India is increasingly becoming the preferred location for businesses looking to set up a strong business f oothold, especially in the Asia-Pacific region. https://www.rickychopra.co/

1. India is increasingly becoming the
preferred location for businesses looking
to set up a strong business f oothold,
especially in the Asia-Pacific region. The
reasons for this could be manifold. Cheap
availability of skilled labour, availability of
qualified and experienced managers,
favourable tropical weather conditions,
space, access to the huge and often
diverse consumer market etc. are just
some of the reasons in India.
Of late, many players in the technology
sector, such as Apple have expressed a
desire to shift a significant portion of their
manufacturing bases to India. Apart from
this, players in the FMCG, home applianc-
es, education technology sector etc. are
also planning to take similar steps.
This article shall therefore provide you
with a detailed guide on what regulatory
compliances are required while shifting
manufacturing processes to India.
Introduction
Step-By-Step Guide on How
to Shift Manufacturing to India
:Mr. Ricky Chopra
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2. Setting Foot in India
The first step toward setting up business in India, requires one to have a
registered office in India. This would involve, either purchasing or renting a land
and registering the same with the Registrar of Companies under Section 12 of
the Companies Act, 1872as the registered office of your manufacturing unit in
India. This is important because all legal notices of suits, arbitrations, etc. shall
be sent to the same office and delivery to the registered office is considered
due service of summons under Indian civil procedural law.
Procuring a land would attract the provisions of the Indian Contract Act, 1872
and the Transfer of Property Act, 1882. The contract for sale or lease of the land
must be for a lawful purpose and must not be used for manufacturing
anything against the public policy of India, for example, for manufacturing
prohibited drugs.
If the entity is looking forward to a long-term existence in India, they must
either purchase the land or get a long-term lease. Section 105 of the Transfer
of property Act, 1882 permits perpetual leases.
Getting a license under the Industries (Development & Regulation Act), 1951 is
the sine qua non for starting any manufacturing activity in India. Application for
an Industrial License may be made online on the e-Biz portal of the
government. Such a license, once granted is valid for a period of three years
from the date of grant. While there existed strict licensing requirements under
this act for almost all major commercial activities, the scope of the same has
been drastically reduced over time.
In fact, from September 2019 onwards a license under this act is required for
manufacturing activities in only four sectors- defence equipment, hazardous
chemicals, tobacco and explosives. Apart from this,there are some sectors
which are reserved only for the MSME sector. Non-MSMEs who wish to manu-
facture products in these sectors would then be required to get an industrial
license for the same and are then also obliged to export 50% of the production
for at least three years.
Industrial Licenses
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3. Industrial Classification Code
Conforming to Quality Standards
Once you have determined the sector for which you shall be manufacturing the
goods and procured the requisite license for manufacturing the same, it is
necessary that you also procure an Industrial Classification Code under the
national Industrial Classification- 2008. This code helps the Central Statistical
Organisation of the Central Government to keep updated records of all econom-
ic activities taking place in the nation. While these are more important for the
government, than for the industry, having a business presence in India would
imply conforming to this policy.
Once the unit is set for production, it is important that it meet the quality
standards. The Bureau of Indian Standards Act, 2016 governs the same. Under
the act, the BIS has appointed regional offices, where the factory must send its
sample manufactured products for testing.Only if the tests meet the prescribed
quality standards for sale in the Indian consumer market will the unit be permit-
ted to go ahead with mass production.
Registration as an MSME
In case your enterprise qualifies under the prescribed turnover limits, it is advisable to
get registered under the relevant category an MSME. They are governed by the
MSMEs Development Act, 2006. Under the Act, micro, small and medium sized
industry is an entity involved in manufacturing or processing whose investment in
machinery does not exceed 25 lakhs, 5 crores and 10 crores respectively. Once regis-
tered, an MSMEmust also get an Aadhar Udyog Registration number, which is a 12
digit Aadhar code given to MSMEs for easing regulation of MSMEs.The government
has devised several incentive-based policies, ranging from liquidity assistance, credit
guarantee for borrowing, tax exemptions etc. to give a boost to the MSME sector.
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4. This is the legislation with the maximum number of compliance requirements.
Ranging from auditing, annual returns, maintenance of books of account,
holding of annual general meetings, requirements relating to composition of the
board, shareholders’rights, protection of minority shareholders etc.
However, these become applicable only once the manufacturing unit and the
business entity have been successfully established in India. Therefore, apart
from registration of the office, and registering the name of the entity in case of a
start-up, not many provisions of the Companies Act, 2013 are directly applicable
at the time of setting up of the manufacturing unit.
If a foreign entity is planning to shift its operations to India, the most important
relevant laws for that entity are those pertaining to foreign investment. Since
setting up a new manufacturing unit in India, amounts to a greenfield invest-
ment,the laws pertaining to that will apply. These are primarily governed by the
Foreign Exchange Management Act, 2000 and are subject to various regulations
set by the central government and RBI for foreign investment in India. Such
investment may either be through the direct route or the approval route. There
are 11 specified sectors like atomic energy where prior approval of the govern-
ment is necessary before investment. The other route is direct route wherein the
entity may directly set up a unit in India.
