Emergence & Impact of Ecommerce in India

Macro Economics Project

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E-commerce - Introduction
Business has changed a lot in last two decades because of phenomenal increment in internet
and mobile phone application. In India E-commerce is in nascent stage. In todays world
internet and mobile phone revolution has bought revolutionary change in the way business
are conducted.
E-commerce is sale or purchase of goods and service conducted over devices connected
through internet i.e. Computers and mobiles. Though goods and service are ordered
electronically, payments or delivery of goods and services need not be conducted online. Ecommerce transaction can be between businesses, households, individuals, governments and
other public or private organizations. There are numerous types of e-commerce transactions
that occur online ranging from sale of clothes, shoes, books etc. to services such as airline
tickets or making hotel bookings, online ticket booking by IRCTC, Automated teller machine,
Sensex are also example of e-commerce activities.
Majority of E-commerce is dominated by online travel, which estimated hold 70% of the
market share of E-commerce industry. Market place and online retails i.e. e-retail in both
forms are also becoming the fast growing sector in E-commerce. The percentage increase in
the e-retail share is 10% from 2009 to estimated 18% in 2013. Calculations based on industry
benchmarks estimate that the number of parcel check-outs in e-commerce portals exceeded
100 million in 2013.
This share however is very minute as compared to Indias total retail share, its almost less
than 1%, but is poised for continued growth in the coming years. If the economy see a strong
growth in coming few year, the size could mushroom to about 10 to 20 billion USD by 20172020. Increase in consumer led purchases in durable, electronics, apparels is expected to
boost the growth of e-commerce.
Buying and selling of goods and service has changed a lot in last two decades. This change is
because of internet and high speed data connectivity. People actually dont have to go to
market to buy this goods and services. They can purchase goods and services from any place
and make it delivered at desired place. E-commerce is transforming the shopping experience
of customers. This sector has seen unparalleled growth especially in the last two years.
India's ecommerce industry will contribute over $20 billion by 2017 to the country's
incremental GDP, according to a research report by consulting and research firm McKinsey.
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Since 2005 e-commerce market has grown an average of 34 % and will continue to grow for
ascertainable future reaching $2billion in sales by 2015 and estimated that India will have 38
million active online shoppers. In India E-commerce can harvest the potential of developing
rural sector. E-commerce is providing useful resource for growth of microfinance and MSMEs.
In the last 15 months foreign hedge funds, asset managers and investment firms have
invested almost $4 billion in just 26 Indian technology and ecommerce startups.
The adoption of technology is enabling the e-commerce sector to be more reachable and
efficient. Devices like smartphones, tablets and technologies like 3G, 4G, Wi-Fi and high
speed broadband is helping to increase the number of online customers. Banks and other
players in e-commerce ecosystem are providing a secured online platform to pay effortlessly
via payments gateways.

E-commerce business can be classified into 3 models

1) Consumer to Consumer
2) Business to Consumer
3) Business to Business
Business-to-Consumer (B2C): The B2C market in India generates the bulk of revenues
across the consumer-facing modes of e-Commerce. Furthermore, though online travel has
typically held a major share of the B2C market, online retail is also growing rapidly and is
expected to significantly increase its share.
Consumer-to-Consumer (C2C): Indias C2C market, though currently small, is set to
grow with the entry of several players. These entrants are attracting VC investment. Their
online portals are also garnering significant traffic. We expect the C2C segment to show
rapid growth in coming years.
Business-to-Business (B2B): The most common users of B2B online classifieds are
micro, small and medium enterprises (MSMEs). These small businesses lack the requisite
financial resources and, therefore, find it difficult to market their products and services to
potential clients through traditional media such as newspapers, banners and television.
Trade through online B2B portals increases the visibility of MSMEs in the marketplace and
helps them overcome barriers of time, communication and geography.
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Evolution of E-commerce in INDIA.

Evolution of E-commerce started in two phases. The first phase started after the
economic liberalization with the introduction of different economic reform by Indian
government in 1991. These reforms attracted many IT firms to put up their business in
India. IT Firms started the revolution of Information technology after introduction of
INTERNET in India in 1995. SMEs. The IT industry and SMEs were the early adopters of
internet. This led to the emergence of B2B, job searches and matrimonial portals. This
phase was not so successful because of slow internet connectivity and absence of
website/Portal. After the collapse of IT bubble in 2000, E-commerce sector took a major
setback. More the 1000 E-commerce firms collapsed. The second phase started after
2005 and still going on. The impetus for the growth was provided by the increase in the
number of internet user and Low Cost Carriers (LCCs). Major contribution in start of
second phase was provided by Travel sector. Indian Railway Catering and Tourism
Corporation (IRCTC) online website for online ticket booking was first major E-commerce
firm in this phase.
Major contribution for second phase came from online travel, online Retail, Group Buying
and Use of social networking site by firms to reach out customers. Few of the notable
points on the evolution of e-commerce.

