India's booming pet care industry is attracting big bets from seasoned players and fresh entrants alike but navigating this vibrant, competitive market comes with its own nuances and challenges. In this note, we explore some of the regulatory hurdles often faced by foreign investors and offer practical strategies followed by Indian companies to navigate them.
Introduction: A burgeoning market
The pet care industry in India is rapidly evolving from a niche market to a multi-billion dollar industry. There is a growing demand for premium pet supplies and veterinary services that are reliable and easily accessible. This remarkable growth is driven by a confluence of factors, including rising disposable incomes, a surge in pet ownership, growing awareness of pet health and well-being and a big uptick in animal rights activists and groups in residential localities advocating for better treatment and care of animals, particularly dogs.
India's pet care industry reflects a fundamental shift in how urban Indians perceive and prioritize their furry companions, treating them increasingly as members of the family. This trend has created a vibrant and competitive market, captivating the attention of investors and entrepreneurs alike, creating both opportunities and challenges for businesses operating within this dynamic landscape. The pet care market in India, which has doubled since FY 2020, is currently valued at USD 3.5 billion and is expected to reach USD 7 billion by 20281, offering substantial opportunities for both established players and new entrants. Private equity funds and venture capitalists have recognized immense potential in the pet care sector and are pouring investments into various segments including veterinary services, pet grooming, pet food and pharmaceuticals, pet accessories and technology-driven solutions by way of online platforms. 2 The influx of capital and entrepreneurial spirit has spurred innovation and expansion across the pet care industry in India, leading to a diverse range of new products, services and business models.
Regulatory framework for FDI in healthcare / pet care
The regulatory framework prescribed by the Reserve Bank of India (RBI) governing foreign direct investment in the healthcare sector (including pet care sector) in India is multi-faceted, primarily shaped by the Foreign Exchange Management Act, 1999 (FEMA) and the rules and regulations framed thereunder, including the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (the FEMA Non-Debt Rules) along with the consolidated foreign direct investment (FDI) policy of 2020 issued by the Department for Promotion of Industry and Internal Trade (DPIIT, and such policy, the FDI Policy).
Under the extant regulatory framework, FDI up to 100% under the automatic route is permitted in those sectors in which FDI is not specifically restricted under the FDI Policy. These sectors include hospitals, diagnostic centers and medical services (including veterinary services provided in hospitals or clinics). This implies that foreign investors are not required to obtain prior approval from the RBI or the Government of India for investments in these sectors, provided they adhere to applicable regulations, and comply with the restriction on beneficial ownership under press note 3 (dated 17 April 2020) issued by the DPIIT.
Legal issues: Untangling the MBRT knot
Certain sectors like multi-brand retail trading (MBRT) face limitations under the FDI framework. While 100% FDI under the automatic route is allowed in Indian investee companies engaged in single brand product retail trading subject to certain conditions, in the context of MBRT, FDI up to 51% is allowed under the government route. Further, entities engaged in MBRT are strictly prohibited from conducting e-commerce retail trading.
In addition to the prior government approval, FDI in MBRT is subject to various conditions including minimum amount of investment, mandatory local sourcing norms, substantial investment in back-end infrastructure and restrictions on online sales. The FEMA Non-Debt Rules in respect of foreign investment in clinics, hospitals and MBRT reflect India's cautious approach towards foreign investment in critical sectors. While the extant regulatory framework aims to facilitate responsible growth while adhering to India's legal and economic priorities, navigating this regulatory framework is crucial for attracting foreign investment and fostering innovation.
Challenges for veterinary hospitals and clinics
The FDI restrictions in the MBRT sector are generally challenging for businesses involved in the retail sale of pet products from multiple brands, and particularly for those involved in the business of providing veterinary services with integrated pharmacy models. A significant legal challenge for companies with integrated pharmacy models is the ambiguity surrounding the classification of the business conducted by in-house pharmacies within veterinary clinics as MBRT. Retail sale of pet products (including pet food and medicines) through an in-house pharmacy by the veterinary clinics could be perceived as engaging in MBRT under the FDI Policy triggering the requirement of securing government approval, which is generally not forthcoming.
While veterinary services are generally open to 100% FDI under the automatic route, the nuances related to retail in-house pharmacy element pose a major obstacle for attracting foreign investment and considerably complicate the transactions. The lack of clear guidelines on what constitutes MBRT in the context of veterinary clinics with in-house pharmacies creates a grey area, leading to potential regulatory scrutiny and compliance issues. This situation necessitates careful structuring and operational strategies to avoid triggering MBRT regulations.
