Are you aware why India ranks among the top 5 most attractive manufacturing destinations globally? The process for manufacturing company setup in India offers tremendous opportunities, yet it navigates a complex regulatory landscape.
India’s $3 trillion economy combines cost advantages with a massive domestic market of 1.4 billion consumers. Furthermore, recent government initiatives have simplified the incorporation procedures for manufacturing companies, making market entry more accessible to foreign entities. However, Successfully establishing operations requires understanding legal, location, and compliance requirements, often supported by experienced advisors.
This comprehensive guide explores everything foreign investors need to know, from selecting optimal business structures to securing necessary approvals, ensuring your manufacturing venture in India achieves maximum potential while minimising regulatory hurdles.
Why India is a Strategic Choice for Manufacturing
The strategic advantages of establishing manufacturing operations in India extend far beyond mere cost savings. Manufacturing companies in India benefit from a unique combination of economic factors that create an attractive proposition for foreign investors seeking global expansion.
Cost advantages and labor availability
India maintains one of the most competitive labour cost structures globally. Manufacturing wages average approximately USD 1.00 per hour, significantly lower than China’s USD 5.60 per hour. This cost advantage extends beyond China; Indian labour costs are 40% lower than Vietnam, 70% lower than Thailand, and 82% lower than China.
This cost efficiency isn’t limited to labour. In pharmaceuticals, India’s manufacturing costs are 30-35% lower than those in the US and Europe. Similarly, the automotive and textile sectors enjoy substantial cost advantages due to affordable raw materials and lower wages.
India’s massive workforce of 500 million people ensures high availability of skilled labour. With approximately 12 million people entering the workforce annually, companies engaged in the process of manufacturing companies set up in India gain access to a constantly replenishing talent pool. Additionally, a growing portion of this workforce is highly educated and English-speaking, particularly in engineering fields.
Growing domestic and export markets
India presents an extraordinary dual opportunity, access to both a massive domestic market and expanding export potential. As the world’s most populous nation since 2023, India offers a built-in market of over 1.4 billion consumers. By 2030, the Indian middle class is expected to represent the second-largest share in global consumption at 17%. For businesses navigating the process for manufacturing company setup in India, this dual advantage provides both a large domestic customer base and significant export opportunities.
On the export front, India’s manufacturing exports reached USD 418 billion in FY22. During Q1 FY26, India’s merchandise exports totalled USD 112.17 billion, representing an increase from the same period in the previous year. Notably, the country has the potential to export goods worth USD 1 trillion by 2030.
The manufacturing landscape is experiencing remarkable growth across key sectors:
- Electronics sector: Expected to grow from USD 87 billion in 2022 to over USD 300 billion by 2026
- Semiconductor market: Projected to expand from USD 27.2 billion in 2021 to USD 64 billion by 2026
- EV market: Anticipated growth from USD 3.21 billion in 2022 to USD 114 billion by 2029
Government support and tax incentives
The process for manufacturing company incorporation in India is significantly bolstered by proactive government policies. At the forefront is the Production Linked Incentive (PLI) scheme with an incentive outlay of ₹1.97 lakh crore across 14 strategic sectors. These incentives typically range between 4-6% of incremental sales.
The scheme has attracted investments worth ₹67,690 crore, creating over 28,884 jobs as of March 2024. By March 2025, the schemes had attracted ₹1.76 lakh crore in committed investment and created over 12 lakh jobs.
Tax benefits further enhance India’s appeal; manufacturing companies enjoy a concessional corporate tax rate of just 15%, compared to the standard 22% rate for newly incorporated companies. This represents one of the lowest manufacturing tax rates globally, making India an ideal entry specialist for Foreign Companies seeking tax efficiency.
Beyond PLI and tax benefits, initiatives like “Make in India” streamline business processes through single-window clearances, online compliance systems, and labour law reforms. The Goods and Services Tax (GST) has simplified taxes and reduced compliance costs, creating an environment where foreign manufacturing investments can thrive with fewer administrative hurdles.
