Most of the writing about social compliance in India is addressed to a company that files a Business Responsibility and Sustainability Report. It assumes a listed entity, a sustainability team, a compliance budget, and a place for ESG somewhere near the board. That describes about a thousand companies.
It does not describe the factory floor that makes most of what India exports.
The businesses that carry the bulk of Indian manufacturing sit below the BRSR line. They are unlisted. They employ a few hundred people, often fewer. They supply larger companies, and many of them supply buyers in Europe and North America directly. They are too small to file BRSR and too exposed to ignore the questions BRSR was built to answer. The advice written for the top 1,000 was not written for them, and following it spends money they do not have on problems they do not face while leaving the problems they do face untouched.
This post is about that gap of Social Compliance for Small Manufacturers: who sits inside it, and what social governance actually means for a company of this size.
Who the missing middle actually is
India’s factory sector is not one thing. At one end sit roughly a thousand large listed companies that file BRSR and carry sustainability functions. At the other end sit millions of informal units. Between them is a wide band of registered, unlisted manufacturers and exporters, and it is this band that does most of the country’s organised production.
The scale of it is easy to understate. India had a little more than 200,000 operational factories in 2023, employing about 18.5 million people [2]. Nearly half of these factories employ fewer than 20 workers, and around 65 percent employ fewer than 50 [2][3]. Only about one in five crosses 100 workers [2]. The typical Indian factory is small, unlisted, and run without a dedicated compliance department.
These are the companies this post calls the missing middle: turnover in the range of 50 to 500 crore, registered under the Factories Act, frequently exporting or supplying a larger buyer, and sitting entirely below the BRSR threshold. Large consultancies do not write for them because the fees do not work. Government compliance material does not speak to them plainly. So a company of this size is left to read guidance built for a listed manufacturer many times its scale and try to work out which parts apply.
One feature of this segment matters more than any other for social compliance: its dependence on contract labour. In FY23, contract workers made up 40.7 percent of the formal manufacturing workforce, 5.95 million of 14.61 million workers, the highest share on record and up from 40.2 percent the year before [1]. On many shop floors the contract share is higher still. A factory can have thirty names on its own payroll and two hundred people working inside its gates. That structure is exactly what a buyer audit examines first, and it is exactly what the smaller manufacturer is least equipped to document.
The pressure this segment actually faces
The point is not that these companies might one day have to file BRSR. Most never will. The pressure reaches them from three other directions, and all three are already here.
The first is the buyer social audit. A company that supplies a European or North American brand is routinely asked to pass an audit such as SMETA, the Sedex Members Ethical Trade Audit. SMETA is the most widely used social audit format in the world. It measures a site against the ETI Base Code, the core ILO conventions, and local law, and it produces a report and a corrective action plan rather than a certificate [5]. The buyer asks for it, the supplier arranges it, and a failed or weak audit puts the contract at risk. For a mid-sized exporter, the audit, not the securities regulator, is the real compliance authority.
The second is Indian labour law, which changed for every employer in late 2025. The four labour codes, the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code, came into force on 21 November 2025, repealing 29 earlier central labour laws in a single notification [4]. Draft central rules followed on 30 December 2025, and rule-making at the central and state level has continued through 2026, so the precise position varies by state [4]. None of this depends on whether a company is listed. A 100-person factory carries the same core duties on wages, appointment letters, grievance handling, and workplace safety as a listed one.
The third is the buyer questionnaire. SEBI has kept BRSR value chain ESG disclosure voluntary for listed companies, and where it applies at all it does so with a materiality threshold that leaves most suppliers out of formal scope [6]. That relief belongs to the listed buyer, not to the supplier it depends on. When a listed customer prepares its own disclosures, it asks its suppliers for data on wages, working hours, safety, and grievances. The regulatory letter says the supplier is out of scope. The commercial reality is that the supplier answers the questionnaire or loses standing with the account.
