India’s supply chain landscape has undergone a significant transformation in recent years. With a booming economy and a growing role in the global market, the need for robust supply chain compliance systems has never been more crucial. India has been making efforts to enhance its supply chain compliance systems to meet global standards and facilitate the ease of doing business. India has been seen as a promising destination for many U.S. and other western companies looking to diversify their supply chains and reduce their reliance on China.

On September 17, 2022 Prime Minister Narender Modi launched the National Logistics Policy (NLP), this was part of a bigger project called National Infrastructure Pipeline. This policy was created after a very long need for a better logistics plan to boost production in India, this policy was designed to eradicate issues of high cost and inefficiency by laying down an overarching interdisciplinary, cross-sectoral and multi-jurisdictional framework for the development of the entire logistics ecosystem. Since 2014 Indian government has been working on ease of doing business to promote Indian Economy and to reduce dependence on foreign entities.

In light of the ongoing Russia-Ukraine conflict and evolving geopolitical dynamics, Western countries, including the United States, are actively exploring alternative sources for their supply chains and workforce. India emerges as a compelling solution, boasting a population exceeding 650 million individuals aged between 18 and 45, coupled with its democratic governance.

Despite the reforms and policies put in place to streamline business processes, numerous challenges persist, and in many cases, compliance expectations are very different to those in other countries. Some of these challenges are:

• Local and State-Level Regulations: India is a federal country, and many compliance requirements vary from state to state. Businesses with a presence in multiple states must navigate different rules and regulations.
  For example, every state has a different shops and establishment rules which differ from central rules very slightly but enough to make a mistake unless compliance plans are tailored.
• Complex Tax System: India has a complex tax system with multiple layers of taxation, including central, state, and local taxes.
  For example, GST (Indirect tax) was developed as a one rule which subsumed all state and local rules but state governments failing to or delaying in accepting amendments issued by Central Governments changes the rules ever so slightly. Central Government had issued a circular on July 31, 2023 exempting taxpayers having aggregate annual turnover up to two crore rupees from filing of GST annual return, the same amendment was accepted by Bihar Govt on October 05, 2023.
• Labour Laws: India has numerous labour laws at the central and state levels, making labour compliance a challenge. These laws govern aspects such as employment contracts, minimum wages, working conditions, and termination procedures.
  For example: Gujarat Shops and Establishments Rules, 2020 and Maharashtra Shops and Establishments Rules, 2018 have a requirements for canteens to be established if there are more than 100 employees whereas no other states Shops and Establishments rules have any such requirement.
• Corporate Governance: Companies in India are required to adhere to strict corporate governance norms, including board composition, financial disclosures, and shareholder rights. Non-compliance can lead to significant legal consequences.
• Import-Export Regulations: International trade compliance can be complex, with customs duties, import-export licenses, and other regulations to contend with. Changes in trade policies and tariff structures can impact businesses.
• Competition Law: The Competition Act regulates anti-competitive practices and mergers and acquisitions. Ensuring compliance with these regulations is essential for businesses.
• Contractual and Commercial Laws: Compliance with contractual obligations and commercial laws is vital for businesses operating in India. Ensuring contracts are legally sound and enforceable is a key challenge.
  For ex. In June 2023, Tata Consultancy Services (TCS) initiated an internal investigation following a whistleblower complaint alleging bribery in the company’s hiring practices. The investigation, concluded in October 2023, revealed that 19 employees were involved. Sixteen were terminated, and three were removed from their roles. Additionally, TCS barred six vendor entities and their affiliates from future business with the company. TCS committed to improving governance by implementing measures such as personnel rotation, enhanced supplier management analytics, and vendor compliance audits.

India has been implementing various governmental policies aimed at promoting global trade and benefiting its trade partners. These policies are designed to foster economic growth, enhance trade relations, and attract foreign investment. Some of these policies are Make in India, implementation of the GST in 2017 simplified India’s tax system, making it more transparent and efficient, Foreign Direct Investment (FDI) Reforms trade agreements and partnerships with various countries and regional blocs, various export promotion schemes to incentivize and support Indian exporters, etc.

India has a complex labour regulatory framework with numerous labour laws at both the central and state levels. These laws cover a wide range of labour-related matters, including employment conditions, wages, social security, industrial disputes, and more. The complexity of labour laws in India can indeed pose significant challenges for businesses and organizations operating in the country.