In 2014 online shopping of Goods was about USD 4b and likely to grow by USD 54b

by 202 with a CAGR of 50%.

Indian Retail is approximately USD 600b, of which only 0.3% was online sales. Even

as % of Organized Retail, Online sales are < 4%. High Potential for growth.
Expect ~30% CAGR over 2013-20:
E-commerce in India is a ~USD11b market, and is estimated t o r each U SD20b by
20 15, g rowing a t a C AGR of ~ 37% over 2013-15.Google estimates this to
further propel to USD70b by 2020 (30% CAGR), of which e-tailing (online shopping
of physical goods), which is only ~USD2b in size today, will grow to become a

USD45b industry.
Huge flow of capital as investor are plumbing money.

E-Commerce and Indias GDP

According to the latest report IAMAI ( The Internet and Mobile Association of India ) and
IMRB (Indian Market Research Bureau) International, the E-commerce industry in
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India reached a value of INR 81,525 crore (US$13.5 billion) in 2014 and will Cross
$16 Billion in 2015.
Foreign Direct Investment in E-commerce
At present, India allows 100 percent FDI in business-to-business (B2B) e-commerce, but
not in Business-to-consumers (B2C) companies that sell directly to consumers. In its
latest FDI policy, the Indian government continues with 51% FDI in multi-brand retail.

Indian E-commerce Scenario is evolving rapidly. India was close to the mark
of around 213 million mobile internet users by June 2015.The latest
numbers from Ministry of Statistics have shown India is to take a lead in terms of
the fastest growing economy, beating out China next year. Economic status of the
country is evolving and, as a result, E-commerce industry is heading north without
any traces of slowing down.
India: Growth Prospect
Population: 1.25 billion. Total Retail Sales: $925 billion. Retail Sales CAGR (2010-14): 5.8
%.The research & consulting firm, E&Y, reports about the three primary factors driving
growth in Indian retail:

Regulatory factors- FDI policies.

Supply side factors- rapid infrastructural growth and online services.

Demand side factors- Rising disposable income, increasing urbanization, etc.

Consumer and investor sentiment have seen an uptick, as the pro-reform government
under Mr. Narendra Modi sets out on an ambitious goal of improving its Ease of Doing
Business ranking from 142nd to 50th in the next two years.

As retailers continue to

expand, real estate availability is probably going to be the biggest barrier. India has four
times the population of the United States but just one-tenth of the mall space. The dearth
of quality space is promoting some retailers to look online space instead. Indias UHNWI
(Ultra High Net worth Individuals) population is set to double over the next 10 years and
with recent regulation allowing 100 percent FDI in single-brand retail, luxury players too
are eager to gain a strong foothold in the market. It may seem astonishing that even
today e-commerce holds mere 1% of the total market share of Indian retail industry.
Hence, looking at the domestic market, there is huge potential for this sector to thrive.
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Potential to leverage: - Ecommerce as a new revenue model for the state run
India Post
Within a year of joining the e-commerce bandwagon as a distribution channel,
government entity India Post has transacted business worth Rs 280 crore in the Cash-onDelivery (CoD) segment alone for firms like Flipkart, Snapdeal and Amazon.
Indian Post collected Rs. 280 crore through cashon-delivery for e-commerce firms like Flipkart,
Snapdeal, Amazon during December 2013 to
November 2014.
However, this is a small chunk of the overall market size for e-commerce in India, which
runs into billions of dollars already and is growing at a fast pace every year. India Post is
also ramping up its infrastructure to grab a major chunk of the distribution, delivery or
logistics, which will touch about USD 9 billion by 2021.According to market experts, ecommerce business in India was about USD 6 billion in value in 2012 and is expected to
touch USD 76 billion by 2021 of which distribution, delivery and logistics constitutes
around 12 per cent.
E-commerce The risk involved
Internet is an international zone, one without boundaries, with low cost of entry. It is
source and information, and medium for creation of network, whether transient or long
living.
Though e-commerce have been into existence for some time, the regulatory agencies are
still unravelling the physics behind the e-commerce. E-commerce keeps on spawning one
maze or the other for regulators to solve. The challenges are in the area of exercising
regulatory oversight, law enforcement, consumer protection, taxation compliance,
protection of intellectual property rights and protection of minors. The answers to
perennial business questions such as who the contracting parties are, where an
electronic commerce operator is established and whether that operator is complying with
all relevant legal obligations and regulatory regimes is little more challenging to answer
in the virtual world where information, and relations are sold as services. This creates
legal and regulatory uncertainty about which jurisdiction will be competent and about the
applicable law in disputed cases and thus makes it difficult for e-commerce companies.

