With decreasing governmental regulations and an increasing middle-class demographic—a population equivalent to that of the entire U.S.— India is quickly becoming beauty's most important developing market.

At the L'Oréal India headquarters in central Mumbai, Didier Villanueva, the company's managing director, keeps a small but significant box of beauty goods in his office. Inside are many of the traditional products that have been used by women here for generations—and, in many rural areas, still are: a bindi (dot) for the forehead; kajal, the black liner used to rim the eyes; talcum powder for the face and body; sindoor, a red powder worn on the hair part as a sign of marriage; a basic whitening cream, and coconut oil, to keep hair shiny and conditioned.

The wide assortment of products is a fascinating reminder of India's enduring interest in beauty. "Beauty and personal grooming are not new to Indian women," Villanueva says. "It's just the products that are starting to change."

Indeed they are—and such change is leading industry insiders to view India as second in importance only to China in terms of developing markets. The country's beauty and cosmetics market is now estimated at about $1 billion, with an annual growth rate of 15 to 20 percent, according to the Confederation of Indian Industry. The longtime leaders in the market, which include L'Oréal India, Revlon and the Unilever-owned Lakmé, India's largest local cosmetics brand, have recently been joined by a new wave of beauty offerings, including Chanel, MAC and Max Factor, which will enter the market this month with 10 counters and grow to 20 by yearend.

Add to the equation India's mushrooming middle class, which is currently estimated at some 300 million people—equivalent to the entire population of the United States—each earning on average between $2,000 to $4,000 a year. The country's huge trend-following, product-curious youth demographic—about half of its 1.1 billion population is under age 30, according to estimates—also serves as a mind-boggling barometer of just how big an industry like beauty can become here.

Government restrictions on foreign investment, especially foreign retailers, have also recently loosened, increasing opportunities for companies looking to India. For the most part, beauty companies haven't been directly affected—the main legislative changes made earlier this year have been solely focused on single-brand retailing—but additional developments currently being considered could open the door for foreign-owned megaretailers such as Wal-Mart, which has been actively lobbying the Indian government for new regulations that would allow them in.

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