"Growth drivers have contributed to the remarkable 25 per cent growth in the Indian luxury market from 2015 to 2016 - from a USD 14.7 billion to a whopping USD 18.5 billion," the CII-Kantar IMRB 2016 report on Luxury said.
As per the report, aspirational and younger middle class, rising Internet penetration leading to greater exposure to available products and services, increase in choices and greater awareness of global luxury brands have contributed in the growth of the sector.
Key growth segments include fine dining, electronics, luxury travel, personal care, jewellery and luxury cars.
"Future forecasts foretell fragrances, watches and jewellery to be the major growth areas followed by skin care and apparel," the report added.
About 40 per cent of the luxury products and services business comes from northern states of India, with Delhi NCR followed by Punjab and Haryana. Southern and western regions account for 25 per cent shares each. Eastern India still lags the market with just 10 per cent share in the luxury pie, it added.
The report further points out that tier-II and III cities are steadily emerging as luxury catchment areas and the trend continues. E-commerce boom in India has also helped increase penetration of luxury products.
However, key challenges faced by luxury brands in India are high taxes and availability of retail space.
"Luxury products are, on an average, priced higher - to the tune of 20% - to their global counterparts, due to import duties (around 30-40 per cent for luxury products) and taxes. This pushes up the price unrealistically," the report said.
It further said: "Limited availability of retail infrastructure which is both affordable and upmarket, physical infrastructure, limits on cash transactions, low penetration of cashless economy are some critical barriers which may hamper the growth surge this market is witnessing.