Legal Requirements for Setting up an Electronics Manufacturing Hub in India

The electronics manufacturing industry has gained significant traction over the past decade, with electronics manufacturers shifting base to India, owing to the stable regulatory landscape, central and state government initiatives for industrial growth, and holistic policies. As India is expected to become a one trillion-dollar digital economy by 2026 , it is an ideal time for electronics manufacturers to set up operations in India. 

While setting up electronics manufacturing units in India, businesses must diligently adhere to the legal requirements, in addition to compliance with regulatory directives, guidelines and other applicable laws, to ensure the success and smooth operations of the manufacturing business.

Key Incentives:

The Government of India from time to time has undertaken several initiatives to make India a manufacturing hub by offering various incentives. The key incentives available to electronics manufacturers in India include the following: 

1. Production Linked Incentive Scheme (“PLI”): Two PLI schemes have been formulated, namely (i) PLI for Large Scale Electronics Manufacturing (“PLI LSEM”); and (ii) PLI for IT Hardware (“PLI ITH”). PLI LSEM proposes a financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain including mobile phones, electronic components and assembly, testing, marking and packaging units.  PLI ITH proposes a financial incentive to boost domestic manufacturing, attract large investments in the value chain and seeks to incentivize electronics manufacturers to utilize the existing installed capacity to fulfil the increasing domestic demand. 
2. Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (“SPECS”): SPECS aims to strengthen the manufacturing ecosystem for electronic components and semiconductors. SPECS applies to investments in new units and expansion of capacity/ modernization and diversification of existing units. The incentives offered under SPECS include incentive of 25% on Capital Expenditure including research & development. Applicants shall become eligible to take benefit under any other scheme of the Government of India which shall be over and above the incentives under the SPECS scheme.
3. Modified Electronics Manufacturing Clusters Scheme (“EMC 2.0”): EMC 2.0 has been notified by the government to fortify the linkage between domestic and international markets by strengthening supply chain responsiveness, decreasing time-to-market, lowering logistics costs, etc. Benefits under EMC 2.0 include a robust infrastructure base for the electronics industry, financial assistance for setting up EMC projects and common facility centres, financial incentives of up to 50% of project cost, readily built factory sheds and other plug-and-play facilities attracting major global electronic manufacturers and their supply chains to set up units in India. 

Key Regulatory Authorities:

The key regulatory authorities that govern electronics manufacturing businesses in India include the following: 

1. Bureau of Indian Standards (“BIS”)
2. Central Pollution Control Board (“CPCB”)
3. Directorate General of Foreign Trade (“DGFT”)
4. Ministry of Electronics and Information Technology (“MeitY”)

Legal and Regulatory Requirements:

The legal and regulatory requirements for setting up an electronics manufacturing hub in India involve various steps, including the following: 

Business Registration and Incorporation 

• Incorporating an Entity: The primary step for starting an electronics manufacturing business in India is choosing a suitable business structure. Foreign companies may establish their presence in India either through a wholly owned subsidiary or a joint venture in the form of a private limited company under the Companies Act, 2013 or by incorporating a limited liability partnership in accordance with the provisions of the Limited Liability Partnership Act, 2008. 
• Registration under the Factories Act, 1948 (“Factories Act”): After incorporating a suitable entity, electronics manufacturers must obtain registration under the Factories Act, if it exceeds the stated threshold of the number of employees engaged in the manufacturing unit, to ensure the welfare, safety and health of the employees, and safeguards proper working conditions in the manufacturing units.

