E-commerce Boom in India

Last Sunday, a lady in Mumbai got ready to do her monthly grocery shopping. She switched on her laptop and logged onto her favourite grocery shopping site. There she spent an hour scrutinizing the items to be purchased, comparing the products, the prices and availing the huge discounts that were on offer. She may have taken lesser amount of time than what she would have taken if she had been shopping at a mall or a local grocery store and she had received more discounts that she had anticipated. She is happy. This particular e-commerce company understood her psychology, catered to her needs and gave her a wonderful shopping experience. Are these then signs of e-commerce picking up in India?

Trend is picking up

A report by Ernst and Young, a global consulting firm, says that India is at the cusp of digital revolution. Though e-commerce has been in India for the past 15 years, it is only now that the trend has picked up. In the past five years, the e-commerce market has grown by about 50 percent and the report predicts that online transactions in India are all set to grow to 38 million in 2015. It attributes this growth to the penetration of Internet, rise in the number of Internet users, online payments being accepted by people, rise in internet-enabled services.

Another research suggests that introducing cash-on-delivery has led to a surge in the e-commerce business. India, a country where penetration of credit cards is not at an enviable state, cash on delivery seems to have struck a chord with people. About 55 to 60 percent of online transactions operate on cash on delivery model.

However, even with all this going, Indians are still reluctant to buy online and spends only about USD 24-35 per online transaction. This pales in comparison to the US market where a person does about USD 150-160 per transaction, the research points out. But this is all set to change.

Studies and experts suggest that Indian consumers will begin to spend more. Liberalisation in this sector is in the offing with the recently announced Budget by the new National Democratic Alliance (NDA) government announcing that foreign manufacturers manufacturing in India can now directly sell their wares through e-commerce. Currently, the foreign manufacturers sell online through local franchisees. Experts are of the view that this move may make products cheaper for everyone to buy.

Recent developments

Success story of Flipkart: In 2013, when Flipkart, an e-commerce company that operates in India raised USD 200 million in its fifth round of funding, it caught everyone’s attention. For, this announcement brushed aside scepticism, if any, about selling merchandise products online and affirmed the potential growth of e-commerce in India, which many anticipated would take many more years.

Flipkart was founded in 2007, a time when retailers dealing in e-commerce were concentrating hard to overcome the various challenges that India then faced in the e-commerce sector like poor Internet connectedness, poor debit and credit card access and other logistical and supply chain issues. Flipkart had to figure out a profitable business model, which it did by introducing different modes of payment that suited the Indian customers, including cash on delivery. It also developed a strong network and strengthened its supply chain to achieve the success it has achieved.

The story does not stop here. In May 2014, Flipkart went ahead to acquire Indian’s largest online fashion retailer Myntra at an estimated deal of USD 30 million. This marked the biggest consolidation in the e-commerce space in India.

Entry of Amazon to India: Another major development in the e-commerce space in India has been the entry of Amazon in 2013. Amazon, an e-commerce giant, made this move eyeing for the top position in the Indian e-commerce market. In the process, it not only heightened competition but also increased the pace of consolidation in the e-commerce space.

Way forward

As per a Times of India report, by 2015, online shopping in India is all set to rise to USD 34.2 billion. This growth can be attributed to the growing mobile users in India – which is estimated to be about 27 million users in India. According to Sandeep Malhotra, CEO Homeshop18.com, about four percent of the people buy products via mobile phone. This is set to rise to 20 percent in the next four years, he added.

The Indian e-commerce market will also witness the emergence of start-ups in the country. Thanks to the INR 10,000 crore that has been announced in the 2014 Budget presented by the NDA government. It has been mainly start-ups that have now turned into huge business houses recording sales to the tune of USD one billion.

A study by Assocham, India’s apex Knowledge Chamber, suggests the growth of e-commerce industry in India in 2013 stood at USD 16 billion, registering a growth of over 88 percent from USD 8.5 billion registered in 2012.

Technopak, a consulting firm, said investors are showing great confidence in this sector and are investing huge amount of capital. Since 2012, e-commerce in India has seen about 140 deals and a funding of about USD 1.6 billion. In 2012, 73 deals were registered worth USD 371 million. In 2013, it grew to 60 deals worth USD 592 million. Till May 2014, the deals stood at 20 worth USD 637. This clearly indicates a rise in the net worth, it added.

Conclusion

Well, all indications are that e-commerce market in India is all set to boom. In a recent interview Anand Mahindra, chairman Mahindra and Mahindra Group, said the e-commerce revolution is waiting to happen and there is going to ample funding in this area. He was very positive about the huge potential that e-commerce market carried in India. With 4G services all set to become a reality, the boom is bound to set in, he said.

However, there are a few entrepreneurs who feel that setting up an online business in India is still an arduous task – filled with paper work and multiple registrations. They feel if the process can be simplified, many would be encouraged to enter the e-commerce space.

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