Companies Act, 2013
Foreign Investment Laws
While these were the general steps that every manufacturer has to be mindful
of, there are other special compliances required to be adhered to by a new
business entrant in India. The Companies Act, 2013, the Goods and Services Tax
Act, 2017, the Income tax Act, 1961, the Factories Act, 1948, are a few of such
legislations.
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5. All registered entities doing business in India are liable to pay tax on the income
they earn from India. This becomes more true for entities that seek to have a
physical presence in the country, for example, a manufacturing unit. Section 115
BAB of the Income Tax Act, 1961 allows a newly set up domestic company in the
manufacturing sector to pay tax at the rate of 15% of its total income. Apart from
this, depending on whether the manufactured goods are transported intra-state
or inter-state, the entity shall also be liable to pay the tax under the Goods and
Services Tax, 2017. This will depend on the turnover of the entity, the sector in
which it is operating, the State in which the manufacturing is being carried out
etc. Again, these are applicable, once the entity starts manufacturing and
begins earning profits and not at the time of setting up.
Tax laws
The government has set limits for foreign investment in every sector. Therefore,
the business entity must ensure that its investment in India falls under the sec-
toral limits. The DPITT issues the FDI Policy from time to time in this regard. It is
therefore important to keep track of Press Notes issued by the DPIIT under the
FDI Policy to track the latest developments in the area.
Ensuring compliance with foreign investment would require conforming to pro-
visions of the Foreign Exchange Management (Non-debt Instruments) Rules
2019 and the RBI Circulars and master Directions. As these vary for different
sectors, the entity would have to determine for itself, which of these provisions
are applicable to it and which are not.
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6. Environmental Laws
Labour Laws
Indian environmentalists are becoming increasingly conscious of the effects
industrial activities have on the environment. This has led to development of a
strict jurisprudence on environment. The manufacturing entity therefore would
have get environmental clearances under the EIA Notification, 2006 prior to
setting up the unit. This would require the industry to submit detailed plans of
the geographical area sought to be covered etc. to the authorities.
Pursuant to that, the respective Pollution Control Boards under the Water Act,
1974 and the Air Act, 1981 have the authority for inspection, collection of sam-
ples, and analyse the pollution being caused by the industry. They have even
been vested with the authority to cancel the operating license of a unit if they
find the operations to be extremely harmful for the environment.
Unlike, most other laws, these are applicable prior to setting up of the unit, and
in fact constitute a pre-requisite for commencing operation.
The factory being set up for manufacturing is bound to employ workers for its
operation. The Factories Act, 1948, the Payment of Wages Act, 1936 and the
Industrial Disputes Act, 1947 are just some of such legislations. They ensure
workers get proper living wages, in a timely manner and have adequate means
of dispute resolution with the employer.
Here are other social security legislations like the Maternity Benefits Act, 1961
(which provides for paid maternity leave for a period of 6 months), and the
Workmen’s Compensation Act, 1923 (which provides for compensation for inju-
ries received at the workplace).
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7. Ricky Chopra International Counsels:
Sectoral Compliances
This is probably the most resource consuming compliance. This is because
while other compliances are common to all industries, these are compliances
that are specific to the sector your company operates in. For example, an
entity manufacturing edible products, will have to comply with provisions of
the Food Safety and Standards Act, 2006 and obtain a license from the FSSAI.
Similarly, company engaged in refining oil and petrochemicals is bound by the
provisions of the Boilers Act, 1923, and a company manufacturing drugs would
have to obtain the relevant license under the Drugs and Cosmetics Act, 1940.
Since these vary from sector to sector, it won’t be possible to list them exhaus-
tively. The entity would have to make sure that these are complied with. Most
of the time, the authorities do provide assistance in this regard. For example,
for SEBI related compliances, there is an informal advice mechanism. Similarly,
for tax related queries, the Authority for Advance Ruling usually clarifies the
same.
Full Service law Firms Excelling in Corporate Advisory
As a result, laws governing manufacturing and processing are changing by the
day. Such a dynamic and unpredictable regulatory scenario is bound to burden
business entities with the responsibilities of compliance. In order to save time
and resources sent of compliance, a lot of entities are increasingly resorting to
assistance of Indian legal professionals, being more adept with the local laws.
Ricky Chopra International Counsels is one such corporate law firm in India
which specializes in advising clients on regulatory and compliance requirements.
We have decades of experience in assisting major corporate houses, including
the Fortune 500 companies in setting up businesses, complying with local laws
and fulfilling all regulatory requirements. Our full-service firm has experts in
every possible field ranging from tax, capital markets, IPR, competition, and
labour laws.
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8. The Federation of Industrial Chambers of Commerce and Industry (FICCI)
recently brought to the notice of the government that an entity that
intends to set-up manufacturing in India requires close to 2000 regulato-
ry compliances.
The government is therefore planning to streamline many of these pro-
cesses and ease the norms for manufacturing entities. This is the need
of the hour considering the number of entities that have expressed a
desire to shift their production units to India. The improvement of India’s
rank in the Global Ease of Doing Business Index is also an indication that
foreign investors are likely to show much interest in the Indian market in
the coming years. It is only advisable that the regulatory environment be
made favourable for them when they arrive.
Conclusion
O ff ices
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Chandigarh
Gurugram
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