Key Considerations Before Selling Foreign Products in the Indian Market

The Indian retail market is highly fragmented requiring foreign retailers and brands to customize their strategy to suit their target customer base. Foreign companies are advised to adopt a multifaceted approach that factors both specific business objectives and local sensitivities.

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The retail sector in India

The retail sector in India is experiencing rapid growth, making it one of the country’s fastest-growing business segments. The Indian retail market is expected to grow to US$1 trillion by 2027 and US$2 trillion by 2032.

India’s e-commerce industry is also on the rise, with revenue forecast to increase from US$46.2 billion in 2020 to US$136.47 billion by 2026. The country is poised to become the world’s fastest-growing e-commerce market, driven by significant investments in technology, infrastructure, and a growing number of internet users.

In this article, we discuss key considerations, including the challenges of doing business in India, best practices for selling to the Indian market, and insights on product pricing and regulation.

Challenges posed by the nature of the Indian market

Entering the Indian market poses challenges and complexities for new entrants due to various factors. India’s highly fragmented market requires foreign retailers and brands to customize their strategy to suit their target customer base. Foreign companies are advised to adopt a multifaceted approach that factors both specific business objectives and local sensitivities.

• Market fragmentation: India’s vast size, cultural diversity, linguistic variations, and uneven infrastructure development contribute to market fragmentation. These factors make it challenging to create a unified approach to target consumers effectively.
• Per capita income: The average per capita income in India is relatively low, standing at US$7,333 in 2021-22. This lower purchasing power can affect consumer spending patterns and pose challenges for companies looking to penetrate the market with premium or high-priced products.
• Costly sales infrastructure: Establishing and maintaining independent sales infrastructure can be costly in India. Companies often need to invest significant resources in building distribution networks, logistics, and retail channels to reach the diverse consumer base spread across the country.
• Large retail outlet density: India boasts a vast number of retail outlets, estimated to be around 12-15 million. These outlets are distributed across various urban and rural centers, and many of them are small and unorganized. Navigating this dense retail landscape can be challenging, especially for companies without established distribution networks.
• Strong local competition: The Indian market is highly competitive, with strong local players dominating various sectors. Existing local brands and businesses have established customer loyalty and market presence, making it crucial for new entrants to differentiate themselves and offer unique value propositions to attract consumers.

Navigating these challenges requires a thorough understanding of the Indian market, careful planning, and customized strategies tailored to local preferences and market dynamics.

Per Capita Net State Domestic Product at Current Prices; Base Year 2011-12
S. No.	State/UT	2020-21 (INR)	2021-22 (INR)	2022-23 (INR)
1	Andhra Pradesh	163,746	192,587	219,518
2	Arunachal Pradesh	190,212	215,897	NA
3	Assam	90,482	102,965	118,504
4	Bihar	43,605	49,470	NA
5	Chhattisgarh	104,788	120,704	133,898
6	Goa	431,351	472,070	NA
7	Gujarat	212,821	250,100	NA
8	Haryana	229,065	264,835	296,685
9	Himachal Pradesh	183,333	201,854	NA
10	Jharkhand	71,071	78,660	NA
11	Karnataka	221,310	265,623	301,673
12	Kerala	194,322	228,767	NA
13	Madhya Pradesh	103,654	121,594	140,583
14	Maharashtra	183,704	215,233	242,247
15	Manipur	79,797	84,345	NA
16	Meghalaya	84,638	90,638	98,572
17	Mizoram	187,838	188,839	NA
18	Nagaland	126,452	142,363	NA
19	Odisha	102,166	128,873	150,676
20	Punjab	149,193	161,888	173,873
21	Rajasthan	115,122	135,962	156,149
22	Sikkim	412,754	472,543	NA
23	Tamil Nadu	212,174	241,131	273,288
24	Telangana	225,687	265,942	308,732
25	Tripura	119,789	140,803	NA
26	Uttar Pradesh	61,374	70,792	NA
27	Uttarakhand	184,002	211,657	233,565
28	West Bengal	106,510	124,798	141,373
29	Andaman & Nicobar Islands	197,275	NA	NA
30	Chandigarh	291,194	349,373	NA
31	Delhi	331,112	389,529	NA
32	Jammu & Kashmir	102,803	116,619	132,806
33	Puducherry	203,178	209,890	NA

Notes: NA: Not Available; the Union Territories of Dadra & Nagar Haveli and Daman & Diu, Ladakh, and Lakshadweep do not prepare the estimates of State Domestic Product (SDP).

