E-commerce in India


India has an internet user base of about 243.2 million as of January 2014.[1][2] Despite being third largest user base in world, the penetration of Internet is low compared to markets like the United States, United Kingdom or France but is growing much faster, adding around 6 million new entrants every month.[3] The industry consensus is that growth is at an inflection point.[4]

In India, cash on delivery is the most preferred payment method, accumulating 75% of the e-retail activities.[5] However, COD may harm e-commerce business in India in the long run [6] and there is a need to make a shift towards online payment mechanisms. Demand for international consumer products (including long-tail items) is growing much faster than in-country supply from authorized distributors and e-commerce offerings.

As of Q1 2015, seven Indian e-commerce companies have managed to achieve billion-dollar valuation. Namely, Flipkart, Snapdeal, InMobi, Quikr, OlaCabs, and Paytm (wing of, One97).[7]

Market size and growth

India’s e-commerce market [8] was worth about $3.8 billion in 2009, it went up to $12.6 billion in 2013. In 2013, the e-retail segment was worth US$2.3 billion. About 70% of India’s e-commerce market is travel related.[9] According to Google India, there were 35 million online shoppers in India in 2014 Q1 and is expected to cross 100 million mark by end of year 2016.[10] CAGR vis-à-vis a global growth rate of 8–10%. Electronics and Apparel are the biggest categories in terms of sales.

Key drivers in Indian e-commerce are:

  • Large percentage of population subscribed to broadband Internet,[11] burgeoning 3G internet users, and a recent introduction of 4G across the country.[12][13]
  • Explosive growth of Smartphone users, soon to be world’s second largest smartphone user base.[14]
  • Rising standards of living as result of fast decline in poverty rate.
  • Availability of much wider product range (including long tail and Direct Imports) compared to what is available at brick and mortar retailers.
  • Competitive prices compared to brick and mortar retail driven by disintermediation and reduced inventory and real estate costs.
  • Increased usage of online classified sites, with more consumer buying and selling second-hand goods
  • Evolution of Million-Dollar startups like Jabong.com, Saavn, Makemytrip, Bookmyshow, Zomato Etc.

India’s retail market is estimated at $470 billion in 2011 and is expected to grow to $675 Bn by 2016 and $850 Bn by 2020, – estimated CAGR of 7%..[citation needed] According to Forrester, the e-commerce market in India is set to grow the fastest within the Asia-Pacific Region at a CAGR of over 57% between 2012–16.[15]

As per “India Goes Digital”,[16] a report by Avendus Capital, a leading Indian Investment Bank specializing in digital media and technology sector, the Indian e-commerce market is estimated at Rs 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 is expected to grow at a rate of 22% over the next 4 years and reach Rs 54,800 Crore ($12.2 billion) in size by 2015. Indian e-tailing industry is estimated at Rs 3,600 crore (US$800 mn) in 2011 and estimated to grow to Rs 53,000 Crore ($11.8 billion) in 2015.

Overall e-commerce market is expected to reach Rs 1,07,800 crores (US$24 billion) by the year 2015 with both online travel and e-tailing contributing equally. Another big segment in e-commerce is mobile/DTH recharge with nearly 1 million transactions daily by operator websites.[citation needed]

Closures

Though the sector has witnessed tremendous growth and is expected to grow, a lot of e-commerce ventures have faced tremendous pressure to ensure cash flows. But it has not worked out for all the e-commerce websites. Many of them like Dhingana, Rock.in, Seventy MM amongst others had to close down [17] or change their business models to survive.[18]

Infrastructure

There are many hosting companies working in India but most[citation needed] of them are not suitable for eCommerce hosting purpose, because they are providing much less secure and threat protected shared hosting. eCommerce demand highly secure, stable and protected hosting.[citation needed] Cyber security issues of e-commerce business in India would be required to be managed by Indian e-commerce stakeholders in the near future.[19] In fact, Indian government is planning to introduce cyber security breach disclosure norms in India very soon.[20] Recently Target corporation suffered a cyber attack that has put it under litigation threat in multiple jurisdictions.[21] Trends are changing with some of eCommerce companies starting to offer SaaS for hosting web stores with minimal one time costs.

