Economic Fallout as New Labour Codes Impact IT Giants
Mumbai, India – January 16, 2026
The Indian technology sector, the traditional engine of the nation’s service economy, is currently navigating a period of significant fiscal recalibration.
In the opening weeks of 2026, the country’s largest Information Technology (IT) firms, including Tata Consultancy Services (TCS), Infosys, and HCLTech, have reported a combined exceptional charge exceeding ₹4,470 crore in their third-quarter earnings.
This massive financial hit is the direct result of the implementation of the Government of India’s new Labour Codes, which officially came into effect on November 21, 2025.
The transition, while aimed at modernizing India’s colonial-era labor laws, has forced corporations to recognize substantial one-time statutory adjustments to employee benefit liabilities, fundamentally altering the quarterly profit landscape.
The notification of the four comprehensive codes—the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code—has introduced a unified definition of “wages.”
For capital-intensive human resource industries like IT, this shift has triggered a sharp increase in the base used to calculate gratuity and leave encashment.
Industry leader TCS reported a statutory impact of ₹2,128 crore, contributing to a nearly 14% year-on-year drop in net profit.
Similarly, Infosys recorded a one-time charge of ₹1,289 crore, while HCLTech disclosed a provision of approximately ₹719 crore.
These figures represent more than just accounting adjustments; they signal a structural rise in the cost of doing business within the Indian subcontinent.
The New Cost of Human Capital
Unified Wage Definition:
Under the new codes, “wages” must now account for at least 50% of an employee’s total remuneration, forcing companies to move beyond complex allowance structures and increase their contributions to social security funds.
Gratuity and Leave Liability:
The primary driver of the Q3 earnings slump was the retroactive adjustment for past service costs, specifically the increased liability for gratuity and the encashment of accumulated leave.
Margin Pressures:
While firms like Infosys have raised their revenue guidance for the remainder of FY26 due to strong deal momentum, operating margins have taken a temporary dip as they absorb these legislative shocks.
Social Security Expansion:
The codes extend benefits to gig and platform workers for the first time, a move that the Ministry of Labour & Employment describes as a “landmark reform” for worker dignity and security in the digital age.
The atmosphere in Mumbai’s Dalal Street has been one of cautious observation. While the initial reaction to the profit slumps saw a brief dip in share prices, market analysts have noted that the underlying demand for digital transformation remains robust.
Infosys, for instance, reported nearly $4.8 billion in large deal wins, suggesting that global clients are still prioritizing AI-led innovation and cloud migration despite the rising costs in India.
CEO Salil Parekh emphasized that while the labor code adjustments are a “significant highlight” of the quarter, the company’s ability to become the “AI partner of choice” for global enterprises provides a long-term cushion against domestic regulatory shifts.
From a world leadership governance perspective, the rollout of these codes is a double-edged sword.
On one hand, it formalizes the Indian workforce, providing millions of employees with guaranteed minimum wages, appointment letters, and enhanced health check-ups—aligning India with global ESG (Environmental, Social, and Governance) standards.
On the other hand, it tests the competitiveness of the Indian IT model, which has historically relied on labor arbitrage.
The Castle Journal exclusive department has learned that several mid-sized firms are now accelerating their investments in automation and AI to offset the structural 5%–7% rise in employee costs expected over the next two fiscal years.
By integrating social security into the very fabric of the corporate contract, India is attempting to transcend its identity as a “low-cost destination” to become a “high-value partner.”
The “Transcendent Ego” of the Indian state is asserting that sustainable economic leadership requires a foundation of social equity.
For the global IT giants, this means the era of “efficiency at any cost” is giving way to a new era of “compliance and care.”
As the Q3 earnings season continues, the focus will shift to how these companies manage their pricing models in the next cycle of contract renewals.
The Castle Journal will continue to monitor the secretive reports from the Ministry of Labour and the boardrooms of Bengaluru and Mumbai, ensuring our readers understand the deep economic shifts that are redefining the world’s digital back-office.
