. This would require targeted fiscal support through measures such as subsidising input costs, including rationalised power tariffs, simplified land access, and stronger logistics support. At the same time, the expanding access to affordable credit and reducing compliance burdens through digitisation and integration of blockchain technology for transparent and efficient compliance management can improve the viability of firms. Moreover, industrial policy should align productivity gains to wage growth, ensuring that improvements in firm performance are reflected in worker compensation.

Equally important is strengthening the enforcement of policies. The effectiveness of labour regulation depends not just on its design but on implementation marked by administrative capacity and efficiency. Improving monitoring, ensuring greater Centre-state coordination, and reducing regulatory fragmentation can lower uncertainty for firms. Additionally, India needs a more evidence-based, transparent wage policy built upon needs assessment.

Furthermore, firms must be encouraged to invest in skills, workplace safety, and workers’ welfare, supported by stronger ESG-linked investment frameworks. Regulatory institutions such as the Securities and Exchange Board of India have an important role in deepening ESG standards, strengthening disclosure requirements, and incentivising their adoption, while also building the capacity of SMEs to capitalise opportunities under the India-EU FTA, where investments largely depend on compliance with labour and sustainability standards.

At the same time, there is a need to assess whether Indian impact investors are considering the “social” dimension of ESG into their investment decisions or not. Such investments not only enhance productivity and resilience but also strengthen firms’ competitiveness in global value chains.

Lastly, a well-coordinated approach involving government (Sarkar), industry (Bazar), and workers (Samaj) remains essential to ensure growth translates into secure and adequately remunerated employment, rather than reinforcing cycles of informality and precarity. The active engagement of labour unions and civil society organisations is equally critical in amplifying workers’ voices, strengthening accountability, and ensuring that labour standards are effectively upheld. This will help advance the objectives of SDG-8 which is promoting sustained, inclusive, and sustainable economic growth, productive employment, and decent work for all.

Pradeep S. Mehta is the secretary-general of CUTS International, a 42-year-old leading global public policy research and advocacy group. Tasmita Sengupta works for CUTS International.