Choosing the Right Business Structure and Location
Selecting an optimal business structure marks a critical decision for foreign manufacturers entering the Indian market. The right choice impacts everything from operational control to tax implications and repatriation of profits.
- Private limited company vs. joint venture
Most foreign investors in India choose between establishing a private limited company and forming a joint venture with an Indian partner. As part of the process for manufacturing company setup in India, a private limited company requires at least two directors (one being an Indian resident who has lived in India for at least 182 days in the previous calendar year) and can have between two and 200 shareholders. This structure offers complete operational control, independent policy-setting, and asset ownership advantages.
Alternatively, a joint venture represents a strategic partnership where two or more companies share resources, expertise, and risks to achieve specific business goals.
For newcomers to India, joint ventures provide valuable access to:
- Local market knowledge and extensive networks
- Faster regulatory approvals in restricted sectors
- Shared investment risks and operational responsibilities
- Existing customer bases and supply chains
Private limited companies generally work better for long-term investments and when seeking full financial control, especially in sectors with automatic FDI routes. Conversely, joint ventures prove more advantageous for quick market entry and when local expertise is essential, particularly in sectors with FDI restrictions.
- Understanding FDI rules and FEMA compliance
India has progressively liberalised its FDI policies, with nearly all manufacturing sectors now allowing 100% FDI through the automatic route. This means foreign investors can invest without prior approval from the Government of India or the Reserve Bank of India. Nevertheless, sectors like defence (74% under the automatic route) and media have specific caps requiring government approval for higher stakes. Understanding these regulations is a critical part of the process for setting up a manufacturing company in India, ensuring that investment structures align with legal requirements.
Companies bringing foreign investment into India must comply with the Foreign Exchange Management Act (FEMA) regulations. Following the share allotment to foreign investors, companies must file Form FC-GPR within 30 days. Additionally, they must submit annual Foreign Liabilities and Assets (FLA) returns by July 15 each year.
FEMA non-compliance carries substantial penalties, up to three times the amount involved (or ₹200,000 where not quantifiable) plus ₹5,000 for each day the violation continues. Therefore, engaging an India entry specialist for foreign companies often proves prudent for navigating these complex requirements.
- Selecting a state based on industry incentives
The Process for Manufacturing Company Setup in India involves careful evaluation of state-specific incentives. Each state offers different advantages based on its industrial strengths and growth potential.
Gujarat provides tax exemptions, land subsidies, and exceptional infrastructure support, maintaining its position as an industrial powerhouse. Maharashtra offers capital subsidies, tax advantages, and world-class industrial zones, making it attractive for automotive, electronics, and chemical manufacturing. Tamil Nadu focuses on the automotive and electronics sectors with subsidies for establishing manufacturing units and skill development initiatives. Uttar Pradesh has emerged as a significant manufacturing destination with financial assistance, tax exemptions, and facility development for industries in non-metro regions.
- Greenfield vs. brownfield projects
The process for setting up a manufacturing company in India requires deciding between greenfield and brownfield approaches. Greenfield projects involve constructing facilities from scratch on undeveloped land, offering complete design flexibility and technological innovation potential. These projects allow companies to design and build according to their specific requirements with no constraints from existing structures.
Alternatively, brownfield projects involve redeveloping or expanding existing facilities, typically requiring lower upfront costs and offering faster implementation timelines. This approach works well for businesses seeking quick market entry, as much of the infrastructure and equipment already exists.
Key considerations when choosing between these options in the process of manufacturing company setup in India include available budget, implementation timeline, innovation requirements, and regulatory complexity. Greenfield projects usually face more regulatory hurdles requiring new permits and approvals, while brownfield projects typically encounter fewer regulatory obstacles as the land is already zoned for industrial use.
Legal Setup and Regulatory Approvals
Navigating India’s regulatory framework forms the backbone of a successful manufacturing establishment. Each approval step requires careful planning and execution to ensure compliance with diverse legal requirements.
Company registration and PAN/TAN/GST
Incorporating a company begins with obtaining a Digital Signature Certificate (DSC) for all directors and Director Identification Numbers (DIN). Foreign entities must submit passports, government-issued photo IDs, and bank documents for DSC.
