27 November 2025, Mumbai
The Indian apparel and textile industry is confronting an imminent squeeze on operational margins as the new comprehensive Labour Codes—effective November 2025—mandate significant shifts in employee compensation and benefits. While industry bodies largely welcome the codes for streamlining 29 fragmented laws into four and enhancing worker welfare, the immediate financial reality for fashion manufacturers is an increase in costs without a corresponding boost to earnings.
The rising cost of compliance
Investor sentiment, echoed by market observers, suggests that companies could face an up to 12% rise in their overall payroll expenses. This surge stems primarily from the new Code on Wages, 2019, which unifies the definition of 'wages' and mandates that an employee's basic salary must constitute at least 50% of their total Cost-to-Company (CTC). This restructuring, while guaranteeing higher gratuity and Provident Fund (PF) contributions for workers, directly translates to increased statutory outlays for employers.
Strategic response to financial pressure
For fashion houses, this mandate compounds existing pressures, especially for companies that previously maintained a low basic pay structure to manage PF and gratuity liabilities. The Apparel Export Promotion Council (AEPC) has, however, highlighted that the reforms, such as allowing women to work night shifts with consent and safety measures, are expected to eventually boost productivity and help address capacity constraints, a vital step for India to solidify its position as a global sourcing hub.
Companies now face the challenge of balancing higher compliance costs with the need to maintain competitive pricing in the domestic and export markets. Strategies include increased focus on automation for greater operational efficiency and a gradual shift towards high-value MMF-based technical textiles to offset increased labour costs through higher product margins. The immediate focus remains on efficient workforce restructuring to absorb the hike while ensuring full compliance with the new, worker-centric legal framework.
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