India has the potential to be a retail powerhouse, with luxury as its keystone.

Though the U.S. and Europe have struggled with recession and economic downturns, the high-end retail apparel industry has not been adversely affected in India, according to Shalendra Sharma, PhD, professor of Politics at the University of San Francisco and author of China and India in the Age of Globalization.

"Indications are that middle class consumers in both India and China continue to buy high-end apparel,” Sharma says. "Keep in mind, that unlike Americans, Asian consumers are not heavily indebted." Like China, India is a "saving society," Sharma says.

Currently, 77% of India's consumers have a "somewhat or very optimistic" outlook for their country's economy, according to the Cotton Incorporated and Cotton Council International Global Lifestyle Monitor survey. This translates to a high percentage of consumers who plan to purchase apparel; about 54% plan to buy as much or more casual clothes in next 12 months, while 61% plan to buy as much or more formal apparel.

The increase in planned purchases of formalwear hints at India's potential to become a leading market for luxury goods within the next decade, a finding corroborated by a research report by Sanford C. Bernstein Limited. It cited the migration of rural Indians into towns and cities, and the country's median age of 25, with 35% younger than 14 years old, as factors for future growth.

India was ranked third in A.T. Kearney's ninth annual Global Retail Development Index of markets with the greatest potential for retail development.

Management consulting firm McKinsey & Company recently reported India apparel sales could reach $25 billion this year and $55 billion by 2015. Indians spend the most on buying clothes after food, with apparel accounting for about 10% of total retail sales in India, McKinsey says.

Clothes shopping is a favorite activity for both men and women in India. The Global Monitor survey finds nearly 70% of consumers "love shopping," while 26% "like" it, and brand names are important to 77% of respondents.

American labels that have already entered India's retail market include DKNY, Judith Leiber, Marc by Marc Jacobs and Tommy Hilfiger.

Padma Lakshmi, the Indian-born host of Bravo's Top Chef who also designs her own jewelry line, says great opportunity exists because Indians have not yet established brand loyalties. They also have great access to information. "Indian culture has embraced the Internet without comparison,” Lakshmi says. "They all have satellite TV and Internet, and are aware of music videos and reality shows. As your access to information increases, so does your desire. And as your income increases, so does the quality of your goods."

The Global Monitor survey also finds that other than family members (79%) and friends (74%), the most common source of clothing ideas for Indian consumers comes from television (51%).

Howard Davidowitz, chairman of retail consultancy and investment banking firm Davidowitz & Associates. Inc., describes India as "a tremendous possibility.”

"They're younger, they have an advantage with the number of English speakers and they have a very high education level," he says. On the other hand, India doesn't "have the infrastructure, and it's hard to do business there because of government bureaucracy. People get bogged down with that. But once you get there, the possibilities are tremendous."

One barrier to growth has been India's requirement that foreign retailers have a local partner. But joint ventures can prove profitable: For example, Burberry established a partnership with Indian retailer Genesis Colors in November 2009 and already has five stores in India's top cities.

The U.S. Commerce Department reports that for the first four months of 2010, U.S. apparel and fabric exports to India totaled $22.7 million, a nearly 33% increase over the same, year-ago period.

Opportunities for increased apparel sales can also be found in the 82% of Indian consumers who prefer to change outfits for each event, according to Global Monitor data, compared to the 71% of American consumers who say they prefer to wear one comfortable outfit all day, according to the Cotton Incorporated Lifestyle Monitor™ survey.

Sharma says the Asian countries of China and India have long and distinguished histories in producing high-quality textiles and apparel made from natural fiber: China in silk goods and India in cotton.

It should come as no surprise, then, that Global Monitor data reveal 91% of Indian consumers feel cotton and cotton blends are best suited for current fashions, and 83% say they would pay more for clothes made of natural fibers such as cotton, as opposed to synthetics like polyester.

McKinsey reports the Indian middle class – households with annual income ranging from USD $4,200 to USD $21,000 – of 50 million people is expected to swell to 580 million people by 2025.

"However, over the past two to three decades the luxury fashion markets in both countries have greatly expanded. With greater prosperity – meaning, greater purchasing power – growing numbers of Chinese and Indian consumers are buying foreign brand name apparel. Even though India has had its own high-end apparel industry, consumers in both countries prefer foreign brand names because they are seen as symbols of success."