Distribution and logistics

The distribution and logistics landscape in India involves a three-tier structure of distributors, wholesalers, and retailers. Independent distribution and logistics firms have emerged, offering services to retailers. The use of free trade and warehousing zones near ports and airports facilitates efficient distribution and logistics. Foreign companies should
consider appointing agents, representatives, or distributors and conduct thorough due diligence before entering into partnerships.

Retail distribution strategy

Retail distribution encompasses the strategic process by which a business procures products from manufacturers and delivers them to the end customers. This distribution strategy can involve various channels, such as wholesale and direct-to-consumer sales, use of intermediaries or resellers, and independent distributors. Foreign retailers must
note the restrictions under India’s foreign direct investment (FDI) policy before choosing their retail market entry route and distribution channel.

• Direct-to-consumer (DTC): The DTC model enables retailers to sell their products directly to the end consumers, eliminating the need for intermediaries. Also referred to as direct distribution, DTC brands procure products from suppliers and offer them directly to the customers. This can be done through an owned online platform like an e-commerce website or through physical retail stores. This distribution strategy grants brands greater control over the entire supply chain, ultimately influencing the customer experience and brand perception.
• Resellers: Resellers serve as intermediaries who purchase products from a company and subsequently resell them to either end customers or other businesses.
• Retailers: Retailers rely on other stores to sell their products.
• Wholesalers: Wholesalers acquire products from retailers at a discounted price and sell them to other retailers at a markup.
• Independent distributors: Independent distributors are authorized to sell a business’s products to other wholesalers or retailers. They serve as an additional layer in the supply chain process. Rather than selling directly to wholesalers themselves, businesses can delegate this responsibility to independent distributors who manage the process on their behalf.

Warehousing

The Indian government encourages companies to enter the Indian market by facilitating the use of free trade and warehousing zones (FTWZ). These zones, primarily situated near seaports, airports, and inland ports, improve efficiency in distribution and optimizes logistics costs. They enable easier importation, exportation, warehousing, and
utilization of value-added services.

FDI up to 100 percent is permitted for the development and establishment of FTWZs and their associated infrastructure facilities. Almost all goods for warehousing can be imported duty-free to these zones, with a few exceptions like prohibited items like arms and ammunition, hazardous waste, special chemicals, organisms, materials, equipment, and certain technology items.

Customs duties are only levied when goods imported into the FTWZ are sold in the market. The maximum duration for storing products in an FTWZ is two years, after which they must be either re-exported or sold. If the items are not re-exported within a three-month grace period after the two-year limit, customs duties become due automatically.

India has a few operational FTWZs. These are:

• Arshiya International Limited at Panvel FTWZ (Mumbai), Maharashtra
• J. Matadee Free Trade Zone Private Limited or Chennai FTWZ at Sriperumbudur Taluk, Kancheepuram District, Tamil Nadu: Companies present here include DHL, DB Schenker, Kerry Indev, TVS Supply Chain, and Seaways Supply Chain. Singapore-based Xander Investment Management acquired an additional one million sq ft of warehousing space in the zone in 2021.
• Arshiya Northern FTWZ Limited at Khurja FTWZ, Moujpur, Bulandshar, Uttar Pradesh. Distance of 80km from New Delhi.
• GIFT-FTWZ at GIFT City, Gujarat

Forging business critical networks and due diligence

Before entering into a partnership with an Indian firm, thorough due diligence is crucial. Evaluating factors such as the firm’s business reputation, financial resources, investment capacity, marketing strength, regional coverage, industry experience, and creditworthiness is important. An ideal distributor should have strong connections in the financial sector, offer credit facilities, and be capable of effectively promoting a wide range of products and services.

