India has an internet user base of about 475 million as of July 2019, about 40% of the population. This number is expected to be 627 million by the end of 2019. Despite being the second-largest user base in world, only behind China (650 million, 48% of population), the penetration of e-commerce is low compared to markets like the United States (266 million, 84%), or France (54 M, 81%), but is growing, adding around 6 million new entrants every month. The industry consensus is that growth is at an inflection point.
In India, cash on delivery is the most preferred payment method, accumulating 75% of the e-retail activities. Demand for international consumer products (including long-tail items) is growing faster than in-country supply from authorised distributors and e-commerce offerings. Long tail business strategy allows companies to realize significant profits by selling low volumes of hard-to-find items to many customers, instead of only selling large volumes of a reduced number of popular items. The term was first coined in 2004 by Chris Anderson.
In 2017, the largest e-commerce companies in India were Flipkart, Snapdeal and Amazon. In 2018, Amazon beat Flipkart and was recorded the biggest ecommerce in india in terms of revenue.
Trends that are Driving E-Commerce in India
Indians are known for their ‘street smart’ economic mindset that enables them to find solutions to impregnable challenges despite the constraints.
This is the similar ‘innovative mindset’ which is making Indian entrepreneurs embrace analytics, digitization, and technology to develop platforms and deliver services and products to the end customer creating a new online buying behavior.
In the context, India’s retail opportunity is substantial and affected by several factors such as the rising standards of living, hyper-connected young population, upwardly mobile middle class, the explosion of social media platforms, deeper internet penetration, and increased smartphone penetration. So, significant growth of e-Commerce is expected in the next two years.
GST to Enhance the Growth of e-Commerce
GST is expected to enforce a single comprehensive indirect tax regime that will be applicable across on the supply of goods and services across all states. The implementation of GST is expected to include the service tax, central excise duty, and additional customs duty at the central level and CST, VAT, and entry tax at the state level. It will enhance operational efficiency of the e-commerce industry in the many ways like the transparency and simplification of taxes across the borders in India, elimination of the incidence of double-taxation, and improvement in the efficiency of the supply chain
E-Commerce is changing the lives of millions, but there are also a number of people who prefer offline shopping. If e-commerce is to make a huge impact in the coming years then these trends will definitely affect the business.
Increase in the Internet Penetration
The e-commerce industry in India has been growing with the rise in internet penetration due to major improvements in the telecom infrastructure. While the 3G and 4G services are making a way into India along with declining data tariffs, internet data spend is growing significantly. Even when India ranks the lowest in Asia at internet speed, the data rates in India are 3 times cheaper than in the US and 2 times cheaper than in China. Government schemes such as a National Optical Fiber Network (NOFN) can significantly increase internet penetration in the rural communities as well as provide a means for e-commerce companies to tap the huge market potential there.
Growth in Smartphone Adoption
Smartphone growth has been massive over the years and is expected to exhibit more growth in the coming years. The smartphone’s adoption in India is propelled by several factors such as low prices due to high competition, ease of accessibility to content, and prevalence of internet enabled services. According to a report, India has the highest share of globally 41% of mobile-based e-commerce sales. Almost 70-75% of the online traffic of e-commerce sites comes from mobile phones, the leading e-commerce companies stated and thus higher revenues are coming from mobile applications like 50% for Flipkart while 70% for Quikr.
Evolution of New Payment Solutions
Cash on Delivery (CoD) has been the most popular mode of payment for Indian e-commerce transactions. Cash transactions result in high administration cost even for the e-commerce companies. Hence, to address these challenges, new digital payment solutions are evolving. Further, the Indian government’s initiative has extended banking facilities through the ‘Jan Dhan Yojana’ scheme which has added over 110 million debit cards thereby providing these customers access to electronic payments. The electronic wallets have been launched and also digital payment products from traditional banks for faster transactions to ease the payment process in e-commerce.
Partnerships of Logistics Space with Hyper-local Companies and India Post
Customers are getting next-day delivery of products. Due to the challenges in terms of return orders, higher standards of customer service, and handling huge volumes of delivery, the industry has seen the rise of several third-party logistics service providers that handles last-mile deliveries. There is an increasing number of partnerships of e-commerce companies with the third-party logistics service providers in order to reach mainly in tier two and three cities. Also leading e-commerce players to have their own logistics arms for enhanced customer experience and for greater control on deliveries.
