India Market Entry Strategy for International Retailers

International retail brands must carefully navigate the market entry requirements in India, such as FDI restrictions, and the terms and conditions associated with e-commerce selling, licensing agreements, and franchises.

India is the world's fourth largest retail market and the 16th-ranked country on the 2023 FDI Confidence Index.

The retail industry in India accounts for more than 10 percent of the country's GDP and employs approximately eight percent of the population. A wide range of foreign brands are active in the Indian market, across the consumer spectrum.

Setting up in India

While setting up in India, foreign companies should choose an entity structure that caters best to their need. The selection of the right entity structure will help the company establish itself as a strong player in the Indian market and help them reap financial gains.

Options for foreign brands operating in India include establishing an Indian subsidiary, forming joint ventures or having licensing arrangements with Indian partners, or a combination of these structures. Foreign brands can own equity interests in Indian businesses under India's FDI policy, which sets requirements and permissions for foreign investment. Alternatively, franchisors can grant franchise rights to local franchisees through contractual agreements.

Franchising model

Franchising is well-suited to India's current growth and urbanization trends, aligning with the proliferation of malls that serve as hubs for franchises in affluent metropolises, tier-2, and tier-3 cities.

Companies that can adapt their products to regional preferences and create new market niches have a golden opportunity to tap into India's thriving consumer demand and aspirations.

India's franchise industry has been experiencing steady growth, with well-established brands expanding their presence and new franchise concepts emerging. Projections indicate that the Indian franchise industry will exceed INR 70 billion (US$845.09 million) by 2025. Currently, the industry employs over 1.5 million people and contributes nearly four percent to India's GDP.

Although several global franchisors are already operating in India, there is still ample room for expansion, as franchises represent only a fraction of the overall market. The franchising sector in India is expected to grow at a compound annual growth rate (CAGR) of 30 percent through 2025, driven by factors such as the expanding middle class with disposable income, favorable government policies, and a growing awareness of franchising as a viable business model.

Examples of foreign franchises in India are The Gap, Inc., which entered India in May 2015 through franchise pact with Arvind Lifestyle Brand, Everstone Capital’s master franchisee pact with Burger King in India, and Rebel Foods master franchisee rights for Wendy’s offline business in India.

Popular Market Entry Routes in India

Liaison office (LO) or Representative office (RO)

These entities are used for networking, exploring market opportunities, and promoting the parent company's business activities. Setup time typically takes 1-3 months. The compliance requirements include having an Authorized Representative residing in India with a valid Permanent Account Number (PAN) and filing information with the Income Tax Department.

Tax audits are not applicable, but financials are subject to statutory audit. Transfer pricing is not applicable. Since there is no income accrual, no income tax is imposed. However, the parent company should have a profit-making track record in the home country, and the net worth should be at least US$50,000.

The LO/RO cannot conduct business and can only serve as a communication channel. The permission to set up is granted for a 3-year period, subject to review for extension. The entity must sustain itself through private remittances from the parent company.

Limited liability partnership (LLP)

An LLP is a hybrid of a partnership firm and a company. It can undertake activities as defined in the LLP Agreement, subject to the FDI Policy if foreign direct investment is intended. Setup time is 1-3 months.

Tax audits are required if the LLP's annual turnover exceeds INR 50 million, and transfer pricing norms apply. The LLP is taxed at a rate of 30% (plus applicable surcharge and cess). There is no withholding tax on repatriation of partners' share of profit, although partners may be subject to tax in their receiving country. Profits after tax can be repatriated to foreign partners as defined in the LLP Agreement.

There are no minimum capital requirements, and an LLP may sustain itself through various means, such as partner's capital, loans, or income generated by the LLP.

Wholly owned subsidiary (WOS)

A WOS is set up as a private limited liability company in sectors where 100% FDI is allowed. The company can undertake activities as stipulated in the Memorandum of Association, subject to Indian laws and regulations. Setup time is 1-3 months.