It is essential for agents, representatives, or distributors to maintain high-quality facilities and employ qualified personnel. Foreign companies need to exercise caution and not solely rely on a potential partner’s enthusiasm. Indian companies often represent multiple businesses and may have limited time or capacity to expand into new markets. It is important to be vigilant as client lists provided by potential partners could be outdated or inactive.

In India, it is a misconception that large national distributors always have an advantage. Smaller distributors with localized presence and expertise in specific regions or niche markets can outperform larger distributors in certain cases. While India is moving towards modern distribution channels, most businesses still operate through fragmented
and multi-layered networks. Therefore, selecting distributors based on their experience with specific products may be more viable than those claiming broader geographic coverage.

Establishing brand awareness

India’s economy has shifted from a controlled seller’s market to a buyer’s market due to liberalization policies. This has attracted foreign investment and increased competition, leading to a growing demand for advertising.

Television and digital media dominate the advertising landscape, with print media still holding a significant share. Reaching rural markets requires mass media channels and improved telecommunication services, as online purchases by rural consumers are rising. India has a diverse newspaper industry, with print media reaching both urban and rural populations. Social media platforms are gaining popularity for advertising.

Word of mouth feedback is accelerated in the digital era, through platforms like Twitter and WhatsApp, and foreign retailers must do their due diligence with regards to third-party contractors, distributors, and logistics providers.

Foreign companies have access to numerous advertising agencies and can collaborate with local firms. Trade shows offer opportunities for promoting products, with support from commercial service partners. Trade delegations frequently visit India to explore business prospects.

Pricing strategies

A successful pricing strategy in the Indian market must take into account several factors.

One crucial consideration is India’s Goods and Services Tax (GST) system, which includes four main tax rates, with higher rates applied to luxury goods. Additionally, certain items like tobacco products, caffeinated beverages, and automobiles are subject to an additional cess. However, certain products such as petroleum and liquor are not covered by the GST, allowing individual states to impose taxes on them.

Imported goods are subject to customs duties, which can increase costs for local consumers compared to other markets. The Indian Customs Act of 1962 is responsible for regulating import and export tariffs and establishing customs valuation guidelines in India. From time to time, the Central Board of Indirect Taxes and Customs updates the duties imposed on imported items through official notifications on its official website. These may raise expenses further and is a strategy of the Indian government to encourage domestic sourcing. To counter high import duties and expenses, some foreign companies across sectors like consumer goods, electronics, and automotive, have established manufacturing facilities in India.

Pricing decisions also depend on product packaging choices. Many fast-moving consumer goods (FMCG) suppliers find it cost-effective to offer smaller portions at reduced prices, particularly during periods of inflation or when rural markets face challenges due to agricultural dynamics. While some Indian consumers prioritize quality and demand world-class products, others are willing to compromise on quality in favor of lower prices. It’s important to understand the range of these preferences, considering income disparities and levels of economic development across the country.

Bargaining is a common practice in India, especially when purchasing consumer durables like refrigerators, televisions, and washing machines.

Sellers often provide discounts during holiday seasons to attract customers. The rise of online commerce platforms like Amazon and Flipkart has led to an increase in shopping festivals, where retail of branded goods across all segments, especially big-ticket purchases, apparel, and electronics, is significant. Discretionary spending tends to rise during these sales periods.

Additionally, exchange of goods and purchases on monthly installments are gaining popularity among Indian consumers, particularly in metropolitan areas, as they seek product upgrades.

Upselling and cross-selling strategies are also becoming more common with the rise of e-commerce and their multiple touch points. Consumers often conduct product discovery and research online even if they make final purchases at offline retail outlets and are thus near confident of the products that they are willing to pay a premium on. They may also be familiar with the complementary goods that salespersons may pitch.

Foreign brands are thus advised to invest in their online presence – providing important information and highlighting the appeal of the product offerings.

Overall, Indian consumers place high value on product quality and durability. Brands in the consumer goods sector are expected to offer after-sales services to enhance the lifespan of their products. Companies that effectively meet these expectations often enjoy long-term market dominance and customer loyalty.

