Sectoral Analysis: E-commerce in India

In the past few decades, rapid development in the information and telecommunications sector has greatly impacted the way we live- especially with the growing importance of the e-commerce sector. While the traditional shop-based retailing still thrives, e-commerce has been consistently gaining ground with the entry of e-commerce behemoths such as Amazon and Alibaba along with emerging Indian players like Flipkart, Snapdeal, OLX, Quikr, Jabong, Ruplee, AirBnB and many others. Additionally, the implementation of the Digital India Programme by Prime Minister Narendra Modi on 1st July 2015 is expected to give the e-commerce sector an even greater boost in terms of its popularity, growth and development by virtue of creation of a digital infrastructure, delivery of services digitally and promoting digital literacy. Abider Shaikhmuhmad  writes of the overall growth and development of the e-commerce sector in India with respect to eTravel and the opportunities and challenges faced by it presently as well as in the long run in the sector and the nature and scope of the Digital India Campaign.

E-commerce in India – A Brief History:

The recent past has seen increased presence of e-commerce businesses in India. Employing tactics such as online shopping websites, provision of online marketplaces for third-party transactions, business-to-business buying and selling, online data collection through social media, publishing online newsletters and pretailing of new products to prospective clients, these companies have largely expanded the e-commerce consumer base. The earliest example of e-commerce is the introduction of the Online Passenger Reservation System by the Indian Railways Catering and Tourism Corporation (IRCTC) in 2002 which revolutionized train ticket booking in India by providing hassle-free and efficient booking of train tickets from anywhere across India. Another example is of e-sewa offering a wide spectrum of online services ranging from payment of bills (electricity, water and sewerage, telephone bills, property tax and sales tax), provision of birth and death certificates to the issue and renewal of essential licenses[1]. The growing acceptance of the e-commerce model by the Indian people on a large scale prompted other players to enter the market. With online shopping prevalent on a small-scale, the arrival of Flipkart in 2007 increased this trend with the introduction of high discounts to expand the consumer base. Today, Flipkart has raised a capital worth USD 3 billion. Inspired by its success, other players such as Amazon and Alibaba started venturing into India for business. Since 2014, e-commerce in India has seen unprecedented growth with more and more people gaining access to smartphones and tablets as well as the spread of digital literacy among the Indian population coupled with easier access to 3G internet services thus broadening the consumer base. With 75 % of adults belonging to the age group of 15-34 years, they are adept at utilizing modern technology thus providing a major incentive to digital commerce.  The advent of low-budget smartphones, tablets, laptops and other inexpensive electronic devices coupled with lower internet tariffs have encouraged greater internet usage thus facilitating more digital commerce in India.

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Source: http://www.shutterstock.com

Sector-wise analysis of e-commerce in India:

E-travel:

According to PwC, e-Travel in India comprises 70 % of the total e-commerce market. With a population of over 1.3 billion, the travel and tourism industry is set to expand rapidly in the coming years. The industry has earned revenue of USD 120 billion thus contributing to 6.5 % of the nation’s gross domestic product (GDP) and is expected to grow by 7.5 % by 2025[2]. Given these facts, it is not surprising that e-travel is set to become one of the largest contributors to India’s economic development. As travel technology is becoming more viable, consumers are increasingly resorting to e-travel portals for ease of bookings and comparing prices. Today, 95 % of consumers avail online travelling facilities which typically include hotel bookings, flight tickets, rail tickets, rental cabs and holiday packages. They are advantageous because they offer significantly lower prices compared to travel agencies. Incentives such as discounts, cash-back offers, free gifts and other ancillary services are a part and parcel of e-travel portals. Among these, the online hotel booking facility has grown phenomenally especially in tier 1 and tier 2 cities. E-commerce giant “MakeMyTrip” through a survey in August 2013 concluded that 97 % of the people book hotels online[3]. “MakeMyTrip” itself is tremendously popular among customers. Providing a “one-stop-shop” for travel products and services for the Indian domestic market, the website provides an integrated platform for booking domestic flights, trains, hotels and taxi services. The success of “MakeMyTrip” can be attributed to its effective exploitation of mobile technology. It has launched a user-friendly mobile application leading to its growing popularity. As of today, the MMT app has been downloaded by 2.4 million users which make up 20 % of the entire consumer base. Likewise, other players like yatra and ClearTrip have also done well in the past few years; the former earning INR 263 crores and the latter earning INR 192 crores[4].

