The Compliance Balance

As India’s revised labour code inches closer to implementation, the textile industry stands at a crossroads. Can manufacturers protect margins while improving workers’ livelihoods? Divya Shetty explores how the coming changes may quietly redefine shop floors, wage structures, and the industry’s social contract.

India’s new labour codes mark the most sweeping overhaul of employment regulation in decades, fundamentally reshaping how the textile industry manages cost, compliance and competitiveness. From a universal minimum wage to expanded social-security coverage and stricter welfare norms, the reforms are set to raise manufacturing costs in the near term, particularly for labour-intensive and MSME-dominated clusters.

Yet this cost pressure is also emerging as a catalyst for structural change. As companies recalibrate wage structures and compliance systems, the focus is shifting decisively towards automation, skill development and round-the-clock operations—signalling a transition from labour-led growth to productivity-driven manufacturing.

What changes first: Cost of manufacturing

The revised wage and social-security provisions are expected to increase the Indian textile industry’s overall cost of manufacturing in the next 12–18 months, primarily due to higher statutory payouts and expanded coverage, but this may be partially offset by long-term productivity gains and simplified compliance.

According to Sankar Balaram, General Manager (Technical & Development), Perfect Engineering Corporation, Ahmedabad, “The revised labour codes will certainly increase the immediate cost of manufacturing, particularly through higher wages and mandatory social-security contributions. However, these costs should not be seen in isolation. Rising living standards among workers—better housing, privacy, and family stability—translate into stronger workforce commitment and reduced attrition. Over time, this stability offsets part of the compliance burden. Companies that embrace the codes sincerely, not just as a legal requirement but as a philosophy of fairness, will find themselves better positioned for long-term competitiveness.”

“Manufacturers will need to rethink hiring strategies, invest more in structured training, and adopt workforce management practices that emphasize retention.”

• Sankar Balaram, General Manager (Technical & Development), Perfect Engineering Corporation, Ahmedabad

On the contrary, CITI is fully in sync with the idea behind the Labour Codes of creating a win-win proposition for both labour and industry. This said, several provisions in the Labour Codes could prove challenging for the textile and apparel industry. Ashwin Chandran, Chairman, CITI, explains what are the current codes of wages, 2019 and what are the recommendation suggested by them to tackle this challenge in Table 1.

Caption for the table: Table 1: Current Code on Wages, 2019

Feature	Current Code on Wages, 2019	CITI Recommendation
Wage calculation	Complex. Excess of 50% exclusions added back to wage.	Remove 50% cap. Exclude variable pay completely.
Variable pay	Increases statutory liability. Discourages incentives.	Should be treated as non-wage (neither fixed nor guaranteed).
Minimum wage	Cannot include HRA to meet Minimum Wage requirement.	Allow HRA to be counted towards Min Wage compliance.
Policy logic	Inconsistent: Govt counts housing costs to set rate, but ignores HRA for paying rate.	Align payment rules with the methodology used to set the rate.

Sachin Kumar Arora, Executive Director, TMMA, listed factors increasing manufacturing costs;

• Universal minimum wage: The introduction of a national floor wage will raise payroll costs, particularly in traditionally low-wage textile clusters, ensuring a basic income threshold for all workers.

• Expanded definition of wages: A broader definition of “wages” (at least 50 per cent` of total remuneration) for calculating provident fund (PF) and gratuity contributions will increase the base for these statutory payouts, directly impacting employer costs.

• Broader social security coverage: The Social Security Code expands PF and Employee State Insurance (ESI) coverage to smaller units, which were previously often exempt. This brings thousands of informal textile workshops under the formal social security net, imposing new administrative and financial burdens.

• Equal benefits for fixed-term employees: Fixed-term employees must now receive the same wages and social security benefits as permanent workers, including pro-rata gratuity after just one year of service, neutralising previous cost advantages of this flexible employment model.

• Mandatory overtime pay: Mandatory payment of double the ordinary rate for overtime work will benefit workers in export-oriented units with high production demands but increase costs for employers during peak seasons.

• Welfare and safety costs: New requirements for improved workplace facilities, mandatory annual health check-ups for workers over 40, and enhanced safety standards for women on night shifts will add to operational expenses.

“It is widely expected that the Labour Codes, in conjunction with recently announced measures such as the reforms in the GST framework, etc., will enable India’s textile and apparel sector to become more efficient.”

