India’s bootleg luxury industry may be growing twice as fast as its real one

India’s promise as the world’s next big luxury market has disappointed many a peddler of couture. In 2011, Hermès only managed to sell six of its much-hyped 28 limited-edition saris in the country. Today, the country accounts for just a fraction of the global market’s luxury sales.

Authentic luxury may not sell in India, but fake luxury is another matter. A report earlier this month by the Associated Chambers of Commerce and Industry of India (Assocham) claims that India’s counterfeit luxury industry is growing by as much as 45% a year, or twice as fast as that of authentic luxury brands sold in the country. (India’s luxury sector grew an estimated 30% in 2013.) While some doubt Assocham’s estimates for this market for “Guchi” sneakers or ”Caiwen Kelai” boxers—as the Financial Times points out (paywall)—the report does highlight how India’s underwhelming organized luxury retail sector is.

Industry observers have long said that the potential of India’s luxury market has been compromised by the country’s widespread “gray market” of fake or illegally imported luxury goods sales that evade taxes. Moreover, India’s wealthiest like to buy their luxury brands while traveling abroad. Those who do the bulk of their shopping within the country tend to be those who are more likely to pay around 1,200 rupees (about $20) for a Gucci knock-off.

That may be one reason why India only accounts for between 1% and 2% (pdf, p. 1) of the global luxury market. High tariffs, a web of restrictions on foreign retailers, and lack of retail space have also stymied growth. Assocham argues that the counterfeit market cuts into profits for sellers in the organized sector and discourages international brands from entering the market. Another issue may be that many new members of India’s expanding middle class still aren’t used to spending so much on high-end clothing or jewelry. Neha Bothra, a researcher from the University of Delhi calls this group “closet consumers“—high-end shoppers who are still inhibited by price.

Still, a slew of retailers like luxury goods group Richemont are applying to open stores in India now that officials have loosened restrictions on single-brand foreign investment in the country. They’ll be hoping that sumptuous wares can start coaxing customers out of the closet, or at least away from knock offs.

India’s bootleg luxury industry may be growing twice as fast as its real one