None of these three pressures is a SEBI filing. All three ask the same underlying question: can this company show that the people working inside it are employed lawfully, paid correctly, and able to raise a complaint. That is a social governance question, and it does not wait for a company to list.
Why advice written for the top 1,000 does not fit
Guidance built for large listed companies assumes resources a mid-sized manufacturer does not have.
It assumes a sustainability or ESG team. The missing-middle company has an HR manager, an accountant, and an owner who signs most things. There is no one whose job is compliance mapping.
It assumes a budget for a large-firm advisory engagement and an external assurance provider. A 200 crore exporter cannot spend on a Big Four ESG report what a listed company treats as routine, and it does not need to.
It assumes BRSR as the organising framework. For an unlisted company there is no BRSR obligation at all, so a plan structured around BRSR principles solves for a filing that will never happen while leaving the buyer audit and the labour codes unaddressed.
The result is a mismatch. Some companies ignore social compliance until a buyer audit forces the issue. Others pay for advice scaled to a company they are not, then implement a fraction of it. Neither produces a system that would hold up under scrutiny, and both are costly in their own way, one in lost contracts and the other in wasted fees.
What social governance means for a company this size
Stripped of the reporting language, social governance for a mid-sized manufacturer comes down to a small number of concrete systems. None of them requires an ESG department. Each of them is checked in a buyer audit and required, in some form, by the labour codes.
Employment records that hold together.
Every worker, direct or through a contractor, should have an appointment letter, a wage record, and attendance data that agree with one another. The most common audit finding is that gate logs, attendance registers, and bank wage transfers do not match. Fixing that is administrative work, not strategy, and it removes a large share of audit risk on its own.
A contract-labour paper trail.
Given that contract workers are more than 40 percent of the formal manufacturing workforce [1], and often the majority inside a single factory, the records for them are where audits concentrate. Contractor licences, age and identity checks, wages that reach the worker and match attendance, and inclusion of contract staff in the factory’s own grievance and safety systems are the difference between passing and failing.
A working grievance mechanism.
Workers need a way to raise a complaint that is documented, handled within a defined time, and recorded when it is closed. A suggestion box on a wall is not this. Both the buyer audit and the Industrial Relations Code expect a mechanism that produces evidence, not a policy that sits in a drawer.
A POSH Internal Committee.
The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 requires an Internal Committee at every workplace with 10 or more employees [7]. This threshold catches almost every company in this segment, and the absence of a committee is both a legal breach and a standard audit finding. The committee is cheap to constitute and expensive to be caught without.
Occupational safety and welfare in order.
The health, safety, and welfare duties under the OSH code and the Factories Act, covering fire safety, first aid, clean facilities, and the appointment of required officers, are the other half of what an auditor walks the floor to check.
These are not aspirational programmes. They are the ordinary infrastructure of a lawfully run factory, and taken together they are what a buyer audit and the labour codes both ask a company to show. A mid-sized manufacturer that has them is compliant in every way its actual obligations require, whether or not it ever encounters the word BRSR.
Frequently asked questions
Does a company that is not listed have to file BRSR?
No. BRSR is required only for listed companies, currently the top 1,000 by market capitalisation. An unlisted manufacturer or exporter has no BRSR filing obligation. The pressure such a company feels comes from buyer audits, the labour codes, and questionnaires sent by listed customers, not from SEBI [6].
If we are too small for BRSR, why do buyers still ask about ESG?
Because a listed buyer is accountable for its own disclosures, and its own buyers abroad set their own conditions. When a customer prepares its reporting or answers its foreign buyer, it asks suppliers for data on wages, hours, safety, and grievances. SEBI keeping value chain disclosure voluntary relieves the listed company, not the supplier it sources from [6].
What is a SMETA audit and why does it matter to a small factory?