Financial audits are mandatory, and tax audits are required for turnover exceeding INR 50 million. Transfer pricing is applicable. The tax rate varies based on turnover. Repatriation of various fees and transactions is subject to withholding tax as prescribed in the Double Taxation Avoidance Agreement (DTAA).

There is no minimum capital requirement, and the company can sustain itself through various means such as share sales, loans, equity partners, income generated by the company, or ECB if eligible. Incorporating a company may require prior approval from the Government of India, depending on the activities and FDI route.


Overall, these market entry options offer different structures, compliance requirements, and financial considerations, allowing businesses to choose the most suitable option based on their objectives and operations in India.

Franchise entry strategy

In India, there are various options available for franchises as discussed below in brief.

  1. Direct franchising: Direct franchising involves a company establishing a network of franchises directly. This approach is suitable for local companies that already have experience in India. However, it may present challenges for foreign companies entering the Indian market for the first time.
  2. Master franchising: Master franchising entails a company granting exclusive rights to develop a foreign brand to a local entity. Often, the franchisor makes a significant investment in this arrangement. The master franchisee assumes responsibility for expanding the company's brand by either cultivating a network of sub-franchises or opening outlets owned by the master franchisee. These two approaches can be pursued simultaneously.
  3. Regional franchising: Regional franchising operates similarly to master franchising but focuses on a specific regional area rather than the entire country. Given India's diverse culture and complex state-specific laws, many franchisors opt for a regional franchising strategy.
  4. Local incorporation: Local incorporation involves a foreign franchisor establishing a subsidiary company and granting it franchising rights in India. For example, the American fast-food chain Subway has set up a subsidiary in India that manages their franchising network.

Appeal of the franchising strategy

With more than 10,000 registered franchises and 3,500 active ones, India offers abundant opportunities for both investors and entrepreneurs.

For investors, it provides a relatively low-risk entry into a new market. For entrepreneurs, it presents a chance to establish their own business with the support of an established brand.

The Indian government has demonstrated its commitment to the franchise industry by implementing measures to foster its growth, including the establishment of the National Franchise Development Centre (NFDC) and the launch of the Franchise India Brand Show (FIBS). With a promising growth trajectory and supportive government policies, the franchise business is poised for even greater success in India.

Legal and regulatory landscape

While India lacks a specific franchise law, legislation that apply to commercial arrangements are also relevant to franchise agreements. These include the Indian Contract Act 1872 (the Contract Act), the Sale of Goods Act 1930, the Specific Relief Act 1963, The Foreign Exchange Management Act (FEMA), 1999, Insolvency and Bankruptcy Code 2016, the Goods and Services Tax Act, 2017, Consumer Protection Act 2019, the Consumer Protection (E-Commerce Rules) 2020, The Competition (Amendment) Act 2023, and Prevention of Money Laundering (Maintenance of Records) Amendment Rules, 2023.

Indian foreign exchange control regulations govern payments between Indian franchisees and international franchisors.

Trademark registration and enforcement are essential for brand protection in India. Indian courts, however, have demonstrated recognition and protection of internationally reputed trademarks, even if not registered in India. Various cases involving brands like Calvin Klein, H&M, Skechers USA, Crocs Inc, McDonalds’ have addressed trademark infringement and provided trade redress. India’s customs laws also prohibit the import of infringing goods. Know-how may be protected under copyright or patent laws, or through contractual provisions.

Licensing agreements

A licensing agreement is a contract between two parties, namely the licensor and the licensee. It involves the licensor granting the licensee the rights to use their trademark, brand name, patented technology, or the ability to produce and sell goods that are owned by the licensor. Through this agreement, the licensee gains the privilege to utilize the licensor's intellectual property.

The primary purpose of a licensing agreement is for the licensor to capitalize on their intellectual property by allowing the licensee to utilize it and generate revenue. For example, Apple Premium Resellers like Aptronix are third-party stores that have acquired a license from Apple to sell its products in India.

India imposes certain conditions and restrictions on foreign equity in the retail sector, prompting several international brands to operate in the country through local franchises and distributors.