Regulatory standards

BIS

The Bureau of Indian Standards (BIS) functions as the national standards body in India. Its primary responsibilities include developing and formulating standards, promoting activities related to standardization, marking, quality certification for imported and exported goods, and consumer affairs. Its membership comprises representatives from industry, consumer organizations, scientific and research bodies, professional organizations, technical institutions, Indian government ministries, and members of parliament. BIS, in collaboration with the Ministry of Commerce and Industry, notifies the WTO about proposed technical regulations and certification systems in India. BIS’s Technical Information Services Center handles domestic and international requests for information on Indian standards, technical regulations, and conformity assessment rules.

The BIS certification scheme primarily operates on a voluntary basis. However, the Central Government of India has mandated compliance with Indian Standards for certain products based on considerations, such as public interest, protection of human, animal, or plant health, environmental safety, prevention of unfair trade practices, and national security. In such cases, the Central Government directs the mandatory use of the Standard Mark, which can be obtained through a license, or a Certificate of Conformity (CoC) issued by the BIS. This process involves the issuance of Quality Control Orders (QCOs) by the government.

Foreign brands must thus ascertain whether their products fall under the BIS’ Compulsory Registration Scheme. If yes, they must apply for registration from Bureau of Indian Standards (BIS) after getting their product tested from BIS recognized labs.

Various items under the categories a) electronics and IT goods; b) solar photovoltaics, systems, devices and components; c) low voltage switch gear and control gear; chemicals; and d) cotton have been listed on products requiring mandatory BIS registration.

These include all models and brands of laptop / notebook / tablets; all models and brands of Plasma / LED / LCD TV / Smart TV with screen size of 32 inches and above; all models and brands of microwave ovens; all models and brands of printer / plotter / scanner; all models and brands of wireless keyboards; all models and brands of power adaptors for IT equipment; all models and brands of fixed general purpose LED luminaires; all models and brands of self-ballasted LED lamps for general lighting services; all models and brands of mobile phones; all models and brands of low voltage switchgear and control gear; all ortho phosphoric acid – specification brands; all brands of trimethyl phosphite technical grade – specification; all brands of cotton bales – specification; etc.

FSSAI

The Food Safety and Standards Authority of India (FSSAI) acts as the statutory body responsible for implementing and regulating food standards.

The FSSAI issues food import clearance certificates for all food articles. Retailers may note that the FSSAI is actively promoting the production and sale of fortified products in the Indian market. Fortification involves the addition of essential vitamins and minerals, such as Iron, Iodine, Zinc, Vitamins A & D, to staple foods like rice, wheat, oil, milk, and salt, with the aim of enhancing their nutritional value.

Additionally, Indian consumers in urban centers are becoming more health and sustainability conscious, seeking out food products that carry ‘clean food’ labels like organic, naturally sourced, vegan, plant-based, premium quality, chemical-free additives, ecofriendly in their packaging, etc.

Labeling requirements

All foreign products meant for direct consumption in India require specific labeling. India’s labeling standards may however deviate from international norms, and improperly labeled goods risk being rejected or detained by customs officials.

Non-food related labeling

All imported pre-packaged commodities intended for direct retail sale must include:

• Name and address of importer.
• Generic or common name of commodity packed.
• Net quantity in calculated in the metric system of measurements.
• Month and year of packing in which the commodity was manufactured, packed, or imported.
• The maximum retail price (MRP) at which the commodity in packaged form must be sold to the end consumer. (The MRP should include all taxes, freight transport charges, commission payable to dealers, and all charges towards advertising, delivery, packing, etc.).
• Labels should be in either English or Hindi (though English is preferred).

Packaged food labels

All imported food commodities intended for direct retail sale must include:

• Name, trade name, or description.
• Name of ingredients used in the product in descending order of their composition by weight or volume.
• Name and complete address of manufacturer/packer, importer, country of origin of the imported food (if the food article is manufactured outside India, but packed in India).
• Net weight, number, or volume of contents.
• Distinctive batch, lot, or code number.
• Month and year of manufacture and packaging.
• Month and year by which the product is best consumed.
• Maximum retail price.
• Imported food must also display the FSSAI logo along with the FSSAI license number. 

