India - Set to become manufacturing hub for luxury brands

With the fastest High Networth Individuals (HNI) population in the world, income level of consumers expected to triple by 2025, and an active age group (25-45 years) set to rise to a third of the population, India is poised to become a manufacturing hub for global luxury brands in the next four to five years, according to a FICCI-Yes Bank report. The report, to be released along with the launch of the FICCI Lifestyle Forum in Delhi on July 28, points that in view of the core strengths in India’s manufacturing sector, the manufacture of luxury items in India could grow to $500 million.
This optimism stems from the fact that global brands like Louis Vuitton and Frette are already looking at India as a manufacturing base for their products, while others are sourcing their requirements from India. Also, the cost advantages, particularly in labour intensive sectors like leather and accessories, will influence the manufacture of foreign brands in the country.
The report by Yes Bank encapsulates the rise of luxury brands retailing in India, the potential of India as a manufacturing hub, the opportunities and challenges and the potential of developing Indian indigenous brands for the world market. This report provides a framework and direction for the development of the luxury brands market in future.
The objective of this knowledge report on the occasion of the launch of the FICCI Lifestyle Forum is to trigger a thought process among key players in luxury and fashion and promote India as a future manufacturing hub for global fashion and luxury goods. Given India’s strengths in old arts and crafts since centuries, the country can emerge as an exporter and hub of indigenous Indian global lifestyle brands.
The FICCI-Yes Bank report mentions that the luxury sector needs to be treated in isolation with other retail sectors as the dynamics governing it are significantly different in nature. To reach its potential, the Indian retail sector requires significant capital, technology and best practices to bridge the existing productivity gap and achieve scale in operations, which are critical to the sector’s success.
One of the key steps towards facilitating the development of the retail sector and in accelerating its growth would be to further ease foreign direct investment in the sector. The constant back and forth on policy decision on retail at the Centre also acts as a dampener for luxury brands.
According to the report, three initiatives would have to be considered by the Government and private players in order to expedite the creation of a hub for the manufacture of global luxury brands. These include: firstly, corporatisation of the luxury sector will bring along with it concepts of organised and innovative marketing, leading to large investments, employments and generating additional revenue streams. Secondly, forming a standardisation of branding and packaging organisation which can provide a seal of approval for all the luxury goods produced in India. Thirdly, forming partnership with international fashion and luxury councils or association or trade organisation to encourage, promote and facilitate cooperation in the high-end luxury market.
The Indian tariff structure also needs to be streamlined. The country has one of the highest duties or taxes on imported luxury goods, which drive the grey market and duty free purchases, while the stringent regulatory environment impedes investment by foreign brands.
The need of the hour is to open up the opaque structure, which has been put in place. Transparency at all levels needs to be provided for duties and taxes. Government rules and regulations need a thorough revision with due consideration to the sensitivities to the sector.