NEW DELHI: Luxury brands are facing considerable challenges in India, where an underdeveloped infrastructure, complex regulatory system and unique consumer preferences all pose obstacles.

India currently houses around 200,000 millionaires, behind just the US and China, and its "ultra" high net worth individuals - people with assets of $5m or more - are valued at a combined $1tr, a total due to hit $5tr by 2016.

Despite this, sales of luxury goods in the country stand at a modest $846m per year, only 0.5% of revenues worldwide, and substantially lagging the $17bn posted by China.

Bain & Co, the consultancy, has predicted India's luxury market should grow by between 5% and 10% annually over the period to 2013, while China yields an expansion in the 25% to 30% bracket.

Claudia D'Arpizio, a partner at Bain & Co, told Reuters: "The key challenge for global brands is figuring out how to get access to the Indian consumer … China's infrastructure is more developed than India's, with a variety of luxury malls."

A 30% levy on imported luxury items also means many Indian shoppers prefer buying products when abroad, where a wider selection and superior service is available.

"It's pointless having a luxury mall on a road that is potholed," said Anand Ramanathan, KPMG's manager. "Even the so-called 'luxury malls' in India are not really luxury. They have issues with basic infrastructure, with training of staff; it's just not a luxury experience."

Hermès, the French luxury firm, plans to roll out a range of saris in India this year, and has also opened a standalone store, some 3,000 square feet in size, to showcase its full stable of goods.

"If you want to succeed in India, you have to be part of the Indian life," said Bertrand Michaud, president of Hermès India. "We have to be on the street, not in hotels. And we have to offer what is offered overseas.

"It's difficult, it's frustrating, to do business here. Real estate regulations, bureaucracy, it takes years to set up office, the goods sit at customs for months."

Bottega Veneta, the Italian luxury retailer, recently introduced the excusive Knot India clutch bag, while Canali, an Italian men's apparel expert, has launched a "bandhgala" jacket modelled on that popularised by Jawaharlal Nehru, India's first prime minister.

"Clients love such products for two reasons: one is the cultural connect, and second is the special feeling of owning something not available anywhere else in the world," said Sanjay Kapoor, managing director of Genesis Luxury, which markets and distributes Canali and Bottega Veneta in India.

Data sourced from Reuters; additional content by Warc staff