SMETA, the Sedex Members Ethical Trade Audit, is the most widely used social audit format. It checks a site against the ETI Base Code, the core ILO conventions, and local law, and results in a report and a corrective action plan rather than a certificate [5]. For a supplier to a European or North American buyer, a SMETA result can decide whether a contract continues.
Do the new labour codes apply to a factory with 100 workers?
Yes. The four labour codes came into force on 21 November 2025, replacing 29 earlier central laws, and their core duties apply to employers regardless of listing [4]. Rule-making has continued through 2026 and the detailed position varies by state, so a company should check the current rules in its own state [4].
We have fewer than 50 employees. Does POSH still apply?
Yes. An Internal Committee is mandatory at any workplace with 10 or more employees under Section 4 of the POSH Act, 2013 [7]. The threshold is 10, not 50, and not constituting a committee is a common audit finding as well as a legal breach.
Where should a company in this segment start?
With records, not reports. Confirm that employment records, wage transfers, and attendance agree, that contract-labour paperwork is in order, that a grievance mechanism and a POSH committee exist, and that basic safety duties are met. These are the items a buyer audit checks and the labour codes require, and they are simpler to put right than the BRSR conversation makes them sound.
If your company sits in this gap
The questions that matter for a small or mid-sized manufacturer are more basic than the reporting-heavy advice suggests, and most of them can be answered by looking at what is already on the floor and in the files. If your company is unlisted, supplies larger buyers, and has been handed an audit or a questionnaire it was not set up to answer, the starting point is a plain review of the systems above against what a buyer and the labour codes actually ask for.
SVEGA works with manufacturers and exporters in exactly this segment. A short conversation is a reasonable way to find out where the gaps are. Start it at svegaconsulting.com.
References
[1] Business Standard, “41% workers on contract in formal manufacturing sector in FY23: ASI data,” 3 November 2024, reporting Annual Survey of Industries data released by the Ministry of Statistics and Programme Implementation. Available at: https://www.business-standard.com/economy/news/40-workers-in-formal-manufacturing-sector-on-contract-in-fy23-asi-data-124110300392_1.html
[2] Data For India, “India’s factories,” drawing on Annual Survey of Industries data, 2023. Available at: https://www.dataforindia.com/factories/
[3] Aakash Dev and Aparajita Dasgupta, “India’s factories have stayed small for too long. Labour reform can finally force a rethink,” ThePrint, 23 May 2026, citing Annual Survey of Industries 2023-24 Summary Statistics. Available at: https://theprint.in/opinion/india-factories-labour-reform-scale/2939337/
[4] Government of India brought the four labour codes (Code on Wages 2019, Industrial Relations Code 2020, Code on Social Security 2020, and Occupational Safety, Health and Working Conditions Code 2020) into force on 21 November 2025, repealing 29 central labour laws; draft central rules were published on 30 December 2025 and rule-making at the central and state level has continued through 2026. EY India, “New Labour Codes implemented across the country effective 21 November 2025,” November 2025, https://www.ey.com/content/dam/ey-unified-site/ey-com/en-in/alerts-hub/2025/11/new-labour-codes-implemented-across-the-country-effective-21-november-2025.pdf; DLA Piper, “Government of India notifies the Labour Codes,” 2025, https://knowledge.dlapiper.com/dlapiperknowledge/globalemploymentlatestdevelopments/2025/government-of-india-notifies-the-labour-codes-ushers-a-new-era-of-compliances
[5] Sedex, “SMETA (Sedex Members Ethical Trade Audit): methodology and scope,” 2025. SMETA measures a site against the ETI Base Code, core ILO conventions, and local law, and results in an audit report and Corrective Action Plan rather than a certification.
[6] SEBI, circular dated 28 March 2025 on BRSR value chain ESG disclosures, retaining value chain disclosure as voluntary for listed companies and applying a materiality threshold for qualifying value chain partners.
[7] The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, Section 4. Government of India. An Internal Committee is mandatory at every workplace employing 10 or more employees.
