The luxury market in India is likely to touch USD 18.5 billion (bn) in 2016 as against USD 14.7 bn last year and will clock a compounded annual growth rate (CAGR) of 25 percent, chief executive officer (CEO) of NITI Aayog (National Institution for Transforming India), Amitabh Kant said at an ASSOCHAM event held in New Delhi today.
"The introduction of GST (goods and services tax) will also provide India a huge competitive advantage to India's luxury sector," said Kant while inaugurating an ASSOCHAM Luxury Summit.
"My personal view is that sheer social demographics, growth of the economy, rise of the very young population all this will fuel growth and enable growth of a huge luxury market in India," he said.
"We are just at the beginning of the curve and I think this market will grow and blossom in the next two-three decades," added Kant.
Terming India which is growing at the rate of 7.6 percent per annum as 'an oasis of growth in the midst of a very-very barren economic landscape across the world,' he said, "The challenge for India is really to grow at very high rates of 9-10 percent per annum for three decades or more, that is the ambition, that is the hunger which India has."
"We have grown at those rates for a relatively short period of five to six years, but we need to do this on a sustained basis for a three decade period," further said Kant.
He said that India's luxury sector is dogged by various challenges like extremely high rents in tier I cities which has led to very diminishing space.
"For the luxury market to grow, we need to provide space at extremely low cost and I think that fortunately my view is that, with demonetisation land prices will fall over a period of time and that will give a further push to the growth of luxury market," said Kant.
Talking about the need for infrastructure, he said, "We need to create many more good malls to enable good quality infrastructure to come across India."
He said that while the luxury market in India together with high net-worth individuals and spend on lifestyle products will keep growing but one of the key challenges for India is that it has not been able to create its own luxury brands.
"France, Italy they have all made their own remarkable brands and it is important that India creates its own great brands in the luxury market over the years because brands give real values over a period of time," said the NITI Aayog CEO.
"I think the second key challenge if you want the luxury market to grow and expand is very important that we keep expanding the circle of growth and move from tier I to tier II and tier III cities," he added.
Kant quoted the examples of 'success stories' of what automobile giants BMW and Mercedes have done and how they adapted to the Indian market by penetrating in to the tier II and tier III markets.
"Mercedes' biggest sale is in Aurangabad, BMW's biggest sale is in tier II and tier III cities, they have adapted and modified themselves to Indian markets and therefore done extremely well and that's what luxury brands have to do," he said.
He emphasized upon the need to promote love and passion for luxury brands in India. "Luxury market is essentially driven by good brands and therefore, in the long run, while high net-worth individuals will grow, a lot of wealth will get created in India, I think you need to look at this market from not a prospective of two-three years but a long term perspective of two decades market."
He also said that it is necessary to enable many of the unique designers, craftsmen to grow within India. "India also has a very large pool of skilled craftsmen, we are very skilled in producing hand-made luxury products, India has been inspiring the luxury and fashion industry for years and has been a source of inspiration for the rest of the world."
Kant said that India is currently passing through a window of demographic transition which rarely happens. "72 percent of our population is below the age of 32 and rarely has this happened in the history of the world when you have a very young population, when you pass through this window of demographic transition that the luxury market does not grow."
He also said that India is passing through exactly the same transitions which happened during the period of 1946-64 in Europe and America and the people who were born during that period are all now retiring across the world.
"This to my mind is the most important economic and social trend that is taking place across the world, the population in Europe and America is getting older, they all are retiring while the population in India is getting younger and will keep getting young till 2040 and therefore the luxury market will keep going up," said Kant.
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