The e-commerce industry in India has witnessed exponential growth over the last decade and is poised for rapid growth in the years ahead, with increasing internet penetration and availability of affordable smartphones. With the advent of the Internet in 1995, the setting up of e-commerce portals started to gain popularity. The early e‐commerce entrepreneurs in India only used the internet as an effective medium for facilitating matrimonial alliances, travel‐related transactions and recruitment process.
The e-commerce space expanded with the introduction of online shopping portals in 1999, and the growth further spurred with the onset of a market place model for buying and selling pre-owned products. In 2002-03, e-commerce portals for online ticket booking for railways and airlines were introduced and by 2007, the space for online ticketing platforms for movies and live shows also started to gain momentum. Post 2007, a number of start-ups stepped into the Indian e-commerce market such as Flipkart, Infibeam, Myntra and Snapdeal etc., and gained customers through rigorous marketing and daily deal discounts. During this period, the forward and backward linkages of these sites were strengthened as well. By 2011, India’s small business owners could gauge the benefits of e-commerce when portals such as Infibeam and Buildbazaar provided a self-service platform for users to create an e-commerce store, upload their product catalog, customize their site and sell products. With the entrance of the global e-commerce giant- Amazon- in the Indian market, online sales of electronic goods, fashion, beauty, home essentials and healthcare began to upsurge. Since 2014, the Government of India has announced various initiatives namely, Digital India, Make in India, Start-up India, Skill India and Innovation Fund.
Market Size and Potential of E-Commerce in India
The Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the USA to become the second largest e-commerce market in the world by 2034. The Indian e-commerce sector is expected to grow at an annual growth rate of 51 percent during 2017-2020, recording the highest growth rate globally, supported by rising incomes and surge in internet users. According to the NASSCOM Strategic Review 2018 on IT- BPM sector in India, the e-commerce market in India registered a y-o-y growth of 17 percent, to reach US$ 38.5 billion in 2018-19 from US$ 33 billion in the previous year. According to IBEF, India's e-commerce market has the potential to grow more than four folds to US$ 150 billion by 2022.
As of September 2018, internet subscribers in India stood at 560.01 million. With growing internet penetration, internet users in India are expected to increase from 445.96 million in 2017 to 829 million by 2021. Further, e-commerce is also gaining traction among customers from Tier 2 and Tier 3 cities that are witnessing increasing disposable incomes but have limited access to branded & high quality products.
The average online retail spending in India stood at US$ 224 per user in 2017. Online retailers now deliver across “12,500- 15,000 pin codes” out of nearly 100,000 pin codes in the country. With logistics and warehouses attracting an estimated investment of nearly US$ 2 billion by 2020, the penetration of e-commerce to remote locations is set to increase. Indian warehousing sector is expected to double in size by 2021.
Opportunities for E-commerce Industry in India
With the Digital India initiative, virtually every aspect of life is becoming digital, from banking, to agriculture or any other commercial sector. The rapid growth of e-commerce has also benefitted from the introduction of GST in India, which has replaced the multi-tax regime with a single tax system, providing small sellers with the opportunity to compete with large corporates, especially in the sale of goods and services over the internet. The e-commerce industry has directly driven the growth of micro, small & medium enterprises (MSME) in India by providing them with access to finance, technology and training, and has a favorable cascading effect on other industries as well. There are nearly 51 million MSME units in India that manufacture more than 6000 products and account for nearly 40 percent of India’s total exports. In the recent times, MSMEs have been able to successfully leverage e-commerce in lowering their production costs, earning higher profits, and in realizing their untapped export potential.
The Government e-marketplace (GeM), which is a platform created by government for transforming procurement of goods and services by Government Ministries/ Departments, PSUs, autonomous bodies etc., recorded a cumulative procurement by the central and state governments worth of US$ 3.46 billion in FY19, and has a target of US$ 7.15 billion for FY20. Being an open platform, GeM offers no entry barriers to bonafide suppliers who wish to do business with the Government. The filters for selecting goods which are Preferential Market Access (PMA) compliant and those manufactured by Small Scale Industries (SSI), enables the Government buyers to procure Make in India and SSI goods effortlessly. As per the Ministry of Commerce and Industry, GeM is likely to eventually emerge as the National Public Procurement Portal (NPPP), in line with the global best practices of most developed economies that have a single NPPP. As a result, billions of dollars could be saved in public procurement, thus, enhancing opportunities for domestic industrialists.
In order to increase the participation of foreign players in the e-commerce field, the Indian Government has increased the limit of foreign direct investment (FDI) in e-commerce to 100 percent (in B2B models). E-commerce industry in India has registered 21 Private Equity (PE) and Venture Capital (VC) deals worth US$ 7 billion in 2018. Many of India’s blue-chip PE firms which had previously avoided investing in e-commerce are now looking for opportunities in the sector. Increasing investments by the Government of India in rolling out the fiber network for 5G will also help boost the sector. The rapidly growing e-commerce sector needs robust logistics and supply chain in order to enhance the efficiency and reachability of the e-commerce players.
Rural India, with an estimated population of 906 million as per 2011 census, has nearly 213.30 million internet users as of December 2018. Therefore, there exists an untapped potential for increasing penetration in the rural areas. Consequently, internet penetration in rural India is expected to grow by 45 percent by 2021, as compared to the current growth rate of 21.76 percent. As the internet penetration in the country increases and more international retailers start operating in India, the share of organized retail market is also expected to increase from 12 percent in 2017 to nearly 22-25 percent by 2021, thus increasing the size of the e-commerce market from US$ 24 billion in 2017 to US$ 84 billion in 2021.
Export Promotion through Ecommerce Policy
India has the second largest Internet base in the world with internet users projected to grow by 11 percent to reach 627 million in 2019. E-commerce in India is currently regulated by several regulatory bodies in India. The first Internet banking policy was initiated by RBI in 2001 followed by intermediary guidelines by Ministry of Electronics, Information and Technology (MeitY) under the IT Act in 2011.
In order to bring a harmonized approach in ecommerce ecosystem, a draft of National E- Commerce Policy was released by the Department for Promotion of Industry and Internal Trade (DPIIT) with an objective to enable India to benefit from digitisation by creating a governance framework for various stakeholders and strategies for data localisation, consumer protection and promoting micro, small and medium enterprises (MSMEs) and start-ups. The policy emphasizes on securing data arising in India and treating it as a national asset. It is divided into six segments namely- Data, Infrastructure Development, E-commerce marketplaces, Regulatory issues, Stimulating the domestic digital economy and Export promotion through e-commerce.
Strategies for Export Promotion through e-commerce
E-commerce over the past decade has had significant impact on manufacturers and small retailers. By engaging in exports through e-commerce, companies are able to gain valuable information such as global price sensitivity and improve their operating procedures and efficiency. This impact is visible in the fact that 60-80 percent of e-commerce exporters are able to survive the first year vis-a-vis the survival rate of 30-50 percent in case of traditional MSMEs, according to Invest India.
Taking cognizance of the rising trade deficits, compliance costs and the greater sustainability of exporters tapping the international market through e-commerce, the National e- Commerce Policy highlights various strategies for promoting exports through e-commerce as listed below:
The draft policy when approved will have far-reaching impact on various stakeholders, beyond ecommerce marketplaces, who form a part of the ecosystem. Sellers, logistics providers and MSMEs will be significant beneficiaries of the approved policy.Click here to view full draft of E Commerce Policy