• Ashwin Chandran, Chairman, CITI

While the labour codes raise short-term costs, they also introduce important offsetting gains. The consolidation of 29 laws into four codes and the move to single registration and returns are expected to ease compliance, especially for MSMEs. Provisions such as fixed-term employment improve operational flexibility, allowing firms to align workforce levels with seasonal demand. Over time, better welfare standards, improved safety norms and formalised employment are likely to enhance worker morale and productivity, helping partially offset higher labour and compliance costs.

Although the labour codes are currently a major talking point, manufacturers remain uncertain about their implementation and are awaiting final clarity. Raja Shamugham, Founder and CEO, Warsaw International, adds “Generally the labour codes recently implemented by Government of India have ambiguous position still. Because states do have their own Labour laws unless they adopt it won’t be practiced in the respective State. This needs to be clarified whether all states are mandated to adopt the codes at once.

The proposed labour codes will undoubtedly add to manufacturers’ costs and must be assessed through the lens of global competition. It is essential to examine labour frameworks in competing countries and, if needed, develop SOPs to ensure a level playing field for Indian manufacturers. Without such measures, the industry—already operating on wafer-thin margins—could be easily outmatched on cost alone.

Ajay Patodia, CFO, Dollar Industries, on the other hand says that their company is already following the instructions. He says, “The new codes mandate that allowances cannot exceed 50 per cent of an employee’s total remuneration (CTC), meaning the basic pay must constitute at least 50 per cent, and we are adhering that. Also, the impact will be on PF & ESIC, Gratuity (which has reduced from 5 years to 1 yr.). We need to rise our manpower from 5-15 per cent.”

In the immediate 12-18 months, the textile and textile machinery industry will likely experience an initial rise in manufacturing costs as companies adjust compensation structures and absorb new social security obligations, with MSMEs facing the most significant transition challenges.

“For adaption of any small and mid-sized units, key challenges are Financial Constraints, Regulatory complexity, technology adoption, etc. If these all are present in any region, any SME or MSME can be operated.”

• Raja Shamugham, Founder and CEO, Warsaw International

Technology over labour

The new labour codes are likely to drive increased investment in automation, skill development and process optimisation on the factory floor, as the Indian textile industry adjusts to higher labour costs and strives to remain globally competitive.

Escalating wage bills and compliance costs are already nudging manufacturers towards automation and process optimisation, and crucially, modernisation does not always demand heavy capital investment. Sankar informs, “Incremental improvements—such as integrated material handling from blow room to carding, draw frame, speed frame, ring frame, autoconer, and finally packing or warping—can significantly reduce manual intervention. When coupled with real-time monitoring and traceability, these systems deliver consistent quality, lower processing costs, and higher machine utilisation. Alongside automation, structured skill development will be essential to ensure technicians can manage advanced systems effectively. Many Indian machinery manufacturers are also coming out with the retrofit automation solution start from for the ginning, spinning, weaving and processing units with integration of advanced AI Technology.”

“Yes it would certainly trigger the maximum automatisation option very soon. Through upskilling measures productivity optimization would get full thrust. For textile Upskilling on the available skill inventories would achieve the optimum productivity to offset the intended additional cost on the Compliance and wage revision costs,” states Patodia.

“For adaption of any small and mid-sized units, key challenges are Financial Constraints, Regulatory complexity, technology adoption, etc. If these all are present in any region, any SME or MSME can be operated.”

• Ajay  Patodia, CFO, Dollar Industries

Productivity gains that offset higher costs

It is widely expected that the Labour Codes, in conjunction with recently announced measures such as the reforms in the GST framework, etc., will enable India’s textile and apparel sector to become more efficient, productive, innovative, and globally competitive in the medium to long term.

However, it is difficult at this point to estimate how the productivity improvements that would come over time can offset the immediate operational cost-related challenges that companies could face due to the Labour Codes, about which I mentioned earlier.

Sankar lists down three main areas where productivity will gain;

• Process control: Reducing avoidable stoppages at carding, draw frames, speed frames, ring frames, winding, or warping trims workforce requirements and balances workloads. The Zero Sliver Break at Card will helps to work further processes with Zero Break with the adaptation of Batch Creeling at Draw frame, Speed Frame Ring frame and even at Warping.
• Zero-break culture: Encouraging technicians to aim for uninterrupted machine performance raises efficiency, reduces manpower pressure, and stabilises shop-floor operations. The Batch Creeling at Ring frame will helps to get more work load from the Ring frame Sider. Similarly at Warping also a Warper can run machine with maximum efficiecncy.
• Humane workplace practices: Ergonomic tools, temperature control, safety footwear, and mobility solutions not only improve worker comfort but also enhance machine care and utilisation.

Together, these measures help offset rising compliance costs by improving output per worker and reducing turnover.

