India simplifies labour laws, overlooks services sector vulnerability to AI-era layoffs

India's sweeping overhaul of its labour regulations, rolled out last month, has drawn praise for replacing a maze of 29 laws with four streamlined codes that the government says will usher in greater trust between employers and workers.

However, as changes take effect, industry leaders have warned that the reforms fail to address a far more immediate challenge for the service sector--reshaped by automation and persistent layoffs.

The new labour codes have been intended to bring clarity and predictability to a system governing a workforce of roughly 560 million people, 90% of whom toil in the informal sector. Experts said the 4-code represents a long-overdue attempt to formalise work that was unwieldy and unevenly enforced.

However, the reforms have arrived at a moment of profound change for India's job market, as artificial intelligence and automation are reshaping hiring needs, particularly in the services sector, finance, e-commerce, consulting, and global capability centres, which account for over half of gross value added and nearly a third of its employment.

An expert, who wishes to remain anonymous, said the new codes are designed around stability, safety and transparency, but not the realities of white-collar roles facing rapid technological disruption.

"The new labour codes focus on formalisation and transparency, which can increase employer flexibility--but that does not automatically translate to job security," said Shantanu Rooj, founder and CEO of TeamLease Edtech.

Major employers from Tata Consultancy Services to Google, Microsoft and Amazon have announced thousands of job cuts this year alone, citing automation, shifting business priorities, and the gap between existing talent and emerging skill requirements.

Layoffs have disrupted families, drained savings and increased anxieties about a future where job security feels increasingly fragile.

Yet the new labour codes barely touch this part of the economy. Under the revamped rules, firms in the manufacturing sector, such as factories, mines and plantations, employing more than 300 workers must seek government approval for layoffs. However, services sector companies are exempted from such a safeguard, where large-scale job cuts occur routinely.

Companies employing up to 299 people may now lay off staff without government consent, a threshold raised from the earlier limit of 100.

"For white-collar jobs that fall outside the new 'worker' definition, not much changes: their terms remain governed by individual contracts," said Kriti Kaushik, Partner, Shardul Amarchand Mangaldas & Co.

With AI adoption expected to accelerate across the IT, ITEs, big tech, and digital-first enterprises, experts anticipate continued churn.

"Roles that are low-complexity, rule-based and repeatable face the highest risk as AI can automate them, and in large enterprises this can be up to a third of jobs," said Kamal Karanth, co-founder of specialist staffing firm Xpheno.

Rooj said the strongest defence for workers will be rapid upskilling. "The real risk is a skills mismatch, not job extinction," he said. "The future of job security will depend less on regulation and more on how quickly workers can transition into rising roles--whether in digital literacy, human-machine collaboration, analytics or domain-specific technologies".