Additional requirements

• All packaged food sold in India must indicate whether it is non-vegetarian (Non-Veg) or vegetarian (Veg). In India, non-vegetarian means food that contains any animal or part of an animal. Eggs are considered non-vegetarian while milk and milk by-products are considered vegetarian. Non-vegetarian food must have a symbol of a ‘brown dot inside a brown square’ displayed prominently on the package in a way that contrasts with background of the packaging yet while being displayed near the product’s name or brand. The symbol for vegetarian food should be similarly displayed, with the color scheme as ‘green dot inside a green square’. 
• Wherever applicable, the product label also must contain the following: (a) The purpose of irradiation and license number in case of irradiated food and (b) Extraneous addition of coloring material.
• All declarations printed on the item’s packaging must be bold and clearly visible, written only in either English or Hindi (Devanagari Script). Additionally, the lettering should be no less than 1 mm while the width should not be less than one-third of the lettering’s height. 

Under the Food Safety and Standards (Food Import) Regulations, 2016, if packaged food products do not contain the proper information – a single, non-detachable label may be affixed to packages at the customs bound warehouse. This label must display (1) the name and address of importer; (2) FSSAI’s logo and license number; (3) Veg or Non-Veg logo; and (4) the category or subcategory along with generic name, nature, and composition for proprietary food. 

Free trade agreements

Foreign companies seeking to sell their product offerings in the Indian market should explore whether they can tap into India’s free trade agreements (FTAs). A key provision in FTAs is the reduction in tariffs and sometimes targeted subsidies but these are usually accompanied by strict rules of origin (ROO). FTAs usually cover trade in goods (such as agricultural or industrial products) or services (such as banking, construction, trading). FTAs can also cover other intellectual property rights (IPRs), investment, government procurement and competition policy, and doing business in the digital economy.

Besides tariff relaxation and elimination, FTAs seek to facilitate trade with international markets by addressing non-tariff barriers, such as licensing requirements, market subsidies, public procurement, dispute resolution mechanisms, etc.

So far, India has signed 13 Free Trade Agreements (FTAs) with its trading partners, three of which have been signed in the last five years, namely the India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA), India-UAE Comprehensive Partnership Agreement (CEPA), and India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA).

The list of FTAs signed by India is as under:

No.	Name of the agreement
1	India-Sri Lanka Free Trade Agreement (FTA)
2	Agreement on South Asian Free Trade Area (SAFTA) (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan, the Maldives and Afghanistan)
3	India-Nepal Treaty of Trade
4	India-Bhutan Agreement on Trade, Commerce and Transit
5	India-Thailand FTA – Early Harvest Scheme (EHS)
6	India-Singapore Comprehensive Economic Cooperation Agreement (CECA)
7	India-ASEAN CECA – Trade in Goods, Services and Investment Agreement (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam)
8	India-South Korea Comprehensive Economic Partnership Agreement (CEPA)
9	India-Japan CEPA
10	India-Malaysia CECA
11	India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA)
12	India-UAE CEPA
13	India-Australia Economic Cooperation and Trade Agreement (ECTA)

In addition, India has signed the following six limited coverage Preferential Trade Agreements (PTAs):

No.	Name of the agreement
1	Asia Pacific Trade Agreement (APTA)
2	Global System of Trade Preferences (GSTP)
3	SAARC Preferential Trading Agreement (SAPTA)
4	India-Afghanistan PTA
5	India-MERCOSUR PTA
6	India-Chile PTA

Summary

A successful strategy to sell your products and services in India requires a multifaceted approach. This includes choosing the right entry strategy based on in-depth analysis of consumer preferences, existing sales channels, and the evolving landscape of distribution and marketing practices.

India, being a vast consumer market, exhibits significant regional diversity in terms of language, religious beliefs, culture, cuisine, customs, and social norms, among others. Moreover, different regions vary in terms of their socioeconomic profiles thereby impacting spending capacity or decision making.

All these factors influence consumer purchasing behavior; it is not uncommon for certain brands to enjoy higher consumer affection in certain parts of the country or others. Customizing your retail strategy, such as by localizing marketing campaigns, product innovation, and cultivating digital appeal, may position you for success in the Indian market.