Franchise India, one of the pioneers of the sector in the country, added that a set of laws will also make the sector more transparent and help business to grow by 50 per cent annually from the current 30 per cent.
"Presently, franchising has no regulator in India and is not governed by any legislation, unlike other developed countries which not only have legislation but also a code... India is losing huge amount of FDI in absence of legislation for the franchising industry," Franchise India President Gaurav Marya said.
He said the franchise sector is growing annually at around 30 per cent.
"With proper rules in place, we could see growth going up to 50 per cent," Marya said.
The Indian franchising sector is the second largest in the world and retail and education are its main components.
There are over 1.5 lakh registered franchisees in the country.
India, among some other countries, have certain rules which make entry of foreign players difficult in the retail and education markets.
The government allows only up to 51 per cent FDI in single-brand retail, while foreign investment is prohibited in multi-brand retail segment.
Many global players, therefore, opt for the franchise route under which the franchisee owns the business whilst the franchisor takes a share of the profits.
Franchise India has asked the government to make special provisions for franchise financing as a separate category, on lines with regulations for financing of SMEs by banks.
"In the absence of regulation, the confidence of franchising investors in low. Legislation will make franchising transparent," Marya said, adding that in the absence of proper legislation the sector faces lack of standardisation in its operations.
In countries like the USA, franchise agreements involves a draft that is duly filled and scrutinised by the government and both parties -- the franchisee and the franchisor -- are liable to operate within a certain set of laws.
"This sort of structure and a well covered procedure is lacking in India and that makes the foreign players vulnerable," senior partner as law firm Anand & Anand said.
In India, major brands like Jockey and Dominos already operate franchise operations, while global players like coffee chain Starbucks and footwear brand Footlocker are presumed to be exploring the option to enter the market here.