E-commerce has expanded phenomenally into the hospitality industry by providing services such as AirBnB and Oyo Rooms. AirBnB offers homestays across the country with more than 5000 listings across the country. It follows a unique business model; practicing a peer-to-peer business linking the hosts to the consumers and charges a service fee without direct ownership of property. These homestay services are highly popular as they provide accommodation at very reasonable rates. With a strategic partnership tie-up with the Times Group in April 2016, its operations are expected to grow even further by having access to local clientele and vast amount of resources[5]. In 2012, the AirBnB mobile app registered over 1 million downloads constituting 26 % of bookings[6]. According to reports, AirBnB is expected to earn USD 12.3 billion from its bookings by the end of 2016.

No economic sector is successful without the role of banks. Banks are the engines driving the economic growth of a nation by providing financial services to the different sectors of the economy. Facilitating business-to-business e-commerce, banks have increasingly undertaken to automate the flow of goods and services between businesses. The post-globalized India has seen considerable levels of economic development; the key contributors being foreign trade and tourism. With the rapid growth of the tourism industry as pointed above, considerable finance has been directed towards its development by the banking sector. The 21st century has seen a paradigm shift in banking operations in India with the introduction of e-banking. Offering services like internet banking; electronic funds transfer systems, debit cards, credit cards, bill payments, smart cards and mobile banking, e-banking has facilitated hassle-free transactions. This has contributed immensely to the growth of India’s e-commerce industry and particularly in the e-travel segment. Banks provide payment gateways by establishing a digital payment interface. Payments are usually made through debit cards, credit cards, cyber cash or virtual payment systems with most transactions pertaining to train travel, air travel and accommodation. Examples of virtual payment systems include apps such as Paytm, Freecharge and Ruplee. Additionally, banks help in structuring and hosting e-commerce websites and consulting regarding financial dealings.

When it comes to offering e-commerce facilities, banks carry a significant advantage over their potential competitors. With the role of financial guarantors for the e-commerce companies, banks enjoy greater confidence among the public as they’re perceived as trustworthy third parties enjoying established account relationships with consumers and businesses[7]. As a result, banks witness increased scale of operations by virtue of expanding into new business ventures coupled with greater investors’ confidence.

Challenges and Opportunities:

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source: veltrod.in

With more and more consumers taking on to the internet, the online services are expected to generate massive revenues for the respective players. This, however, reflects only one side of the coin. No business in a country is devoid of challenges and threats to its existence. Some of the major challenges faced currently and in the future have been highlighted in this section. Out of the 1.3 billion people in India, the impact of e-commerce is restricted to those who are above poverty line and mainly concentrated in urban areas. Out of this urban population, tier-1 and tier-2 cities are the ones deriving maximum benefit. PwC estimates show that only 16 % of the Indian people have access to the internet. This includes the number of people having access to smartphones, tablets, laptops and other technologically advanced devices. This disturbingly restricts the impact of e-travel on the Indian people. Despite the government’s efforts to trickle down the benefits of e-commerce to all sections of the society, we still have an arduous journey ahead. The second challenge faced by the e-travel industry is people’s reliance on conventional travel methods. Because of the restricted impact of e-commerce, many people still rely on travel agents and touts, which have narrowed the customer base in the country. Failure of payment gateways is another factor for the limited penetration of e-travel in India. This has been observed especially in the Online Reservation Systems offered by various airline companies as well as IRCTC. Failure of online servers due to poor internet connectivity results in failed transactions thus making online bookings more difficult. Security threat is yet another challenge- especially women’s security. For instance, in 2014, the taxi service provider Uber came under severe criticism when a taxi driver allegedly raped a 27-year-old woman in Delhi. This led to a general loss of confidence among the customers leading to a fall in its operations. On rare occasions, it has been observed that many e-travel agencies fail to deliver whatever they promise. This includes provision of basic amenities like drinking water, food, clean bathrooms, etc. A key problem facing the Indian tourism industry is inadequate infrastructure, thus leading to a net outflow of domestic tourists and a reduced inflow of foreign tourists in India. The e-travel forums are thus making efforts to improve the infrastructural facilities by providing better accommodation facilities to their clients.

With regard to the banking sector, significant challenges exist. A major risk would arise from the inability to keep up with market competitiveness. The emergence of internet-only banking facilities has put mainstream banks’ operations at risk. Forums such as Paytm and Freecharge are diverting customers away from availing online banking facilities by providing services such as mobile recharge, bus ticket bookings, payment of bills and virtual wallets at very nominal rates. Banks are therefore finding difficulties in competing with these e-commerce players. To keep up with such competition, Banks would require stepping up their operations which would pressurize them to direct a considerable part of their finances causing depletion in their capital. Additionally, e-commerce shopping would deprive banks of market power in their respective regions. Failure of payment gateways on several occasions has also put the credibility of banking under question. It has been observed that many transactions fail as a result of unresponsive payment gateways due to poor internet connectivity on forums such as IRCTC. Banks are trying to address this problem in many ways such as increasing the internet bandwidth, applying for faster speeds, etc. but problems still persist. Drawing from these risks and challenges, Banks have become quite experienced dealing with them and are mostly able to resolve these issues on time thus retaining the confidence of the customers.

