Germany props up fresh hurdles for Indian companies
Germany’s supply chain Act requires firms to obtain contractual assurances from direct suppliers that they will comply with the standards defined under the law, including control mechanisms for their enforcement, said P.S. Easwaran, partner and supply chain leader at Deloitte South Asia.
“Hence, even if an existing supplier from India may already be compliant, the cost to formalise the deployment of SCDDA-specific standards and reporting will increase,” he said.
“It will also impact the viability of the Indian supply chain to Germany because of the need (for a German company) to ensure that it has conducted a risk analysis and implemented preventive and remedial measures for its indirect suppliers,” Easwaran added.
Possible consequences for violations include fines of up to €800,000 (about ₹7 crore) or up to 2% of a company’s average annual global turnover, as well as exclusion from public contracts in Germany for up to three years.
German companies with more than 1,000 employees, or German-registered branches of foreign companies with more than 1,000 employees, have to comply with the SCDDA. Last year, this regulation applied only to firms with more than 3,000 employees.
Germany’s new supply chain regulations are closely followed by the EU, which is negotiating a free-trade agreement (FTA) with India.
“The EU wants its trade partners to make commitments in labour standards. It is coming up with a new regulation, as some countries (like Germany) are coming up with their regulations,” said Arpita Mukherjee, professor at the Indian Council for Research on International Economic Relations. “The third-party assessment is difficult, especially for Indian MSMEs. It may increase their cost of doing business.”
European countries are increasingly looking at labour and environmental standards across their supply chain, which is evident from measures such as Germany’s SCDDA and the EU’s CBAM.
As things stand, India is yet to ratify two fundamental International Labour Organisation (ILO) conventions—the Right to Organise Convention, 1948, and the Right to Organisation and Collective Bargaining Convention, 1949.
The reason for India not ratifying the conventions is that these would involve allowing government staff to conduct strikes and openly criticise state policies, which are prohibited under Indian statutory rules.