Setting Up a Manufacturing Unit in India: Key Considerations

Setting Up a Manufacturing Unit in India Key Considerations

A manufacturing unit is where raw materials and parts of goods are processed to create the final product. Manufacturing requires tools, human labour, machinery, and chemicals. A manufacturing unit holds massive significance for the sustenance of society. The manufacturing sector is one of the critical drivers of the economies of every developed nation. The manufacturing sector is the most crucial sector for the economies of developing countries.

For the past few years, the Indian manufacturing sector has been gaining pace. The government is trying to position India as a global manufacturing destination. India is all set to increase its share of the manufacturing sector by increasing its GDP to 20% by 2025. India has schemes such as PLI, Make in India, etc.

Setting up a manufacturing unit in India requires several registrations, licenses, and permits. The Government of India recently launched the Udyog Aadhaar Memorandum (UAM) to simplify registration. Registering on UAM is designed to capture important information about a business unit. This would eliminate the need for multiple registrations.

Steps to Set Up a Manufacturing Unit in India

  • Develop Your Business Plan: The first step towards setting up a manufacturing unit in India is articulating the business concept. To decide which product to manufacture, comprehensive market research is required. You need to identify your customer’s needs for the proposed product. Entrepreneurs also consider current technology and operations and the manufacturing cost, sales, and marketing strategies to conceptualise the product.
  • Prepare Financial Plan: Entrepreneurs need to assess the financial requirements of setting up a manufacturing unit. The financial requirements include the cost of services, cost of production, cost of equipment, cost of premises, electricity, etc., along with the working capital. It is essential to make provisions for initial expenses and ongoing costs while setting up the unit.
  • Apply for Licenses and Registrations: The third and one of the most important steps is to register the business and apply for licenses. Without completing this step, your business will not be considered legal. Registering a business and complying with appropriate labour and business compliances is necessary. The list of licenses and registrations is as follows:
  1. Register for Goods and Services Tax (GST): All businesses must obtain GST registration from the Central Board of Excise and Customs (CBEC). The GST Registration must be obtained for each state where the goods are sold. The registration is done online, but the applicant has to provide relevant documents for proof.
  2. Obtain Import Export Code (IEC): Manufacturing units involved in importing or exporting goods are required to obtain an IEC Code. Businesses with IEC Code get the right to trade goods internationally without any customs duties or taxes. IEC Code can be obtained online.
  3. Factory Registration: For registering the factory, an application should be made to the regional office of the Ministry of Micro, Small, and Medium Enterprises (MSMEs). The application must be made to the regional office.
  4. Building Plans and Construction Permission: The building plans must be submitted to the local Urban Development Authority (UDA) or the Municipal Corporation1 for approval.
  5. Register for Udyog Aadhaar: This is one of the most critical steps for registration of a business. Udyog Aadhaar is a 12-digit unique identification number issued to small and medium enterprises by the Ministry of MSME, Government of India. Registration for Udyog Aadhaar can be done online from the official website of the MSME ministry.
  6. Register for Employees Provident Fund: Businesses must acquire Employees Provident Fund (EPF) Registration. EPF Registration must be done within 21 days of the first employee joining the firm.
  7. Register for Employees State Insurance Corporation: Every business with over 20 employees must register with the State’s Employees State Insurance Corporation (ESIC). The registration must be done within 15 days from the employee’s joining date.
  8. Register with the State Labour Department: Every manufacturing unit must register with the local State Labour Department. The registration process is easy and quick if all the required documents are present. It is mandatory to obtain this registration, and it should be obtained within 90 days from the facility’s establishment date. 
  9. Acquiring Trademarks: The business must obtain trademark registration from the Indian Trademarks Registry for the relevant trademarks/brands for its products or services.
  10. Boiler Registration: Manufacturing units that will use boiler-operated processes must obtain the Boiler Operation Certificate from the Boiler Inspector Department of the local state.
  11. Fire Safety Certificate: A fire safety certificate is also a must for a Manufacturing Unit, which must be obtained from the local Fire Service Department. The certificate should be obtained before commencing the manufacturing operations.
  12.  Industrial License: For opening a manufacturing unit, a license is necessary from the Department of Industrial Policy and Promotion (DIPP) for setting up the manufacturing unit.
  • Apply for Legal and Environmental Approvals: Before commencing a manufacturing unit, the entrepreneurs must apply and fulfill all the legal compliances and government approvals. One of the significant environmental approval is the NOC for environment clearance, as all manufacturing units are likely to have an adverse effect on the environment; therefore, they must obtain a no-objection certificate from the State Pollution Control Board (SPCB).  
  • Source Raw Materials and Equipment: After obtaining all the approvals and registrations, entrepreneurs can focus on procuring raw materials and equipment to begin production operations. They can make other considerations, such as which machinery to opt for, infrastructure, etc., for more efficient operations
  • Train and Hire Employees: After obtaining, the raw materials and equipment, the next step is to hire employees to join the team and manage the business, its operations, finance, etc. For this necessary, training is required to enhance their skills and ensure they understand their job responsibilities.
  • Start Production: Once the training and hiring are complete, the manufacturing unit can start production and manufacture quality products.
  • Start Marketing and Distribution: The last and final step is to market and promote the product produced to drive its sales. At this step, the entrepreneurs can also identify the potential distributors and channels to market and distribute the product.
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In summation, it can be said that several registrations and approvals are required to set up a manufacturing unit in India. Registrations and approvals are necessary to comply with the government’s norms. It also ensures that your business is being conducted legally. To ensure you do not face any legal consequences, you must obtain these registrations and approvals from different authorities.


What is a Manufacturing Unit?

A manufacturing unit is where raw materials and parts of goods are processed into end products.

What are the different business structures which can be registered as a Manufacturing Unit?

A Manufacturing unit in India can opt for any of the following business structures: i. Private Limited Company ii. Public Limited Company iii. Limited Liability Partnership iv. One Person Company v. Sole Proprietorship Firm vi. Partnership Firm

What are the documents required for starting a Manufacturing unit in India?

The documents required for starting a manufacturing unit in India are i. Photograph of Directors/ Partners/ Proprietor ii. PAN Card of Directors/Partners/ Proprietor iii. Electricity Bill or any other utility bill iv. Passport (it is mandatory for Foreign Director) v. In the case of a foreign director in a foreign country, all documents must be apostilled by the home country.

What is the purpose of the Udyog Aadhaar Memorandum (UAM)?

UAM is a single-page registration designed to collect important information about the business unit. It eliminates the need to procure various registrations.

What is the capital required to start a factory in India?

You need INR 20,000 or above to start a factory in India.

Which manufacturing unit has the highest profit in India?

The energy sector is a manufacturing unit with the highest profit in India.

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