According to 2016 Global Retail Development Index (GRDI), India has jumped 13 positions from last year to rank second among 30 developing countries this year on ease of doing business, topped by China.
The study which ranks top 30 developing countries for retail investment worldwide, a pick up in GDP growth and better clarity regarding Foreign Direct Investment (FDI) regulations have helped india achieve a second ranking.
"India's strong ranking reflects foreigner retailers increased optimism in its retail market and its vast growth potential," said Debashish Mukherjee, a partner with A T Kearney and co-head of the Consumer Industries & Retail Products Practice for India and Southeast Asia.
"India has relaxed several key FDI regulations in single-brand retail and this has paved the way for multinational firms to enter the market," Mukherjee said.
India's retail sector has expanded at a compound annual growth rate of 8.8% between 2013 and 2015, with annual sales crossing the $1 trillion mark, according to the A T Kearney, a London-based business consultancy.
India has also become the world's fastest growing economy that coupled with a large population base and the easing of FDI regulations in the sector has made it an even more attractive market, it said in the ranking.
"We expect to see e-commerce to propel India's growth and make it a more attractive proposition. However, there are some challenges as well. India remains a challenging and complex market for foreign retailers, where understanding dynamics at the state level is important," Mukherjee said.
"Infrastructure bottlenecks including labour laws, complex regulations, high labour attrition rates, and limited high-quality retail space remain areas of concerns for retailers," he said.
India's retail sector has also benefited from the rapid growth in e-commerce. India is the world's second largest internet market and the increasing internet and smartphone penetration is contributing to the expansion of e-commerce.
As Indian consumers become more comfortable with shopping online, venture capital and private equity firms have boosted investment in the sector providing further momentum, the report noted.
The GRDI analyses 25 macro-economic and retail-specific variables to help retailers devise successful global strategies to identify emerging market investment opportunities.
The study is unique as it not only identifies the markets that are most attractive today, but also those that offer future potential.