Gaining Momentum of Government Initiatives
The Government of India has been active in leveraging and embracing e-Commerce digital platforms to transform and organize traditional offline markets such as those of agricultural product. The Government has launched an e-commerce platform to link the farmers with the vegetable markets of various states to sell the agro commodities. Also, flagship initiatives such as Start-up India, Digital India, Skill India, and Innovation Fund are contributing to the growth of the e-commerce industry.
Some of the major developments in the Indian e-commerce sector are as follows:
- In November 2020, Amazon India announced collaboration with Hindustan Petroleum Corporation Limited. Under this partnership, customers will be able to book and pay for their LPG cylinders until the delivery.
- In November 2020, Reliance Retail Ventures Ltd. (RRVL), a subsidiary of Reliance Industries (RIL), acquired a minority stake of Urban Ladder Home Decor Solutions Pvt. Ltd. for Rs. 182.12 crore (US$ 24.67 million).
- In November 2020, Flipkart acquired Scapic, an Augmented Reality (AR) firm, to boost user experience.
- In November 2020, Amazon India has opened ‘Made in India’ toy store, in line with the government’s ‘Atmanirbhar Bharat’ vision. The store will allow thousands of manufacturers and vendors to sell toys driven by the Indian culture, folk tales and toys that promote creative thinking and are locally crafted & manufactured.
- In October 2020, Amazon India collaborated with the Indian Railway Catering and Tourism Corporation (IRCTC) to enable users to book and reserve train tickets on Amazon.
- In October 2020, Flipkart acquired a 140-acre land at Rs. 432 crore (US$ 58.87 million) to establish their largest fulfilling centre in Asia, in Manesar, Gurgaon, in a bid to scale their fulfilment infrastructure to cater to increased demand post COVID-19.
- In October 2020, Amazon India invested over Rs. 700 crore (US$ 95.40 million) into its payment unit, Amazon Pay.
Market size and growth
India’s e-commerce market was worth about $3.9 billion in 2009. As per “India Goes Digital”, a report by Avendus Capital, the Indian e-commerce market is estimated at ₹28,500 Crore ($6.3 billion) for the year 2011. Online travel constitutes a sizable portion (87%) of this market today. Online travel market in India had a growth rate of 22% over the next 4 years and reach ₹54,800 crore ($12.2 billion) in size by 2015. Indian e-tailing industry is estimated at ₹3,600 crore (US$800 million) in 2011 and estimated to grow to ₹53,000 crore ($11.8 billion) in 2015. The market went up to $12.6 billion in 2013. In 2013, the e-retail segment was worth US$2.3 billion. About 79% of India’s e-commerce market was travel related in 2013. According to Google India, there were 35 million online shoppers in India in 2014 Q1 and was expected to cross 100 million mark by end of year 2016.
Since 2014, the Government of India has announced various initiatives, namely Digital India, Make in India, Start-up India, Skill India and Innovation Fund. The timely and effective implementation of such programs will likely support growth of E-commerce in the country. Some of the major initiatives taken by the Government to promote E-commerce in India are as follows:
- Government e-Marketplace (GeM) signed a Memorandum of Understanding (MoU) with Union Bank of India to facilitate a cashless, paperless and transparent payment system for an array of services in October 2019.
- Under the Digital India movement, Government launched various initiatives like Umang, Start-up India Portal, Bharat Interface for Money (BHIM) etc. to boost digitisation.
- In October 2020, Minister of Commerce and Industry, Mr. Piyush Goyal invited start-ups to register at public procurement portal, GeM, and offer goods and services to government organisations and PSUs.
- In October 2020, amending the equalisation levy rules of 2016, the government mandated foreign companies operating e-commerce platforms in India to have permanent account numbers (PAN). It imposed a 2% tax in the FY21 budget on the sale of goods or delivery of services through a non-resident ecommerce operator.
- In order to increase the participation of foreign players in E-commerce, Indian Government hiked the limit of FDI in E-commerce marketplace model to up to 100% (in B2B models).
- Heavy investment made by the Government in rolling out fibre network for 5G will help boost E-commerce in India.