Sources told The Econonic Times that a joint venture between Gap Inc and Arvind Brands is in the works, which would pave the way for the biggest casual wear retailer in the US to enter the Indian market. Two people familiar with the matter said Gap Inc had inked a letter of intent with the retail business of Arvind Ltd for a joint venture in India. The report added that entering the Indian market could aid the San Francisco-based clothing giant to gain back some of the ground that Inditex Group took from Gap. In 2008, Inditex took the top slot from Gap as the biggest clothing retailer in the world.

In 2010, the Zara label of Inditex was successfully able to penetrate the Indian market and has grown across the country from then on. Another Gap rival, Hennes & Mauritz, also announced earlier this month that it had obtained the approval of the country's Foreign Investment Promotion Board for its wholly-owned Indian subsidiary to run its H&M stores.

The people said Gap and Arvind already had a longstanding relationship, as Gap had been purchasing denim from the Indian firm for several years. Other foreign labels like Calvin Klein, Tommy Hilfiger and Lee are being marketed by Arvind Brands in India. The report said it was unclear what stake Gap will have in the planned joint venture.

The Indian government relaxed rules on overseas investments last year. As a result, foreign firms were able to establish fully-owned single brand retail shops in the country. According to the report, there is growing demand in the country for clothing sold by foreign labels, prompting some of them to further strengthen their foothold in India. Despite the single-digit growth in the country's apparel retail market due to the weak economy, top international brands are still doing good business, the report said.