Key management personnel of Indian auto firms have poor understanding of compliance obligations: Report

Key management personnel in Indian automobile companies have a poor understanding of compliance obligations that can range from several hundred acts to thousands of rules depending on the size of the business, according to a report by TeamLease Regtech.

A small automobile manufacturing company operating in a single state in India deals with at least 900 one-time and ongoing compliances in a year. As the company grows its geographical footprint, the number of compliances multiply.

In its report 'Simplifying compliance management for automobile industry', TeamLease RegTech, a regulatory technology solutions firm, said with applicability of compliances changing based on location of manufacturing units, use of specific equipment and end-products, most organisations in India find it really challenging to track adherence to the mandatory requirements.

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"...it was discovered that the KMPs (key management personnel) in Indian automobile companies have a poor understanding of compliance obligations in over 80 per cent of the instances," the report said, citing a survey conducted by TeamLease Regtech.

As a result, it said, "They are often unpleasantly surprised in the events of show cause notices, instances of financial fines and penalties, cancelled licenses, revoked permissions and leaked revenue."

Most executives were found to have very poor handle on the status of key compliances, dates, documentation and residual risk of non-compliance, the report said.

The survey, conducted between April and May 2022, found that 95 per cent agreed to have missed at least one critical compliance during the 12-month period and 92 per cent agreed to pay fines and penalties during the same period.

Another 97 per cent believed that they do not have the required visibility and control in their organisation's compliance program. The survey had interviewed management people across 34 automobile companies.

The report further said 78 per cent agreed that their compliance needs a serious rethink, while 52 per cent believed that keeping track of regulatory updates is challenging.

According to the report, compliances in India are broadly divided into one-time and ongoing compliances.

"On an average, an automotive company is easily subject to around 80 odd one-time registrations and approvals across four stages: setting up; pre-commissioning stage; post-commissioning stage and post-production stage."

These approvals range from incorporation of the entity, to land allotment, project related approvals, construction-related approvals, approvals related to labour, safety and health, tax-related registrations, industry-specific approvals, among others.

In addition to one-time registrations and approvals, automobile companies are frequently saddled with a host of compliances split across the central, state and local/municipal levels, the report said.

"For example, labour laws fall in the concurrent list where both the Union and state are entitled to legislate. This means that at any given point a company would have to ensure compliance with a parent legislation drafted by the Centre and accompanying state legislation and rules," it said.