Land Acquisition and Building Approvals

• Land Acquisition/Lease: Basis the business requirements and investment at disposal, the manufacturing units may either choose to purchase or acquire land on lease. For instance, manufacturing units that plan to export all their production may choose to set up their units in special economic zones wherein perpetual long-term and perpetual leases are granted. In case the business requires land to be bought, the same can be done in industrial areas, zones, and other parts wherein lands may be available for sale. Businesses acquiring land must thoroughly inspect the title documents and further ensure that the land is authorised/zoned for industrial/manufacturing use. 
• Construction Permits: Post-acquisition of land, the manufacturing units are required to get approvals for the building plan, site approval from the local municipal/development authority and no objection certificate from the fire department for the building design. Further, electronics manufacturers must obtain ‘consent to establish’ from the State Pollution Control Board (“SPCB”) prior to construction of the manufacturing unit on the acquired/leased land. After setting up the manufacturing unit, ‘consent to operate’ must be obtained from the SPCB to begin operations in the constructed unit. 

Environment and Safety Regulations:

• Bureau of India (“BIS”) Certifications: Electronics manufacturers in India must comply with the BIS requirements, get their products assessed at BIS-recognized labs and submit test reports along with the application for BIS registration. Upon successful registration, manufacturers may use the BIS standard mark on their products, packaging, and promotional material. 
• Ministry of Environment, Forest and Climate Change (“MoEFCC”) Clearance: Electronics manufacturing units are categorized under the ‘Red’ category of industries, implying the significant impact they have on the environment and hence requiring mandatory environmental clearance from MoEFCC. Additionally, they are required to undertake reporting and compliance periodically as per the terms laid out by the authorities in the environmental clearance.
• E-Waste (Management) Rules, 2022 (“E-Waste Rules”): The E-Waste Rules outline responsibilities related to the environmentally sound management of electronic waste. Under the E-Waste Rules, electronics manufacturers are required to register themselves on online portal of CPCB and meet the set targets, create awareness through media, publications, advertisements, posters or by any other means of communication and file annual and quarterly returns. 
• Occupational Health and Safety Regulations: Occupational health and safety regulations in India are primarily governed by the Factories Act and the rules and guidelines issued thereunder. Key compliances under the Factories Act include maintaining a safe and healthy working environment, proper ventilation, temperature controls and sanitation facilities, compliance with working hours, intervals and overtime provisions, etc.

Tax Compliances

• Income Tax / Direct Tax Compliances: Electronics manufacturing businesses must ensure compliance with the Income Tax Act, 1961 and the provisions made thereunder including accurate reporting of income and expenses and claiming deductions, filing timely tax returns, maintaining accurate finances, etc. 
• Indirect Tax Compliances: Electronics manufacturing businesses must apply for Goods and Services Tax (“GST”) registration and obtain a GST identification number in order to charge GST on supply of manufactured goods, claim input tax credits on the inputs used for manufacturing and file timely returns. 

Import-Export Code:

Electronics manufacturers intending to source raw materials from foreign countries or export products outside India must mandatorily comply with import-export regulations in India and obtain a registration from the DGFT to secure an IEC which further enables them to access the benefits under various central and state government schemes.

Challenges and Solutions:

Establishing an electronics manufacturing plant requires securing various licenses and certifications from different government agencies, complying with various laws, which may appear to be a tedious and complex process, especially for foreign companies/businesses unfamiliar with Indian laws and regulations. Misinterpreting laws and regulations, manufacturing and selling non-compliant products and non-compliance with the applicable laws can land manufacturers in legal trouble and thereby cause financial trouble. Further, overcoming language barriers and cultural differences can be difficult when setting up operations in India. 

In order to avoid the trouble, appropriate legal assistance must be sought from industry experts to ensure smooth entry plans while also streamlining and simplifying various steps involved including incorporating the entity, acquiring land, compliances, obtaining clearances and requisite registrations, and availing benefits under various schemes of the government.

Conclusion: 

The present landscape in India depicts a favourable regulatory ecosystem, thereby increasing the demand for translocating electronics manufacturing to India. Establishing an electronics manufacturing unit in India requires meticulous attention to legal requirements spanning licensing, environmental compliance, labour regulations, taxation, and intellectual property rights which can be eased out by engaging right local experts at the right time. Businesses can access the requisite expertise and guidance to embark on a successful path toward establishing a prosperous manufacturing presence in India's favourable and progressing economic landscape.