Labour Compliances for doing business by a foreign investor in India


Indian Prime Minister Narendra Modi has been quite instrumental in the introduction of the ‘Made in India’, ‘Visa on Arrival’ Scheme and ‘Digital India’ – the campaigns for bringing India at par with the other highly developed countries. During the launch of ‘Make in India’ Campaign itself, there was sufficient emphasis laid on the manufacturing sector of the India which needs to be carefully studied and understood by a foreign investor who intends to step in the Indian pastures for profitable opportunities. The labour force in India is quite heterogeneous in nature. Roughly the strength of labour community in India is over 650 million. Contrary to this, the workforce of India is approximately 470 million out of which the majority belongs to the unorganized sector.

The budget introduced by the Finance Minister Arun Jaitley in 2015 has covered various incentives (besides proposing amendments to the labour laws) to certain segments such as manufacturing, tourism, MSMEs and shipping so as to increase employment opportunities. Initiatives have been discussed for revamping the labour laws to bridge the gap between the rules and the actual social scenario. Understanding labour laws dominating the Indian employment sector is imperative for any foreign investor to establish a business in India.

Following are some key employment laws in India:

  • Factories Act 1948
  • Shops and Commercial Act
  • Industrial Employment Act 1946
  • Contract Labour Act 1970
  • Maternity Benefit Act 1961
  • Sexual Harassment of Women at Workplace Act 2013
  • Minimum Wages Act 1948
  • Payment of Wages Act 1936
  • Equal Remuneration Act 1976
  • Payment of Bonus Act 1965
  • The Payment of Gratuity Act 1972
  • Employees Provident Funds and Miscellaneous Provisions Act 1952
  • Employees State Insurance Act 1948
  • The Apprentice Act 1961
  • Employment Exchanges Act 1959
  • Child Labour Act 1986
  • Industrial Disputes Act 1947
  • Trade Unions Act 1926

Commencement of Business by a Foreign Investor in India

A foreign investor needs to have a thorough knowledge of the planning and execution of all the aforementioned labour laws to be able to conduct a business approvable in the eyes of the Indian laws. In case of any disputes arising in the industrial scenario, judicial and quasi-judicial methods for dispute resolution are generally used. Judicial recourse – courts & tribunals, jurisdiction (territorial or local jurisdiction, pecuniary jurisdiction, jurisdiction as to subject matter, original and appellate jurisdiction) and Interim relief (Prima Facie Case, Irreparable jury, Balance of Convenience) are the known methods for resolving industrial labour issues.

The State Government of Gujarat and Rajasthan have already proposed a fresh change to the labour laws for a sensible and improved industrialization process. However as a foreign investor, one will have to understand the labour compliances governed by various labour laws. Few of the very common labour issues that keep cropping up are:

  • In case of retrenchment and shutting down of an industrial establishment with 100 people, the organization needs to compulsorily seek prior approval from the Government.
  • In a situation where the nature of the work of an employee or group of employees needs to be modified, a notice of 21 days must be given wherein the consent of employee is also considered.
  • The Trade Union Act allows outsiders to be the office bearers of the association. This can adversely affect the routine functions of the factory and may result in lock out and strikes initiated by the outsiders.

Modifications in labour laws sector proposed by the Indian Cabinet include:

  • To double the provision of overtime from 50 hours to 100 hours and from 75 hours to 125 hours on a quarterly basis
  • To relax the norms governing female employees in the industry
  • To reduce the number of days from 240 days to 90 days that is required by an employee to work for availing benefits of leave with pay
  • To introduce Labour Identification Number for recognition of each worker
  • To raise the wage rate for improved figures in Employee Provident Fund Scheme
The introduction of the labour reforms of the ‘labour inspection scheme’ ‘unified labour and industrial portal’ by the Indian Prime Minister to offer relief to the industrial sector. Mainly these laws are governed by the Ministry of Labour & Employment, Government of India. India works like a federal government and hence there is involvement of both the state and the central government in enacting laws on labour relations as well as employment matters.


Conclusively for a foreign investor to understand the laws governing the employment sector of India, analyzing the legal compliance of every type and running a business successfully can be everything but easy. In such a case it is highly recommended that every foreign investor intending to set up a company in the Indian region does not directly participate in the labour laws, legal issues and compliances. He should rather seek assistance from local people who have necessary expertise, experience and knowledge about the labour laws to take timely measures for a successful establishment.

Nominating an Indian entrepreneur to act on the behalf of the foreign investor will work in the best interests of the investor. While he would be continuously involved in the core functions of the business, the Indian partner will give relief in terms of labour laws. The translation of the laws from the idea stage to execution will be swift if it is coming from the local identity towards the labour community vis-à-vis that being lay down directly by the foreign investor. Nevertheless as an entrepreneur himself (while acting as a partner) the foreign investor must certainly have the theoretical clarity on the legal issues so as to be able to act in an indirect mode for the betterment of the establishment.

In India, the business owner or the Director of the company is personally & criminally liable. Thus the need of Labor Law Compliances cannot be undermined. Indian businesses are subjected to a plethora of Labor compliances Acts. The professionals at Helplinelaw can effectively implement the Labor Law Compliances for you. Please fill out the form below to discuss your business needs with the professionals of this domain.

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