A decade ago, India saw a huge increase in its purchasing power, allowing international brands to flourish in the country’s market. According to a report by the Indian Brand Equity Fund (IBEF), the post-Covid era will see over two dozen international brands setting their businesses in the country, marking a paradigm shift from the earlier average of 12-15 brands that ventured into India annually.
Today, global brands occupy one-fourth of the retail space, marking a significant increase of 1100 basis points from a year ago. Industry heavyweights such as the Italian luxury brand Roberto Cavalli, British company Dunhill, and American sportswear brand Foot Locker are among those eager to expand their operations in India.
In line with the regulatory framework established in most countries, India, too, has rules and regulations in place to protect its consumer interests from foreign brands, and compliance with these regulations is non-negotiable.
Here are some of the most important compliance measures:
Registration Compliance
Getting the ball rolling- registering a business in the country is inevitably the initial step. Different registration criteria and processes exist for foreign fashion brands, involving a web of legal, tax, and business considerations. This includes setting up a wholly-owned subsidiary, joint venture, or operating as a foreign company through the Foreign Direct Investment (FDI) route. Additional registrations may apply depending on the type of establishment. All foreign retail brands should, within 30 days of commencing business in India, share details with the Registrar. In addition to the details outlined in the Companies Act 2013, they must publish information about their directors and secretaries.
Operational License
The complexity of obtaining licenses varies based on multiple factors, such as product type, supply chain, and local regulations. For instance, shoe brands might face different licensing challenges than apparel companies. Regulatory compliances, in particular, are tailored to industry specifications, with further subcategorization based on the location of operation.
With the government undertaking measures to improve the ease of doing business, obtaining an Indian operational license can take anywhere from a few weeks to a couple of months.
Intellectual Property Law Compliance
Protecting intellectual property (IP) is among the most critical aspects of the business of fashion. Compliance is essential to ensure that the rightful IP ownership rests with the entity using it, as failure to do so could lead to legal actions and potential license revocation.
For their own benefit, companies are required to register their trademark under the Indian Trademark Act of 1999. Entities also need to register their designs under the Indian Copyright Act 1957 and the Indian Design Act 2000 for protection against duplication.
Given India’s rich cultural heritage, these brands need to comply with Geographical Indication laws before making claims about the origin and quality of their products. Global giants must conduct proper due diligence before transferring their IP should they intend to sell their designs through local brands.
Labour Law Compliance
Apart from FDI regulations and import/export rules, labour law compliance is among the most crucial factors for running a business in India. Global retail brands must adhere to the Indian Code on Wages, 2019, which covers provisions related to minimum wages, bonuses, and wage payments.
Compliance with the Indian Industrial Relations Code, 2020, and the Indian Code on Social Security, 2020, is also essential. These codes address matters such as worker conditions, layoffs, retrenchments, strikes, trade unions, industrial dispute settlements, workers’ provident funds, employee insurance, gratuity, maternity benefits, and compensation, respectively.
Employee rules and regulations, as well as compliance with contract labour laws, must be followed, as contract labourers may be subject to distinct regulations.
ESG Compliance
ESG (Environmental, Social, Governance) compliance is increasingly gaining prominence in the Indian business sphere. Companies with high ESG ratings certainly hold an edge over their competitors. Adhering to environmental laws, in particular, assumes greater significance. While there is no specific environment law tailored for apparel, shoes, and accessories brands, all of them are expected to comply with the Environment Protection Act, 1986, Indian Hazardous Wastes (Management and Handling) Rules, 1989, and other umbrella acts.
As consumers are shifting their focus towards sustainable products in increasing numbers, companies have been taking the easier route to stay relevant by “greenwashing” instead of genuinely committing to responsible manufacturing practices. However, this approach could lead to potential issues. While there is no specific law against greenwashing in India, SEBI has addressed this concern through a circular dated February 3, 2023, which provides directions to issuers of green debt securities to prevent misleading practices.
Taxation and Contract Compliance
The projection that retail leasing is slated to reach 5.5-6 million square feet this year highlights the significant role of the fashion industry in India’s globalization. However, this also points to the increased complexity in tax collections and contract compliances. The government is consistently working to simplify the tax structure and reduce the burden by introducing provisions in the GST bill.
As most global fashion retail giants adopt an omni-outlet model, they must navigate the challenge of maintaining consistent compliance across multiple locations and adhering to varying local regulations. India’s laws are classified under the State list, Central list, and Concurrent list, necessitating compliance with all applicable regulations, which may vary between states and between states and the centre. A comprehensive compliance checklist will ensure a hassle-free compliance regime for such brands.
As India’s consumer market continues to grow, complying with regulations will not only protect the interests of foreign brands but also foster trust and credibility among Indian consumers.
