India offers vast opportunities for retailers, but not without challenges.

At the Davros World Economic Forum in 2005, Kamal Nath, India's Minister for Commerce and Industry, commented, "the question for CEOs the world over is no longer, 'Should my company be in India?' but rather 'Can my company afford not to be in India?'"

The Economic Intelligence Unit gives India a stable annual growth rate of 8 percent, a 20 percent rise in exports in 2005, and US$140 billion in foreign reserves, while PriceWaterhouseCoopers predicts that by 2013 India's economic growth will overtake that of China on its way to a GDP in excess of US$2 trillion by 2015. So, some might think he has a point.

However, if viewed from the perspective of a retailer, Nath might have added, "but hey, if it was easy everybody would do it!"

Undeniably, there are significant challenges to entering the Indian retail market, but it is difficult at the moment to resist concluding that indeed everybody is doing it—or at least trying to do it. Wal-Mart has a joint venture with Bharti, one of India's leading business groups and a dominant player in mobile phones. Another major player in mobile, and India's largest private sector company, Reliance Industries is also planning a major move into retail-although Reliance's decision to build its own supply chain before opening a single store is indicative of some of the challenges ahead of those who would enter the market. And finally, a third major group, Tata, has announced a joint venture with Woolworths of Australia.

The prize, according to Asitava Sen, retail industry specialist at PriceWaterhouseCoopers India, is a substantial one. Sen puts the value of the current Indian retail market at US$300 billion per year, and predicts this will double to US$600 billion by 2015, representing annual growth of between 5 percent and 6 percent. Clearly India is a valuable market, but it is also an extremely challenging one.

The first of these challenges is choosing the entry route. Currently government legislation restricts FDI to single-brand ventures in which the foreign company concerned may not own more than 51 percent. Additionally, as Sen points out, "other restrictions apply. It must be a single brand, so a company such as Louis Vuitton, which also owns Chanel, could not retail both brands under such an arrangement. Further, products must be branded during manufacturing and must have been previously on sale, in exactly the same form elsewhere in the world."

However, as Nagarajan Narasimhan, head of research at Standard & Poors' Indian operation Crisil, points out there are other ways of overseas companies entering the market. "There are five other ways available to overseas companies," he explains. "These are franchising, the route taken by Marks & Spencer and Nike; wholesaling to the trade, a route taken by Metro (and more recently Wal-Mart in their joint venture with Bharti); distribution, employed by Swarovski and Mango; manufacturing in India, as with Bata and Benetton; and, finally, joint ventures such as those enjoyed by McDonald's and Reebok.

"But," he adds, "these last examples predate the restrictions on FDI that were introduced in 1997."

Most of these terms mean the same as they would anywhere else, but a little explanation is probably in order for some of them. Present regulations allow a foreign company to own 100 percent of a wholesaler. Distribution allows a company to set up an Indian subsidiary for the purpose of distributing its branded goods to other retailers, while still permitting it to set up a 51 percent owned branded retail chain. Finally, if a company chooses to set up a manufacturing facility in India, as both Bata and Benetton have done, then there are no FDI restrictions on retail, although PWC's Sen stresses that "the goods being sold must be 100 percent manufactured by small-scale manufacturers based in India."

Sen also points out that there is one other route into the market. "It is permitted to test market a foreign product in India for a maximum of two years," he says, cautioning, "but at the end of that time, the brand must either be approved by the Foreign Investment Promotions Board under existing legislation, or retailing must cease."

While Sen believes that "the present government is convinced of the merits of FDI and would like to liberalize the regulations if they could get political consensus," he is not convinced this will be easy and also believes that many other challenges exist for those wishing to enter this demanding market. "India is a complex place," he says, "and any company looking to enter the market must understand its nuances. There are 28 different states with different regulations and taxation. There are 22 official languages representing many different cultures, and 70 percent of the population lives rurally and have needs that are very different from those of the 30 percent who live in cities."

This complexity belies surface statistics. "Right now, structured chains only represent about 4 percent of the overall market," Sen says, "with mom-and-pop stores, hole-in-the-wall sellers, and open-air markets making up the other 96 percent—although the chains' share is predicted to hit 10 percent by 2010." But beneath these bald statistics of a country with one-sixth of the world's population hide myriad complexities. "For example," says Sen, "nationally chains have 4 percent of the market, but they have over 20 percent of footwear, and 10 percent of apparel. And while nationally they have under 2 percent of food, in southern metro cities they have almost 10 percent."

Crisil's Narasimhan highlights other challenges. "The non-availability of government land, zoning restrictions, high duty, and lack of clear ownership titles increases the difficulties of finding good real estate." There are now about 300 major mall developments in India, which go part of the way in addressing this problem, but PWC's Sen warns that "not all have the necessary infrastructure," and Narasimhan cautions, "with the current rush of players entering the market, lease rentals in prime locations are skyrocketing."

Finally, Sen identifies an HR problem. "Retail is booming, but this means that there is a gap between the sector's growth and the availability of skilled personnel to fill the position that growth is creating. So, anyone looking to enter the market has a real challenge in attracting, training, and keeping good staff."

India is a vast country, with the potential to be a jewel in any retailing crown. But ask any king and he will tell you, crowns are rarely won without a fight.