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The consumers concerns over privacy, consumer protection, security of credit card
purchases, order fulfilment and delivery. Consumer and E-commerce companies concern
are not too far away from each other. Their concerns can, however, be differentiated
based on frequency of transaction, business context, quality of safety net, and their
ability to distinguish between good and fraudulent transactions. These concerns are
heightened when trading across borders.
Governance of e-commerce and internet in general is a concern area. There is lot of
scope, and effort required to clarify concerns over ethical behaviour of firms with regards
to their expected act when dealing with competition, and consumers in large. Use of
stored-value cards and network money is on rise. Their close substitutability with
other payment instruments raises issues about the definition of monetary aggregates
their stability and the ability for central banks to control money supply. Though the
electronic money may not yet be an immediate concern for the regulatory, their use for
money laundering definitely is.
Despite e-commerce have been into existence for some time, the regulatory agencies are
still unravelling the physics behind the e-commerce. For now, e-commerce keeps on
spawning one maze or the other for regulators to ponder upon. The challenges are in the
area of exercising regulatory oversight, law enforcement, consumer protection, taxation
compliance, protection of intellectual property rights and protection of minors.

Indian Ecommerce: Growing under constraints

The inability to provide a direct connect with consumer is the biggest challenge in
eretailing. Further, apart from low internet penetration, like low debit card/credit card
usage which is being offset by cash on delivery, multiple languages, and logistics issues
which is being managed by building in-house logistics by players are also some of the
challenges faced by players. However with the help of technology, backbone of eretailing,
an attempt is made to bridge this gap. Also, other challenges are developing efficient
supply chain management, customer relationship management solution and enhanced
security systems which form heart of eretailing. Foreign capital inflow is the next logical
step to build the necessary infrastructure.

FDI in B2C: Next Logical Step

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FDI in ecommerce in India has seen around US$1.3 billion of foreign investment in the
ecommerce industry since 2010 to June 2013 and a large number of deals compared with
some other peers on account of huge potential seen in India. At present, 100% FDI is
allowed in business to business (B2B) ecommerce.
Restriction on FDI
In B2C Inventory / Independent model has restricted the growth of this segment on
account of lack of financial backing required for their expansion plans. Equity funding is
important for growth of eretailing given the large requirements on account of deep
discounts given to customer as an acquisition strategy, for establishing logistics and
creating differentiation in terms of customer service. There is no existing policy
framework that governs FDI in e -commerce; it is clubbed under the general rules for FDI
in retail. As per extant FDI policy, FDI up to 100% is permitted in B2B e-commerce
activities under the automatic route.FDI in B2 C e -commerce is prohibited. Global online
retailers or international investors looking to s ell products directly to customers are
prohibited from doing so, just like the offline FDI policy on retail.FDI in India is a complex
issue in itself, as FDI in multi-brand retail has been allowed only in cities with a population
of 1m and above. Enforcement Directorate probes in the case of F lipkart.com is the
latest Development as a result of the ongoing saga of FDI in e-commerce.
Payments and transactions
E-Commerce companies may face issues around security and privacy breach and
controlling fictitious transactions. Further, RBI restrictions for prepaid instruments or
Ewallets act as impediments. From a transactions perspective, cross-border tax and
regulatory issues, and backend service tax and withholding tax can have serious
implications.
Compliance framework
E-Commerce companies have to comply with several laws, many of which are still
evolving. Potential issues around cyber law compliance, inefficient anti-corruption
framework, legal exposure in agreements or arrangements, indirect and direct tax
compliance framework and FEMA contraventions and regularization could pose problems.
Also, uncertainty around VAT implications in different states due to peculiar business
models could cause issues.

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Key Drivers for E-commerce

Todays consumer, especially the middleclass urban and semi-urban India, who are
increasingly pressurized due to paucity of time as well as lured by convenience and
increased use of plastic money are all leading way to more online consumption.
Furthermore, favourable demographic profile (75% of internet users are aged between
1534), limited geographical reach by brick & mortar model, increasing internet
penetration, increasing smartphone usage & declining data charges offer high market
potential for E-commerce in India. With the new government focusing on overall
economic development, they may look at careful calibrated approach for opening up B2C
model in India to FDI. Opening up of Foreign Direct Investment (FDI) in this segment shall
change the contours of Ecommerce industry in India as well as contribute positively to
the overall economic development going forward .

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