India set to become manufacturing hub of luxury brands

New Delhi, July 27 : With disposable incomes increasing in India, the country is poised to become a manufacturing hub for global luxury brands over the next five years, a report to be released Monday by the Federation of Indian Chambers of Commerce and Industry (Ficci) and Yes Bank said.

The report referred to the "core strengths" in India's manufacturing sector, and said manufacturing of luxury items could become a USD 500-million industry in this period.

"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," the report said.

Moreover, the study said, cost advantages, particularly in labour-intensive sectors like leather and accessories, would goad manufacturing of foreign brands in the country.

The study suggested that in order to promote the luxury market, three initiatives were required - organising the sector, promoting standardisation and branding organisation, and partnerships with international fashion and luxury associations.

"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," the report said.

Moreover, it said, the luxury sector needed to be treated in isolation with other retail sectors "as the dynamics governing it were significantly different in nature".

To reach its potential, the Indian retail sector required significant capital, technology and best practices.

"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.

"The Indian tariff structure also needs to be streamlined. India has one of the highest duties and 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 study called for transparency at all levels for duties and taxes, and a thorough revision of rules and regulations.