Through licensing agreements, global retailers can establish partnerships with Indian companies. The Indian company pays a fee to the brand owner and invests in marketing and launching the brand in India. Sometimes, the brand owner may invest in the Indian retailer to expand its brand presence instead of receiving brand fees or royalties. Examples of companies that entered India’s retail market through franchise agreements are Gap Inc., Aeropostale Inc., and Ipanema.

Reliance Brands Limited has brought to India 50 international brands, some of whom have their largest markets in the country. These include Armani Exchange, Burberry, Bottega Veneta, Dune, Hugo Boss, Emporio Armani, Giorgio Armani, Hamleys, Jimmy Choo, Kate Spade, Marks & Spencer, Paul Smith, Potter Barn, Tiffany & Co., Tod’s, Tumi, West Elm, among others. The Aditya Birla Fashion and Retail Limited (ABFRL) portfolio includes multi-brand and single brand retailers, such as The Collective, Simon Carter, Ted Baker, American Eagle, Ralph Lauren, Hackett London, Louis Philippe, Van Heusen, Allen Solly, Peter England, to mention a few. In 2022, ABFRL bought the exclusive rights from Adidas AG to sell and distribute Reebok products in India and the ASEAN market. ABFRL holds online and offline rights to the Indian network of California-based fashion brand Forever 21. ABFRL has also entered a strategic partnership with the Galeries Lafayette to open luxury department stores and a dedicated e-commerce platform in India.

Interestingly, the Chinese fast fashion retail giant Shein will re-enter the Indian market via a licensing agreement with Reliance Retail Ventures Limited (RRVL). Shein will grant a license for its technology and trademarks to Reliance Retail. As part of this collaboration, a homegrown e-commerce retail platform tailored for Indian customers will be developed, exclusively featuring Shein branded products. Ownership and control of the platform will be with RRVL's Indian subsidiary.

FDI regulation in India

Prior to setting up, the foreign stakeholder must assess India’s regulation of foreign direct investment (FDI). Most sectors are now liberalized, but India closely scrutinizes foreign investments into the retail sector.

For investments made under the government approval route, foreign investors must obtain prior clearance from the respective ministry or department. In contrast, investments made under the automatic route only require the investor to inform the Reserve Bank of India (RBI) after the investment is made.

FDI Limits based on Retail Activity in India


Percent of equity/ FDI cap

Entry route

Cash & carry wholesale trading/wholesale trading (including sourcing from MSEs)



E-commerce – marketplace model



Single brand product retail trading



Multi-brand retail trading


Government approval required

Duty free shops



Below we discuss the FDI policy as it applies to key retail categories.

Single brand retail

India is open to foreign investment in single brand product retail trading (SBRT) for production and marketing purposes.

The government's policy aims to improve consumer access to high-quality goods, promote greater sourcing from India, and enhance the competitiveness of Indian enterprises by facilitating access to global designs, technologies, and management practices.

FDI in single brand product retail trading is subject to certain conditions, which include:

  • The products to be sold must belong to a single brand only.
  • The products should be sold under the same brand internationally, in one or more countries other than India.
  • Single brand product retail trading encompasses only products that are branded during the manufacturing process.
  • A non-resident entity, whether the brand owner or not, can engage in single brand product retail trading in India either directly or through a legally valid agreement with an Indian entity.

For proposals involving foreign investment beyond 51 percent, the SBRT entity is required to source 30 percent of the value of goods from India, preferably from micro, small, and medium enterprises (MSMES), village and cottage industries, artisans, and craftsmen across all sectors. The company must self-certify the quantum of domestic sourcing, which will later be verified by statutory auditors based on certified accounts maintained by the company. The initial five-year average value of goods procured must meet the sourcing requirement, followed by an annual basis fulfilment.

Regarding the local sourcing requirement, all procurements made from India by the SBRT entity for that single brand count towards local sourcing, regardless of whether the goods are sold domestically or exported. The SBRT entity can also offset sourcing of goods from India for its global operations against the mandatory 30 percent sourcing requirement.

