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E-commerce in India: The opportunities and the obstacles

Source | RetailDIVE : By Daphne Howland

th a population of 1.25 billion that includes a large young, mobile-first generation—many of whom share English as a common language—plus an emerging middle class, India presents significant growth opportunities for retailers from across the globe. Following the recent news that the Indian government’s Department of Industrial Policy and Promotion would officially allow up to 100% foreign ownership of e-commerce marketplaces, both web and brick-and-mortar retailers operating there have garnered some decisive new advantages. 

That “marketplace” aspect is important, however. Indian officials have also decided that e-commerce companies capitalizing on the new rules must be in the business of providing technology platforms that facilitate trade between buyers and sellers, as opposed to an old-fashioned, “inventory-led model” where a retailer owns the goods it sells. (This, by the way, will hold back Apple, which has worked hard to persuade the Indian government to relax foreign investment rules that would make it easier to run its own stores, rather than rely on Indian retailers, as it does now.)

“The policy provides a much overdue clarity on [foreign direct investment] in B2C e-commerce,” Mihir Kittur, co-Founder and chief innovation officer at Ugam, a managed analytics company, explained in an email to Retail Dive. “This should pave the way for speedier and hassle-free foreign investments into the e-commerce sector, which should be good for the e-commerce players. The policy also defines the marketplace format that B2C e-commerce companies need to follow and permits manufacturers to undertake wholesale and/or retail including e-commerce without approval. Another positive for the retail industry at large.”

The potential

Even prior to the new guidelines, India posed an undeniably intriguing opportunity. The nation’s “modern trade” (including mall-based stores, chain stores and brands) is increasing 15% to 20% each year (though countrywide, it enjoys a lower organized retail penetration of 8%), according to PricewaterhouseCoopers. Meanwhile, a study from the Internet and Mobile Association of India last year found there were 52 million new Internet users there in the first six months of 2015, bringing the country’s total user base to 352 million as of June. And of those, 213 million—more than 60%—accessed the web through their mobile devices.

“If you look at the numbers, every three seconds an Indian experiences the internet for the first time,” said Kittur.

Not surprisingly, as India’s internet and mobile use has exploded, so has e-commerce. While it’s still a small fraction of the overall Indian retail market—just 4% to 6%—it’s growing rapidly and expected to scale up exponentially in coming years: India’s top 25 retail websites already account for some 62% of all web traffic nationwide, according to digital market intelligence company SimilarWeb, and around 12% of all Internet users in India are online shoppers, according to the Economic Times. Analysts believe that online shopper penetration could grow to 20% by 2017.

Looking further into the future, overall retail sales in India are projected to double to $1 trillion by 2020 from $600 billion last year, according to the Boston Consulting Group, which adds that e-commerce sales there are projected to quadruple in the next five years, to $60 billion or $70 billion.

“Online serves a lot of the pent-up demand,” Kittur said. “It can lead to a lot of solutions for people in cities, where there’s a lot of money but not a lot of retail stores.”

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