In any business operation, third-party contributors such as consultants, suppliers, or contractors play essential roles in the supply chain. These contributors are collectively referred to as “Vendors,” while the party commissioning their services is known as the “Principal.”

Vendor contracts emphasize maintaining an “arms-length” relationship to avoid the appearance of an employer-employee connection. Principals are cautious not to micromanage Vendor businesses to preserve this distinction.  Effective Vendor management is essential, as the TCS case above illustrates.

In recent times, the growing importance of environmental, social, and governance (ESG) factors has led Principals to become more involved in their relationships with Vendors, particularly concerning legal compliance. This shift is motivated by various common risks, including:

• Reputation Risk: Non-compliance within the supply chain can damage the principal’s reputation, as modern consumers prioritize ethical responsibility and may avoid brands associated with unethical practices.
• Vicarious Liability: In some cases, the law recognizes that Vendor compliance is so crucial that Principals cannot escape responsibility through contractual agreements and may be held directly liable for Vendor defaults in areas such as CPF and wage payments.
• Financial Penalties: Non-compliance can result in significant fines and penalties, either through legal actions or regulatory sanctions. Repeated non-compliance can lead to increased scrutiny, inspections, and audits, incurring additional costs.
• Operational Disruptions: Non-compliance can disrupt the supply chain, such as halting a Vendor’s operations due to labour law violations, affecting the Principal’s production and delivery schedules.
• Loss of Business Opportunities: Government entities and potential customers often require compliance checks, impacting business opportunities if the supply chain is not compliant.
• Decreased Investor Confidence: Ethical investment and investor activism expect companies to prioritize legal compliance throughout their supply chains. Non-compliance can raise concerns about broader management or oversight issues, reducing investor confidence.
• Increased Costs: Addressing non-compliance retroactively can be costly, including legal fees, public relations efforts, and supply chain adjustments to ensure future compliance.
• Competitive Advantage: A fully compliant supply chain can be a competitive advantage, particularly in industries where ethical sourcing is crucial. Proactive compliance measures can differentiate a company, especially when sourcing from regions with weak regulatory oversight.

To navigate this intricate compliance landscape, businesses are increasingly relying on legal technology (legal tech). Legal tech simplifies compliance tasks, improves transparency, reduces risks, and enhances overall efficiency in meeting regulatory obligations. These platforms create centralized databases, provide real-time regulatory updates and alerts, and facilitate workflow management for task assignment and tracking.

Legal tech has emerged as a valuable ally for businesses operating in India’s complex compliance landscape. It not only simplifies compliance tasks but also enhances transparency, reduces risks, and improves overall efficiency in meeting regulatory obligations. As the regulatory environment continues to evolve, legal tech is likely to play an increasingly vital role in ensuring businesses stay compliant while focusing on their core operations.

Legal-tech platforms have improved transparency in compliance by creating centralized databases for documents and records, enabling businesses to access their compliance history seamlessly. Real-time regulatory updates and alerts keep organizations informed about changing laws and requirements, empowering them to adapt swiftly. Additionally, workflow management features facilitate task assignment and tracking, fostering accountability and collaboration across teams or departments.

In conclusion, the CVM (Compliance Vendor Management) solution offers a unique approach to enhancing compliance systems, with key features including:

Regulatory Obligations Mapping: This feature involves the precise mapping of compliance obligations to the principal’s corporate structure, utilizing an attributes framework. It allows for task customization, and obligations that require Vendor input are efficiently directed to the appropriate compliance owner within the Vendor company.

Evidence of Performance: Vendors are actively engaged in certifying compliance and providing detailed proof, with the level of detail determined by risk factors and legal requirements. The system streamlines compliance activity tracking and ensures proper routing to designated approvers.

Moreover, the integration of artificial intelligence and machine learning in certain legal tech solutions enhances the proactive assessment of compliance risks, identification of potential issues, and the development of effective mitigation strategies. This not only reduces the likelihood of compliance breaches but also contributes to cost reduction by preventing penalties and unnecessary legal fees. Legal tech has now become an indispensable tool for businesses operating in India, allowing them to prioritize core activities while ensuring adherence to the evolving regulatory landscape. As regulations continue to evolve, legal tech is poised to play an increasingly crucial role in facilitating and bolstering compliance across various sectors within India.