Initiation of Fast Moving Consumer Goods (FMCG) manufacturing business in India

About the Article:

Amid epidemic COVID-19 and continuous extension of Lockdown in the Country, the essential items shows business trend, which magnet the entrepreneur to take thought of initiation of FMCG manufacturing business in India. An endeavour is made to elaborate the procedural aspect for such initiation in this Article:

About FMCG Sector in India:

Fast moving consumer goods (FMCG) are the fourth largest sector in the Indian economy. There are three main segments in the sector – food and beverages which accounts for 19 per cent of the sector, healthcare which accounts for 31 per cent and household and personal care which accounts for the remaining 50 per cent.

Accounting for a revenue share of around 45 per cent, rural segment is a large contributor to the overall revenue generated by the FMCG sector in India. Demand for quality goods and services have been going up in rural areas of India, on the back of improved distribution channels of manufacturing and FMCG companies. Urban segment accounted for a revenue share of 55 per cent in the overall revenues recorded by FMCG sector in India. Changing lifestyles, easier access, powerful means of communication and growing level of education are the key growth drivers for the FMCG consumer market. In order to promote the FMCG sector in India, the Government of India has approved 100 per cent Foreign Direct Investment (FDI) in the FMCG segment in single-brand retail along with 51 per cent FDI in multi-brand retail. ( extracted from Ministry of Commerce & Industry, Government of India)

FMCG Sector

I have tried to through light on summary of compliance requirement about how to initiate Fast Moving Consumer Goods (FMCG) manufacturing business in India herein under:

Conceiving Idea and Quantum of Investment with Budget 

The entrepreneur is mother of business. He is the entrepreneur who decides and implements line of business. He shall pick an idea that fits his passions, goals, strengths, resources, and tolerance for risk. Please note that initial idea is just a hypothesis. Initial idea will be evaluated in terms of end users i.e. customers, business model and business plan with comprehensive study. Measurement and knowledge of competitors, predecessors, big players of the market with initial research will increase chances of starting out on the right path upon which, necessary changes will be made to the business plan, model and market strategy.

Budget shall be prepared with contingency fund requirement in such way so that key milestones can be reached. Owners fund and borrowed fund shall be planned out in the Budget only. Detailed road map for implementation of plan with most important goals over the next few years shall be framed. It is also necessary to determine loyal and competitive team members, experts and consultants to execute business plan.

Type of organisation and Registration

The phase of persuasiveness of idea shall be started. The time comes to decide the form of business comparing capital requirement and budget for the proposed project of the FMCG. Accordingly, get the registration of organisation like limited or Private Limited Company or Limited Liability Partnership Firm. As part of Government of India’s Ease of Doing Business initiatives, the Ministry of Corporate Affairs have deployed a new Web Form christened ‘SPICe+’ (pronounced ‘SPICe Plus’) with 10 services viz.(i) Incorporation (ii) Directors’ Identification Number allotment (iii) Issue of Permanent Account Number  (iv) Issue of Tax Deduction and Collection Account Number (TAN) (v) Issue of Employee Provident Fund Organization (EPFO) registration (vi) Issue of Employees State Insurance Corporation (ESIC) registration (vii) Issue of Profession Tax registration (viii) Opening of Bank Account for the Company and (ix) Allotment of Goods and Services Tax Identification Number (GSTIN), (if so applied for), thereby saving many procedures, time and cost for Starting a Business in India.

Licences and Approvals:

Initiation of manufacturing business needs to obtain different registrations and licenses, immediately upon incorporation. Location is important for establishing the plant since it attracts respective State laws also.

(1) Apply for the Trade License from the local Municipal Authority. Trade license has been introduced in India and is being regulated through local municipal corporation acts by the state governments. This helps in ensuring that no one is severally affected by nuisance and health hazard of any trade or business.

(2) Prepare and select good trademark for business. Apply for registration of preferred trademark under the Trade Marks Act, 1999 for better protection of trade mark for goods and services and also to prevent fraudulent use of the mark.

(3) Apply for Import Export Code with DGFT. For registration as a 100% export oriented unit (EOU) which can enjoy many additional concessions, the clearance of the Development Commissioner of the Export Processing Zone (EPZ) would be required.

(4) Apply to the Authorised Deal (AD) Bank, if Foreign Direct Investment is there in the Company in compliance with the applicable rules of FEMA.

(5) The factory owners are required to register their premises with the local governing authority before starting operations. The Factories Act, 1948, as amended by the Factories Act, 1987, deals with occupational safety and health in factories and docks in India, with various problems concerning safety, health, efficiency and well-being of the persons at work places for which factory registration certificate is required to be obtained. Building Use permission and approval from the Labour and Employment Department are required before submitting application for registration. Factory license is a certificate issued by the Chief Inspector of Factories to carry out manufacturing pursuits in the state.