Subsequently, registration on the Ministry of Corporate Affairs portal through SPICe forms with Memorandum and Articles of Association is essential.
Upon successful incorporation, companies receive:
- Permanent Account Number (PAN)
- Tax Deduction Account Number (TAN)
- GST registration (mandatory for manufacturing businesses with interstate supply or exceeding turnover thresholds)
Factory license and building plan approval
Manufacturing units must obtain factory licenses under the Factories Act when employing:
- 10+ workers with power usage, or
- 20+ workers without power
The application requires submission of:
- Occupier ID proof (proprietor/partner/director only)
- Factory building plan
- Electricity bills showing sanctioned load
- Occupancy proof (rent agreement/ownership deed)
- Manufacturing process flow charts and machinery details
Operating without proper registration carries penalties including fines up to ₹1 lakh or two years imprisonment.
Environmental and pollution clearances
Industries are categorised as red, orange, green, or white based on their pollution index.
Most manufacturing units require:
- Environmental Impact Assessment for Category A projects (approved by MoEF&CC) or Category B1 projects (approved by SEIAA)
- Consent to Establish before construction and Consent to Operate before production from the State Pollution Control Boards
- Public hearing for projects with significant environmental impact
Labour law registrations and ESI/EP
Mandatory registrations include:
- Employee State Insurance (ESIC): Required for businesses with 10+ employees, with employers contributing 3.25% and employees 0.75% of wages
- Employees’ Provident Fund (EPF): Mandatory for units with 20+ employees, though voluntary registration is permitted for smaller establishments
Both registrations are essential for statutory compliance and involve monthly contributions with filing deadlines by the 15th of each month.
Conclusion
Setting up a manufacturing company in India offers foreign investors a strong mix of cost efficiency, market access, and long-term growth potential. With competitive labour costs, a large skilled workforce, expanding export opportunities, and supportive government initiatives, India has become a preferred global manufacturing destination. However, the process for setting up a manufacturing company in India goes far beyond market entry and requires careful planning around legal structuring, location selection, regulatory approvals, and ongoing compliance.
From choosing the appropriate business structure and investment route to securing factory licenses, environmental clearances, and labour registrations, each stage of the process for manufacturing company setup in India demands accuracy and regulatory awareness. Even minor compliance gaps can lead to delays, higher costs, or operational challenges.
This is where Corporate legit adds value. With expertise in India entry strategies and manufacturing-focused compliance support, Corporate Legit guides foreign investors through every stage, enabling smooth establishment, regulatory certainty, and sustainable business growth in India.
FAQs: Process for Manufacturing Company Setup in India
1. What is the first step in the Process for Manufacturing Company Setup in India?
The first step involves deciding the appropriate business structure, such as a private limited company or a joint venture. This decision impacts ownership, operational control, FDI compliance, and tax obligations. Foreign investors must also evaluate the most suitable location and understand regulatory requirements.
2. How do foreign investors comply with FDI and FEMA regulations in India?
Foreign investors must follow India’s FDI policies, which allow up to 100% investment in most manufacturing sectors via the automatic route. Companies must file Form FC-GPR after share allotment and submit annual Foreign Liabilities and Assets (FLA) returns, ensuring compliance with FEMA regulations throughout the setup process.
3. Which locations are best for manufacturing companies in India?
Top manufacturing hubs include Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Delhi NCR. Investors should consider factors like infrastructure, connectivity, skilled workforce availability, land costs, and state-specific incentives when selecting the ideal location for their operations.
4. Should I choose a greenfield or brownfield project for my manufacturing unit?
Greenfield projects involve building new facilities from scratch, offering design flexibility but higher regulatory hurdles. Brownfield projects redevelop existing infrastructure, allowing faster implementation and lower upfront costs. Choosing depends on budget, timeline, innovation needs, and regulatory complexity.
5. What licenses and approvals are required in the Process for Manufacturing Company Setup in India?
Mandatory approvals include company registration (PAN, TAN, GST), factory license, environmental clearances, and labour registrations (ESIC & EPF). Ensuring timely compliance at each stage prevents delays, fines, or operational challenges.