Franchising has transformed India’s retail landscape, shifting from family-owned stores to structured business models that bridge the gap between traditional trade and modern retail. Initially seen as a gateway for international brands, franchising has now become a strategic growth tool for Indian businesses, extending across diverse industries such as healthcare, education, and food services.

The sector contributes nearly 2% to India’s GDP, with over 200,000 franchise outlets employing millions. Expanding at a 30-35% annual growth rate, India’s franchise industry is valued at $47-48 billion, with projections to reach $140-150 billion by 2028. Despite this rapid expansion, franchising in India continues to operate without dedicated franchise laws, relying on existing contractual and commercial legal frameworks.

Legal Framework Governing Franchising in India

Without a standalone franchise law or regulatory authority, franchise agreements in India fall under multiple statutes. The Indian Contract Act, 1872, governs franchise relationships, while the Consumer Protection Act, 2019, ensures accountability for product and service quality. The Competition Act, 2002, prevents restrictive trade practices, particularly in areas such as pricing and territorial control.

International franchises face additional compliance requirements under the Foreign Exchange Management Act (FEMA), regulating royalty payments and franchise fees. Meanwhile, India’s evolving data protection laws are set to impact franchises handling customer information, particularly in healthcare and financial services.

A landmark case, McDonald’s India Private Limited v. Vikram Bakshi, highlighted the complexities of international franchise agreements, arbitration disputes, and judicial intervention. The ruling reinforced the need for a clear legal framework to protect both franchisors and franchisees from contractual ambiguities.

Policy Reforms and Government Initiatives

India’s business-friendly reforms have eased franchise expansion. The National Single Window System (NSWS) simplifies regulatory approvals, particularly beneficial for multi-outlet franchise networks. Additionally, the Jan Vishwas Act, 2023, decriminalized minor regulatory violations, reducing compliance risks for franchise businesses.

Foreign investment policies have also seen significant liberalization, allowing 100% FDI through automatic routes in most sectors. Between 2014 and 2024, India attracted $667.4 billion in FDI, reflecting a 119% growth from the previous decade. These measures have positioned India as a global hub for franchise investment.

Rise of Small-Format Franchising in Tier II and III Markets

Franchising is no longer limited to urban centers. In smaller towns, local entrepreneurs are adapting the franchise model to cater to regional preferences while maintaining standardized quality. The expansion of financial services, education, and retail franchises in Tier II and III cities demonstrates the growing localization of global brands.

This shift is driven by affordable franchise models, lower operational costs, and increased digital integration, allowing businesses to scale efficiently while maintaining local market relevance.

Emerging Legal and Regulatory Challenges

Despite its growth, franchising in India faces regulatory challenges:

• Data Protection Compliance – The upcoming Digital Personal Data Protection Bill will impose stricter controls on data sharing, affecting international franchises handling cross-border customer information.
• Evolving Competition Laws – Franchise agreements must navigate pricing restrictions, territorial exclusivity clauses, and anti-competitive concerns.
• Sector-Specific Regulations – Healthcare, education, and food franchises must comply with varying state-level regulations, impacting standardization across multiple locations.

The Future of Franchise Law in India

As India’s franchise sector matures, courts will play a crucial role in shaping legal precedents for agency relationships, brand control, and liability. Intellectual property laws must evolve to address digital branding, data-driven customer relationships, and algorithmic business strategies.

With franchising driving economic expansion, job creation, and business formalization, the need for a dedicated franchise regulatory framework is more pressing than ever. Addressing these legal gaps will ensure sustainable growth and long-term stability in India’s dynamic franchise ecosystem.