Korean brands will make up the cosmetics market

The cosmetics market in India represents a golden opportunity for Korean beauty companies. A growing middle class, rising incomes, and an increasing interest among Indians in skincare and make-up items make this sector a prime target for global brands. India shows a strong demand for premium and luxury beauty products, which Korean companies can tap into by offering high-quality cosmetic and skincare ranges. Korean brands such as Laneige, InnisFree, Face Shop, Etude House and Tony Moly have achieved significant commercial success here. The Indian cosmetics market is valued at USD6.27 billion in 2023 and is expected to grow annually by 2.86%.

Foreign Direct Investment (FDI) regulations permit 100% FDI in the cosmetics sector under the automatic route, allowing Korean companies to invest without having to obtain permission. However, as investors in the sector may want to sell their products only through exclusive outlets, they should be aware of the restrictions on FDI in retail. The FDI policy permits 100% FDI in single-brand product retail, which allows foreign companies to open exclusive outlets without needing Indian partners and to offer their products online through their own websites. FDI up to 51% is allowed in multi-brand retail with the prior approval of the government and subject to conditions. In the case of multi-brand retail, foreign investors have the option to enter into exclusive franchise arrangements with local associates.

Licensing authorities in each state are responsible for inspecting and licensing cosmetic manufacturing facilities. Cosmetics are regulated through the Drugs and Cosmetics Act, 1940 (act), the Drugs and Cosmetics Rules, 1945, and the Cosmetics Rules 2020 (2020 rules). These regulations maintain the quality and safety of cosmetic products throughout the country.

Labelling and packaging requirements are governed by the Legal Metrology Act, 2009, and the 2020 rules. Legal metrology officers assess compliance by packers, importers and manufacturers in the interests of consumers. Under the 2020 rules, labelling standards require each item of a product to display the manufacturer’s name and the complete address of the place of manufacture, as well as the expiry date, distinctive batch number and manufacturing licence number. The outer label of the cosmetic has to show the net contents by weight for solids and by fluid measures for liquids. Where the packaging of a cosmetic has only one label, under the 2020 rules it must display all the information required on the inner and the outer labels. In accordance with the directives of the Bureau of Indian Standards, manufacturers of cosmetics must conduct sufficient research to ensure the quality and integrity of the product during its intended shelf life.

The import of cosmetics is regulated by the Central Drugs Standard Control Organisation (CDSCO), which also oversees the registration of such products. Under rule 12 of the 2020 rules, no cosmetic may be imported unless it has been registered. Companies intending to import cosmetic products must apply to the CDSCO, setting out the details as required under the second schedule to the 2020 rules. The import of certain cosmetic products is prohibited by section 10 of the act and rule 134A, 135 and 135A of the 2020 rules. These include cosmetics that are not of the required quality; fake, misbranded or adulterated, or contain unsafe or harmful ingredients.

Foreign investors intending to sell their products either directly or through India partners should register their brands under the Trade Marks Act, 1999 to prevent third parties using similar or identical trademarks. The cosmetic product need not be used or sold in India before filing the application for registration. It is important for companies doing business in India to put in place protection and enforcement programmes to protect their brands from third-party infringement. India has robust intellectual property laws preventing such infringement.

The recent popularity of Korean entertainment has led to a corresponding popularity of Korean cosmetic brands, collectively known as K-Beauty. For Korean companies, India represents a significant opportunity. By avoiding the hazards of the market, Korean companies can capitalise on the allure of India’s booming cosmetics industry.

Rajat Prakash is managing partner, Siddharth Mahajan is a partner, and Naina Chandok is a senior associate at Athena Legal.