Patodia also notes that automation will be utilised in many organisation and that is why we can streamline repetitive tasks, minimize human error and optimize resource allocation.

Gender-Inclusive Night Shifts (Increased Capacity & Efficiency)

A major expected gain comes from universally permitting women to work night shifts with appropriate safety measures.

• This change enables factories, particularly in the apparel sector with a predominantly female workforce, to run double or triple shifts (24/7 operations), which was previously a challenge due to varied state-level restrictions.

• Running machinery continuously maximises asset utilisation, reduces capacity constraints, and significantly boosts overall production volume, making Indian garments more competitive in global markets.

MSMEs: Between reform and reality

Larger units are relatively well-prepared, but small and mid-sized companies—especially those in the unorganised sector—face significant challenges. “Many mills I have visited for consultancy and machinery auditing have struggled to survive, with some even closing due to labour shortages and lack of compliance readiness. For these units, the revised labour codes should serve as a wake-up call. Modernisation through conversion kits, electrical/electronic upgrades, and improved safety practices is no longer optional. Industry associations and machinery manufacturers must play a proactive role in guiding these units through the transition,” notes Sankar.

“Small and mid-sized textile units in India face a mixed landscape of simplified procedures but significant transitional challenges in adapting to the new labour codes. Their preparation is varied, with many struggling with the administrative and financial demands of formalisation.”

• Sachin Kumar Arora, Executive Director, TMMA

The consolidation of multiple registers and the move towards an “Inspector-cum-Facilitator” model will ease the compliance burden of the textile and apparel sector, especially MSMEs.

Chandran mentions that the consolidation of multiple registers and the move towards an “Inspector-cum-Facilitator” model will ease the compliance burden of the textile and apparel sector, especially MSMEs. “However, as I mentioned in reply to a previous question, multiple provisions in the Labour Codes could result in higher operational costs and become a compliance-related challenge for the textile and apparel industry, with MSMEs likely being affected the most,” he states.

Further simplification, reduction in compliance costs and more alignment with international labour norms and wage costs will augur well for the overall growth of both industry and organised employment and would result in reduced informalization of the sector.

Patodia suggests, “For adaption of any small and mid-sized units, key challenges are Financial Constraints, Regulatory complexity, technology adoption, etc. If these all are present in any region, any SME or MSME can be operated.”

As per CITI, some of the specific measures that could help the industry, especially MSMEs, are:

• A re-examination of the overtime mandate, as paying double wages could severely strain the finances of companies in the textile and arena sector, most of which are MSMEs. In our key competing nations such as China, Vietnam, and the United States, overtime is typically capped at 150% of the regular wage. Further, the ILO conventions also mandate the same to be 125% of the regular rate.
• Addressing challenges faced by businesses having a presence in multiple states that must align with different state rules and minimum wage norms, and
• Greater availability of a skilled workforce through more focus being accorded on skill development through schemes like SAMARTH, PMKVY, etc.     

A structural reset

India’s new labour codes, effective November 2025, will significantly impact the textile industry. The primary influence is an increase in manufacturing costs due to universal minimum wages, broader social security coverage, and a wider definition of “wages” for statutory contributions. These financial pressures are expected to drive strategic responses from manufacturers.

“In the next phase, the codes are anticipated to prompt greater investment in automation, skill development, and process optimisation. The rising cost of manual labour makes capital expenditure on advanced machinery more attractive, while the need to operate these technologies necessitates focused training and upskilling programs for the workforce. To offset the higher costs, productivity improvements are expected from gender-inclusive night shifts (enabling 24/7 operations), advanced automation, and simplified administrative processes. However, adapting to these changes presents a challenge for small and mid-sized units (MSMEs), which often lack the resources for formal administrative processes, despite the codes aiming to simplify overall compliance,” recommends Arora.

Even Patodia says that appointment will be maximum under payroll, female workers can also do night shift jobs or eligible for overtime, mandatory safety and health training.

Shanmughmam notes concern by saying, “One concern related to code is compulsory medical test from the year 40 onwards is unnecessary because all are covered under ESI where they can take any health checkup if it requires. Otherwise it will facilitate the process of forced patients because now the medical Industry is longing for money making rather than a real health care.,”

Manufacturers will need to realign their operations with the revised labour codes by formalising all employment through mandatory appointment letters, using fixed-term contracts to retain workforce flexibility, and adopting data-driven HR and compliance systems. Overall, the industry is moving towards a more formalised and technology-led operating model, marked by higher cost structures and a growing need to carefully balance regulatory compliance with sustained profitability.