How to start a small manufacturing unit in India: factory licence, pollution consent and registrations

Choosing a structure

Manufacturing needs capital, bank finance and long-term contracts, so a private limited company is the common choice. A proprietorship or partnership can work for a small job-work unit, but lenders and large buyers usually prefer dealing with a company or LLP.

Register on Udyam early. MSME status helps with collateral-free lending schemes, government tenders and the MSME rule requiring large buyers to pay within the agreed period, capped at 45 days.

Registrations and licences for a manufacturing unit

Labour and environment approvals come from the state, while product standards may be central. Industrial area allotments may also have their own approvals from the state industrial development corporation.

How pollution consent works

State pollution control boards classify industries as red, orange, green or white based on their pollution potential. Red and orange units face stricter conditions and shorter consent cycles; white category industries are generally exempt from consent but may need to intimate the board.

You need consent to establish before construction or installing machinery, and consent to operate before production. Both are issued under the Water and Air Acts. Hazardous waste authorisation applies if you generate hazardous waste, and EPR obligations apply if you produce or use plastic packaging.

Labour codes for factories

The four labour codes took effect on 21 November 2025, and the OSH central rules were notified on 8 May 2026; states are notifying their own rules. A factory is now a unit with 20 or more workers using power, or 40 without, up from 10 and 20 under the Factories Act. Any workplace with 10 or more workers is an establishment that must register.

Contract labour provisions apply at 50 or more contract workers. Under the Code on Social Security, ESIC applies from 10 employees and EPF from 20. Safety committees, welfare facilities and working hour limits depend on the size and nature of the factory.

Ongoing compliance

Renew pollution consents before expiry and file environmental statements and returns where required. Keep factory registers, safety records and wage records as the OSH Code and state rules require. Get boilers, pressure vessels and weighing equipment inspected on schedule.

File GST returns, e-way bills for consignments above ₹50,000, TDS returns and company filings. If your products fall under a BIS quality control order, maintain certification and testing; uncertified products cannot be sold or imported.

Pitfalls for new manufacturers

Site selection decides much of your compliance burden. Check the land use, pollution category permitted in that area and fire access before buying or leasing industrial premises.

• Starting construction before consent to establish.
• Assuming the old Factories Act thresholds still apply after November 2025.
• Ignoring BIS certification for notified products.
• Locating in a zone where your pollution category is not permitted.

Step by step

1. 1Choose the entity

   Private limited company or LLP for most units.

2. 2Register on Udyam

   Obtain MSME status for benefits and finance.

3. 3Select a compliant site

   Check zoning, pollution category and fire safety feasibility.

4. 4Apply for consent to establish

   Before construction or installing machinery.

5. 5Obtain consent to operate and factory approvals

   Before production, as thresholds apply.

6. 6Register for GST

   Complete registration before dispatching goods.

7. 7Product certification

   Obtain BIS licence if a quality control order covers your product.