The challenge lies in demonstrating that in-house pharmacy operations are merely complementary or ancillary to and in furtherance of, the core veterinary business and not a primary focus of the business of the pet company. This requires meticulous record-keeping, distinct invoicing and accounting practices, spatial segregation of the veterinary clinic from the in-house pharmacy, exclusive sale of veterinarian prescribed drugs and products and clear separation of business activities. While it is generally expected that a veterinary clinic would have an in-house pharmacy to provide the medications it prescribes for pets during consultation, allowing "walk-in customers" without a prescription to obtain these medicines without a prescription from the clinic makes it challenging to assert that the in-house pharmacy is a necessary adjunct or a necessary extension to the veterinary clinic rather than a separate profit center.
Addressing the challenges
We have seen companies engaged in the business of providing healthcare services (with in-house pharmacies) adopting various risk mitigation strategies to navigate the complexities of MBRT restrictions, a few of which are set out below:
- Separate legal entities: Establishing separate legal entities (as affiliates or associate companies) for veterinary services and retail in-house pharmacy operations is a common approach adopted by several healthcare companies which are also involved in the in-house pharmacy retail business. A tiered structure ensures clear delineation of the business verticals, enabling distinct management, accounting, reporting, licensing and other regulatory compliance.
- Accounting segregation: Maintaining separate accounting books and records for veterinary services, sale of pharmaceutical products to out-patients and sale of pharmaceutical products to in-patients, even if operated within the same entity, can help demonstrate that their pharmacy operations are ancillary to the core veterinary services business of the enterprise and thus, mitigates MBRT classification risk to a certain extent. This exercise involves rigorous record-keeping and establishing clear internal accounting policies by the pet care company.
- Regulating over-the-counter sales: Companies which operate veterinary clinic / hospital as well as run retail in-house pharmacy should restrict the sale of pharmaceutical products to those consumables which are utilized by the veterinarians during a medical procedure at the clinic / hospital and sale of drugs or other pet products prescribed by the veterinarian pursuant to the ongoing treatment plan directly to the consumer. However, in certain instances, the pharmacy could also engage in the sale of non-prescription products directly to consumers (not being the clients of the veterinary clinic), which might attract MBRT classification risk. Minimizing or eliminating the retail sales of non-prescription products might avoid MBRT classification of the in-house pharmacy business of an enterprise. This shifts the focus on the pharmacy primarily providing veterinary services, reducing regulatory scrutiny on the ancillary retail sale element.
While the specific approach depends on the company's business model, risk tolerance as well as growth strategy, these strategies aim to create a model which is in compliance with the applicable regulatory framework.
Veterinary hospitals / clinics vs. human hospitals: regulatory nuances
Specifically, in the context of veterinary services having integrated pharmacies, the comparison of the pet industry with traditional human hospitals having similar setups reveals certain key legal nuances concerning India's FDI regulations, particularly regarding MBRT. While both sectors are often involved in providing medical services alongside the in-house sale of pharmaceuticals, the regulatory clarity for human hospitals is comparatively greater, albeit still evolving.
The practices followed by certain established hospital chains are worth noting. Apollo Hospitals, for instance, underwent restructuring in 2019, reportedly as a precursor to attract foreign investment, and housed its front end standalone retail pharmacy business under a separate legal entity (i.e., a wholly owned subsidiary of its associate company3, which operates the standalone retail pharmacies through a brand licensing arrangement). However, the in-house pharmacy business continues to remain within the entity which operates its hospital business and is considered a subset of its healthcare services segment. Although Apollo Hospitals has yet to receive foreign direct investment following the restructuring (although it has foreign portfolio investments (FPI) amounting to approx. 43%), this approach suggests that, from a regulatory standpoint, in-house pharmacies operating within a hospital are considered ancillary or complementary to healthcare services, distinct from the standalone retail pharmacy segment.
In case of Aster, another Indian listed healthcare company though which has foreign investment amounting to approx. 70% (with foreign promoter entities holding approx. 41%), the retail pharmacy operations are conducted through a licensing arrangement with an associate company in which Aster holds less than c. 20%, while its in-house pharmacy operations are still housed within the hospital operating entity (i.e., ancillary to its hospital business segment).
Interestingly, Indira IVF, a private limited company engaged in the business of providing in vitro fertilization services as well as operating in-house pharmacies (under the same corporate entity), has raised foreign investment from Zonnebaars Netherlands B.V (part of BPEA Private Equity Fund VIII, a Hong Kong based investment firm) under the automatic route. As an aside, in February 2025, Indira IVF had made a confidential filing before SEBI (i.e., the securities market regulator of India) for the purpose of listing on the Indian stock exchanges, only to withdraw its papers in March following certain concerns raised by SEBI regarding a movie based on the company's founder.
