Whether it’s a conventional warehouse, a modest godown, refrigerated storage, or a modern distribution centre, businesses are actively seeking warehousing solutions. In addition to conforming to global standards, businesses have to comply with the associated regulatory requirements, writes Rishi Agarwal, Co-founder and CEO, TeamLease RegTech. Rapid economic growth in India has paved the way for industrialisation. As more and more companies seek to diversify their supply chains, India is now in a position to benefit from a ‘China Plus One’ strategy. There has been an increase in demand for warehousing services as more corporations relocate their production facilities to India. The rise in demand for Grade A warehouses has been fueled in part by the e-commerce growth and rising household consumption. Businesses are actively adopting a hub-and-spoke structure and requesting modern facilities. In the eight primary markets (Mumbai, NCR, Bengaluru, Pune, Kolkata, Hyderabad, Chennai, and Ahmedabad), 51.3 million square feet of warehouse space were transacted in FY23. Grade A properties accounted for 58 per cent of the volume of transactions. These eight primary markets held approximately 412 million square feet of warehouse space, with Mumbai and the National Capital Region (NCR) accounting for more than half of the total. Whether it’s a conventional warehouse, a modest godown, refrigerated storage, or a modern distribution centre, businesses are actively seeking warehousing solutions. In addition to conforming to global standards, businesses have to comply with the associated regulatory requirements. Regulatory landscape The Indian regulatory environment for business consists of 1,536 acts and rules, 69,233 compliances, and 6,618 filings. The mere volume of regulatory obligations has spawned excessive regulation, resulting in economic dwarfs. The expansion of business operations beyond a certain threshold attracts increased regulatory scrutiny and compliance obligations, which reduces the incentive for enterprises to grow. In addition, regulatory updates are regularly published on 2000+ government websites. In 2022, 5,986 revisions were issued, which is more than 16 per day. A company’s compliance burden can be broken down into seven categories: finance & taxation, personnel, secretarial, commercial, industry-specific, EHS (environment, health & safety), and general. In addition to levels and categories, regulatory obligations are classified by the following types: audits and accounts; licences and registrations; display requirements; employee safety and welfare; examination, inspection, and testing; registers and records; returns, filings, disclosures, and notifications; and statutory payments. While the overwhelming number of compliances contributes to the complexity of the regulation, the addition of imprisonment raises the cost of poor performance and noncompliance to unprecedented levels. Of the 26,134 compliance requirements that bear a prison sentence for violations, 17,819 (68 per cent) are labour laws. Employers wanting to set up a warehouse from scratch must obtain 84 licenses, permissions, approvals, and NOCs (No Objection Certificates); 51 per cent (43) have to be obtained in the pre-commissioning;~43 per cent (36) in the post-commissioning stage. An illustrative list of such licenses, permissions etc., is presented below: Approval for the warehouse layout NOCs issued by various authorities, including the municipal body, the fire department, etc. Permission to erect lifts/ escalators/ conveyors and license to operate lifts Registration of establishment Building license ESI registration Among these 84 licenses, 24 are local licenses that must be acquired from the local authority. Businesses must also obtain 10 Industry-specific licenses, registrations, permissions, etc. These include the registration of the warehouse with relevant regulatory bodies at both the union and state levels. FSSAI registration becomes mandatory if the warehouse is to be used to store agricultural products. Employers must also obtain a license to operate as warehousemen. The majority of the regulations come from the Warehousing (Development and Regulation) Act, 2007, and Warehousing (Development and Regulation) Registration of Warehouses Rules, 2017, and the Warehouse Manual for Operationalising of Warehousing (Development & Regulation) Act, 2007. Key compliances include quarterly disclosures to the WDRA, the obligation to have insurance coverage, adhering to various infrastructure requirements, maintaining the quality and quantity of goods stored, and maintaining complete and accurate records and accounts of all transactions. Other requirements include periodic painting of walls and ceilings, cleaning, fumigation, bird proofing, timely aeration, proper lighting, lean drinking water for the staff, mesh on pipes entering the warehouse, waterproof paint on the ceiling, and separate