There could be various methods of eCommerce marketing such as blog, forums, search engines and some online advertising sites like Google adwords and Adroll.

India has got its own version Cyber Monday known as Great Online Shopping Festival which started in December 2012, when Google India partnered with e-commerce companies including Flipkart, HomeShop18, Snapdeal, Indiatimes shopping and Makemytrip. “Cyber Monday” is a term coined in the USA for the Monday coming after Black Friday, which is the Friday after Thanksgiving Day.[22] Most recent GOSF Great Online Shopping Festival was held during Dec 10 to 12, 2014.

In early June 2013, Amazon.com launched their Amazon India marketplace without any marketing campaigns.In July, Amazon had said it will invest $2 billion (Rs 12,000 crore) in India to expand business, after its largest Indian rival Flipkart announced $1 billion in funding.[23] Amazon has also entered grocery segment with its Kirana now in bangalore and is also planning to enter in various other cities like delhi Mumbai and chennai and faces stiff competition with Indian Startups like onedaycart.com, bazaarcart, bigbasket etc. Flipkart is also planning to enter grocery segment soon.[citation needed]

Funding

As of 2012, most of the e-commerce companies are yet to start making money. However, due to their growth prospects, many venture capital firms such as Accel Partners have invested considerably. In one of the biggest fund raising, Flipkart.com, till November 2014, has raised about USD 2.3 billion.[24] Entertainment ticketing website BookMyShow.com raised ₹100 crores investment by Accel Partners.[25]

On 10 July 2013, Flipkart announced it had received $200 million from existing investors Tiger Global, Naspers, Accel Partners, and ICONIQ Capital. New investors making up the additional $160 million include Dragoneer Investment Group, Morgan Stanley Wealth Management, Sofina, Vulcan Inc. and more from Tiger Global.[26]

Snapdeal – USD 50 million in 13 April.

In February 2014, online fashion retailer Myntra.com raised $50 million from a group of investors led by Premji Invest, the investment company floated by Azim Premji, Chairman of Wipro. May 2014 also witnessed an acquisition of Myntra by Flipkart reportedly for ₹2,000 crores.[27] However, cyber law [28] and e-commerce due diligence are still being ignored by investors and financial institutions while investing in India.[29]

In October 2014, KartRocket, an Indian e-commerce platform, announced granting of a Series A round led by technology investor Nirvana Venture Advisors and 500 Startups, together with Tokyo-based Beenos, previously known as Netprice.com.[30]

Regulatory violations and unfair practices

Legal issues of e-commerce in India are generally ignored by e-commerce websites. This may change in the near future as foreign companies and e-commerce portals would be required to register in India and comply with Indian laws.[31] E-Commerce websites dealing with nutraceuticals,[32] Bitcoin,[33] Ayurvedic products,[34] online pharmacies,[35] online payment,[36] online poker,[37] etc. are violating laws of India.

Enforcement directorate (ED) of India has already initiated legal actions against companies dealing with Bitcoins in India.[38][39] Tax liability of foreign companies like Google, Facebook, etc. is also under consideration in India.[40]

Similarly, illegal online sales of prescribed drugs [41] by illegal online pharmacies of India [42] are also under scrutiny of regulatory authorities of India.

Myntra,[43] Flipkart [44] and many more e-commerce websites are under regulatory scanner of ED of India for violating Indian laws and policies. US-based transport application provider Uber Inc has also been questioned by the service tax department of India.[45] In January, 2015, the Kerala Commercial Taxes Department imposed a fine of INR 54 crore on Flipkart, Jabong, Vector e-commerce, and Robemall Apparels, for doing illegal business in the state and from which Flipkart had to pay the bulk of fine with INR 47.15 cr.[46]

The Federation of Publishers’ and Booksellers’ Associations in India (FPBAI) has also questioned [47] the predatory pricing tactics adopted by various e-commerce websites in India. The Confederation of All India Traders (CAIT) has also decided to approach the Competition Commission of India to oppose the predatory pricing tactics of Indian e-commerce websites.[48]

Demands for introducing suitable provisions to regulate taxation, anti competitive practices and predatory pricing of Indian and foreign e-commerce websites have also been raised.[by whom?]

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