Unlike in the above cases, Medanta, an Indian listed company operating a network of multi-specialty hospitals across India and having foreign investment (both as FDI and FPI) amounting to approx. 30%, operates in-house pharmacies at one level below, i.e., through its respective wholly owned subsidiaries which do not have any foreign investment as yet. These diverse approaches demonstrate the industry's attempts to navigate the ambiguity around the restrictions posed on MBRT under the FDI framework.
As compared to the human hospital sector, the veterinary sector lacks such precedents and faces greater uncertainty regarding the classification of in-house pharmacies as MBRT. In a related example, Heads Up For Tails (HUFT), a pet supplies retailer, employs a complex structure involving multiple entities for different business verticals, including retail and wholesale trading, to comply with the FDI regulations. This model involves careful segregation of business verticals and distinct accounting practices. The lack of clarity underscores the need for specific regulatory pronouncements addressing the unique characteristics of the veterinary sector to foster growth and investment while ensuring compliance with the FDI norms.
Market dynamics and expansion
The pet care sector continues to attract new entrants and witness innovative expansions. Even the FMCG giants in India like Nestlé India, Emami and Godrej Consumer Products have entered the fray with their strategic investments. Nestlé acquired Purina Petcare India (a company engaged in the business of selling cat and dog food), Emami invested in an Ayurvedic pet brand Fur Ball Story and earlier this month, Godrej's launched "Godrej Ninja", involved in the business of manufacture and sale of pet food in India. This demonstrates growing interest in the pet care sector from the established players, reflecting a broader trend of diversification and specialization within the industry.
In another instance, Supertails' proposed acquisition of Blue 7 Vets (a company engaged in operating veterinary clinics) signifies the increasing demand for integrated omnichannel experiences, offering the consumers greater choice and convenience signaling the growing sophistication of the market. Mars, a major global player in the pet care industry, has also entered the Indian veterinary services market through a strategic investment in Crown Vet (a company engaged in providing veterinary services through their clinics across India), marking a significant development in the sector's growth. Similarly, Dr. Paws, a veterinary chain offering expertise for bedside training and grooming, received funding from venture capitalists last year. These developments emphasize the growing dynamic and competitive market landscape of India's pet care industry.
A dynamic startup landscape is also redefining how pet care is delivered in India. Digital-first platforms like Supertails, Vetic, Kuddle, Sploot and Patmypets are blending e-commerce with services such as telemedicine, grooming and boarding. Brands like Zigly, HUFT, Wiggles and Just Dogs are offering premium pet products and personalized services, both online and offline. Others like Pawsindia, Flying Fur, and Petmojo focus on niche segments from curated pet nutrition to at-home grooming and individual care solutions. These companies are leveraging technology to make pet care in India more accessible and user-friendly.
Conclusion: A promising outlook
India's pet care industry is witnessing remarkable growth, which is primarily driven by rising pet ownership, increased consumer spending, and a growing focus on pet health and well-being amongst pet parents or owners. Despite the regulatory uncertainties, especially concerning MBRT, the industry has attracted considerable investment from both established market players and private equity investors / venture capitalists and the robust growth trajectory presents immense opportunities. The emergence of new players, innovative business models and the offline expansion of online platforms signify a dynamic and competitive landscape. In order to ensure continued growth and scale operations, it will be interesting to see how businesses in India adopt innovative structures for navigating some of the complexities presented by the regulatory framework governing the pet care industry especially concerning the classification of in-house pharmacies and MBRT restrictions.
Footnotes
1. From Kibble to Care: Understanding India's evolving petcare market, Redseer Consulting Report, 2024, available at https://redseer.com/wp-content/uploads/2024/10/Indias-Petcare-Market-Opportunities-in-an-Evolving-Market.pdf.
2. Investors have infused approximately USD 180 million in the Indian pet care market between FY 2020 and FY 2024 (Source: From Kibble to Care: Understanding India's evolving petcare market, Redseer Consulting Report, 2024).
3. Pursuant to a slump sale in 2022, Apollo Hospitals transferred its equity interest in the associate company (i.e., Apollo Medicals Private Limited) as well as the back-end pharmacy distribution business (excluding hospital-based pharmacies) and Apollo 24/7 platform to Apollo HealthCo Limited, a wholly owned subsidiary.
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