storage of waste and dead stock, among other things. Companies also need to maintain equipment essential for warehouse operations, such as fire extinguishers, operate a physical analysis laboratory in the warehouse for agricultural commodities/ goods, and operate a mechanism for identifying and tracing goods stored in the warehouse. Warehouse registration must also be renewed every 5 years. Furthermore, employers are also required to obtain environmental clearance approvals, infrastructure and construction approvals, as well as electricity-related approvals from appropriate authorities, and the permission for the abstraction of groundwater has to be renewed every 5 years. Warehouse operators must conduct an annual inspection of fire extinguishers and maintain records of their inspection and maintenance. They must also keep up with finance & taxation obligations, such as maintaining records and accounts of goods imported and exported, along with accounts of supplies that attract tax payments on a reverse charge basis. The records must also state the period for which goods are stored in the warehouse and the details of the consignor and consignee. Every warehouse uses some form of weights and measures, and as such, the business is required to verify the weights and measures used every 2 years and display the verification certificate in a conspicuous place. Appropriate declarations also need to be made on the packaging of the goods. Employers are also required to adhere to labour law requirements with respect to their employees and the employees of their contractors/ third party vendors. They are required to obtain registration certificates under the Employees’ Provident Fund Scheme, the Employees’ State Insurance Corporation, the State welfare fund rules, the State Shops and Establishments Act, and the Inter-State Migrant Workmen Act, 1979, among others. The Payment of Bonus Act, 1965, requires maintaining a register showing the computation of allocable surplus, set-on, and set-off of allocable surplus, and bonus payable. The Minimum Wages Act, 1948 also lists compliance requirements for maintaining an inspection book and a register of wages, fines, and overtime. Furthermore, under the ESI Act, 1948, an employer again must maintain a register of employees, accident book, inspection book, and identity cards of employees. The Contract Labour (Regulation and Abolition) Act, 1970 requires employers to maintain a register of contractors. Rising demand for quality warehousing There has been a steep rise in demand for better warehousing services, reliable cold storage infrastructure, and enhanced last-mile connectivity. Businesses are already employing digital technology to reduce waste, improve supply chain management, and reduce transportation time between ports, states, cities, and towns. This has reduced the cost of logistics and lowered delivery times. Enlisting the aid of digital technology in compliance management is the next step as businesses look towards reducing compliance costs. A critical aspect of compliance management is creating a complete list of applicable regulations and keeping track of pending compliances. These one-time, ongoing, event-based and function-based obligations can range from hundreds to thousands, depending on the scale and size of business operations. For instance, a single entity operating a single warehousing facility at just one location in a single state deals with at least 421 compliances. Labour constitutes over one-third of these 400+ obligations, with industry-specific coming in just shy of another third. Breaking it down on the basis of frequency reveals that over 77 per cent of these are checklisted compliances. In addition, 145 obligations prescribe imprisonment for non-compliance. Compliance management is now a crucial agenda item in corporate governance. The investors, shareholders, and key managerial personnel (KMPs) are taking an increased interest in the compliance status of their companies. Digital compliance management tools afford the business access to a central repository of digital, verified, and tamper-proof compliance documents. By allowing digital tracking and management of applicable compliances, these digital tools replace ad-hoc, paper-based and people-dependent processes. They eliminate lapses, delays, and defaults resulting from human errors and bring down the cost of compliance. By creating a culture of compliance that fosters transparency, accountability, and responsibility, corporations are able to move towards sustainable business practices that inspire trust in shareholders and the market. About the author: Rishi Agarwal is the Co-founder and CEO of TeamLease RegTech. He also works closely with several ministries, DPIIT, Invest India, and the World Bank, for multiple ease-of-doing-business initiatives. He is a member of the CII Taskforce and has served as an advisor to WGOM (Working Group of Ministers).