(6) Though registrations for business as Micro, Small and Medium Enterprise under Udyog Adhar is not mandatory by the Government but it is beneficial to get one’s business registered under this because it provides a lot of benefits in terms of taxation, setting up the business, credit facilities, loans etc. The eligibility criteria of registration for manufacturing enterprise as MSME are as under:

Investment in Plant and Machinery/ Equipment is considered as below:-

Existing and Revised Definition of MSMEs

Existing MSME Classification
Criteria: Investment in Plant & machinery or equipment
Classification Micro Small Medium
Mfg. Enterprise Investment < Rs.25 Lakh Investment < Rs.5 Cr. Investment < Rs.10 Cr.
Service Enterprise Investment < Rs.10 Lakh Investment < Rs.2 Cr. Investment < Rs.5 Cr.
Revised MSME Classification
Composite Criteria : Investment and Annual Turnover
Classification Micro Small Medium
Manufacturing & Services Investment < Rs.1Cr.

And

Turnover < Rs.5 Cr.

Investment < Rs.10 Cr.

And

Turnover < Rs.50 Cr.

Investment < Rs.50 Cr.

And

Turnover < Rs.250 Cr.*

*Ministry of MSME, New Delhi, has notified new limit for MSMEs vide Notification No. CG-DL-E-01062020-219680 dated 01st June, 2020.

(7) Environment And Pollution Related Clearances

Apply for the ‘Consent to Establish’ from the Pollution Control Board

  • Pollution Control – State Pollution Control Board. A No Objection Certificate (NOC) should be obtained from the State Pollution Control Board before commencement of construction activity. In case the industry is of the highly polluting category, a full-fledged or rapid Environmental Impact Assessment (EIA) study has to be carried out and submitted to the State Pollution Control Board for approval, after which the construction can commence.
  • Industries Requiring Water and Affecting Effluent Disposal – State Pollution Control Board No Objection Certificate (NOC) should be obtained from the State Pollution Control Board before commencement of construction activity.
  • For units functioning outside Industrial Area – Permission from Municipal Corporation/ Municipality/ Panchyat. In case private agricultural land is purchased for the project, the land would have to be rezoned as industrial zone. Permission to convert such agricultural land to industrial area would have to be obtained before the actual start of the construction from the local office of the Directorate of Town & Country Planning.
  • Registration and Licensing of a Boiler – The safety clearance of the Chief Inspector of Boilers and Chief Electrical Inspector are required before commencing operations with electrical and pressure vessels (boilers) respectively.

(8) Registration and approval for Calibration of weights & measures is required to be obtained for Weights and Measures Inspector of State as required under the Standards of Weights and Measures Act, 1976, The Legal Metrology Act, 2009, the Legal Metrology (General) Rules, 2011 as amended from time to time till date.

(9) Application for inspection and approval for installation of Power Connection to the Designated Officer of State Electricity Board shall be made with prescribed documents.

(10) Submit application for BIS certification to the Bureau of Indian Standard (BIS). It is the National Standard Body of India established under the BIS Act 2016 for the harmonious development of the activities of standardization, marking and quality certification of goods and for matters connected therewith or incidental thereto. BIS has been providing traceability and tangibility benefits to the national economy in a number of ways – providing safe reliable quality goods; minimizing health hazards to consumers; promoting exports and imports substitute; control over proliferation of varieties etc. through standardization, certification and testing.

(11) The FMCG manufacturing business contains food items also and hence, prior approval from the Food Safety and Standards Authority of India (FSSAI) alongwith Food And Drugs Control Administrations required. It is necessary for science based standards for articles of food and to regulate their manufacture, storage, distribution, sale and import to ensure availability of safe and wholesome food for human consumption.

Application to the Bank for working capital:

The requirement of main working capital expenditure for a FMCG manufacturing unit is raw material, salaries and wages, power cost and receivables. Hence, taking into a six month working capital cycle, the promoters must arrange working capital funds to operate smoothly for which application for cash credit limit shall be made with the appropriate bank. The important factor of concentration is a Rate of Interest decided by the Bank for all type of loan and credit facilities.

As promoted by our esteemed ICSI, the role of Company Secretary is not mere to incorporate a Company/ LLP. Now, we are Corporate Compliance Manager. All the above registrations, licences can be the phenomena of Company Secretary whether on pay roll or on advisory mode.

Success of any business set up depends on the minute planning and strict implementation by catching opportunity available in the market.

Acknowledgement:

This Article of Author is published in E-Corporate Manager, presented By Ahmedabad Chapter of WIRC of ICSI for the month of June, 2020.

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