An SBRT entity operating physical retail stores can also engage in retail trading through e-commerce. However, if e-commerce operations commence before opening brick and mortar stores, the entity must establish physical stores within two years from the start of online retail.

These conditions do not apply to the SBRT of Indian brands, which must be owned and controlled by resident Indian citizens or companies owned and controlled by resident Indian citizens.

In 2018, an update was made to the FDI policy, exempting Indian entities of global retailers with FDI exceeding 51 percent from the local sourcing requirement for up to three years from the start of their business, if their products involved state-of-the-art and cutting-edge technology where local sourcing is not feasible. After three years, the SBRT entity must comply with the 30 percent sourcing norm.

These regulations can pose challenges for foreign investors dealing with such products. An alternative approach is to limit FDI to 51 percent and find a local partner to hold the remaining 49 percent.

Multi-brand retail

India has laid down conditions for permitting FDI in multi-brand retail trading or MBRT in all products.

These are as follows:

  • Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery, and meat products, which may be unbranded.
  • Minimum FDI amount from foreign investors must be US$100 million.
  • At least 50 percent of the initial US$100 million FDI must be invested in back-end infrastructure within three years. Back-end infrastructure includes capital expenditure on processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehousing, and agriculture market produce infrastructure. Subsequent investments can be made by the MBRT retailer depending upon its business requirements.
  • A minimum of 30 percent of the procurement value of manufactured/processed products must be sourced from Indian MSME industries with an investment not exceeding US$2 million in plant and machinery. Agricultural and farmers cooperatives can also be considered and there are procurement requirements attached.
  • Companies must self-certify compliance with the stipulated FDI conditions and maintain audited accounts.
  • Retail sales outlets can only be established in cities with a population of over 1 million. They may also cover an area of 10 km around the city limits, conforming to Master/Zonal Plans.
  • The Government has first right of procurement of agricultural products.
  • State Governments/Union Territory Governments have the freedom to decide on implementing the FDI policy provisions. The following States/Union Territories have agreed to allow FDI in multi-brand retail trading: Andhra Pradesh, Assam, Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman & Diu, and Dadra & Nagar Haveli. The establishment of retail sales outlets must comply with applicable State/Union Territory laws and regulations.
  • E-commerce retail trading is not permitted for companies with FDI in multi-brand retail trading. Also, FDI is not permitted for the inventory-based model of e-commerce activities. In this model, an e-commerce startup or entity owns the inventory of goods and services and sells them directly to consumers.

Duty Free

These are establishments located in customs bonded areas at international airports, seaports, and land custom stations where international passengers transit. Foreign investment in Duty Free Shops must adhere to the Customs Act, 1962, and other applicable laws and regulations. Duty Free shops cannot conduct retail trading activities in the domestic tariff area of India.

FDI Rules Applicable in the E-Commerce Sector

To adhere to the FDI Policy, B2B e-commerce businesses must:

  • Sell to entities with relevant tax registration, trade licenses demonstrating commercial activity, permits for retail business, or specific institutions (such as incorporated companies) for self-consumption purposes.
  • Maintain daily records with entity details, registration, license number, and sales amount.
  • Limit sales to affiliated companies to 25% of total turnover.

Moreover, the FDI Policy imposes additional obligations on marketplace B2C e-commerce entities:

  • These include prohibiting the manipulation of prices on goods and services and preventing the marketplace entity from enforcing exclusive selling arrangements with sellers.

However, marketplace entities can provide support services to sellers, such as warehousing, logistics, order fulfillment, call center support, and payment collection services.


When entering the Indian market, foreign companies must carefully choose the appropriate entity structure that suits their needs. The country's FDI policy allows foreign brands to have equity interests in India businesses, but with specific requirements and permissions. Foreign brands in India have various options, such as establishing an Indian subsidiary, forming joint ventures, or entering licensing agreements with Indian partners. Franchising is a viable model, considering India's growing consumer base, increasing disposable incomes, and urbanization trends.


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