Despite these challenges, India’s massive geographical terrain coupled with the Indian Government’s Digital India campaign provides great opportunities for the e-travel sector to flourish. Employment of aggressive marketing tactics by virtue of providing massive discounts and travel incentives coupled with comfortable lodging has greatly worked in favour of the e-travel industry. With the recent development in medicine in India, medical tourism has increased in the last few years. This influx has provided wider ground for e-travel companies to expand their operations. As of 2015, the medical tourism sector generated USD 3 billion in terms of revenue[8]. India has also recorded a stable economic growth in the last two years. With modest inflation levels and increased personal disposable income of the residents of India have increased the demand for domestic tourism in India. Having said this, the Indian e-travel market in my opinion, is sure to gain popularity among the Indian people in the near future.

Government efforts to promote digital commerce: Digital India Campaign:

The Indian government’s efforts to promote a digital India have yielded credible success in the last two to three years. In lieu of growing competition in the international market especially from China, it is imperative for India to buckle up in order to maintain a level playing field. In 2013, the Asia-Pacific Region was recognized as the strongest B2C e-commerce region in the world with sales of 567.3 billion USD and a growth rate of 45 % throughout 2012, overtaking Europe which was 482.3 billion USD. This trend is still continuing with China registering one of the highest growth rates in this sector – a cause of worry for India. Fortunately, the National Democratic Alliance (NDA) upon assuming office as of 2014, has made digitizing India a priority. To that end, Prime Minister Modi has designed a unique Digital India Programme to address the growing demand and scope of e-commerce in the world’s largest democracy. With a holistic view to promote digital literacy in India, the campaign aims to digitally empower India to ensure a better standard of living and access to international markets.

A highly ambitious programme with a cost of 113,000 crores INR, the Digital India Campaign is designed to make available electronically key governmental services by improving online infrastructure and providing increased internet connectivity. The Government hopes to achieve growth on multiple fronts through this campaign. A series of parameters known as the “9 Pillars of Digital India” have been identified such as establishment of Broadband Highways, Universal Access to Mobile Connectivity, a Public Internet Access Programme, promoting e-governance, delivering services electronically (eKranti), Information for All, Electronics Manufacturing, IT for Jobs and Early Harvest Programmes[9]. Other facilities include provision of DigiLockers; a mechanism for digitally storing citizens’ official documents such as PAN Cards, Passports, Mark Sheets and other important government documents; a National Scholarship Portal and a platform for open discussions regarding accountability issues.

The Digital India initiative will greatly increase e-commerce in the future by providing faster internet and broadband services to the remotest parts of the country. Presently, majority of e-commerce businesses are concentrated within tier-1 and tier-2 cities of India. The Digital India drive is thus attempting to expand e-commerce to tier-4 to tier-6 cities and villages. A major initiative in this regard is the upgradation of India’s postal services. The postal service has been in existence for more than 150 years and has been the backbone for India’s internal communication systems[10]. The Indian government has strived to improve its postal services over the last few years. To that end, the government has established ePost which facilitates electronic delivery of postal services through a network of more than 155,000 Post Offices. The Digital India initiative will assist in developing the ePost service by extending to more remote areas thus expanding the potential and reach of the e-commerce market. Since the NDA government came to power, the Indian Government has allowed a 100 % Foreign Direct Investment (FDI) in the economy. This has allowed e-commerce giants such as Amazon and Alibaba to increase their operations leading to an increase in e-retailing in India. The campaign is attempting to sustain this trend and thus broaden the customer base. With a steady growth rate of 7 % in the economy, the Digital India campaign has immense potential for success in the coming years.

Conclusion:

With the ever-expanding consumer base and the tireless efforts of the Indian government, it is clear that e-Commerce has a high growth potential ahead. With the e-Travel and e-retailing gaining prominence, the traditional retail outlets and travel agencies are facing stiff competition. The arrival of e-commerce has indeed yielded many benefits to both producers as well as consumers. For retailers, the digital platform has provided an opportunity to link with other sellers engaged in the same business which makes product distribution more cost-effective. Additionally, they can post more information about the product such as its cost price, durability, key features of the product (especially for electronic goods), cash discounts, etc. which works in favour of consumers as they can make informed decisions about their purchases. Though the internet usage base in India might be only 100 million, it does not imply that the e-commerce sector will be impeded. With India being exposed to more advanced ways of trading and commerce in the international arena coupled with the emergence of domestic e-commerce behemoths such as Flipkart, Quikr, OLX and Snapdeal the internet base will rise in the future thus providing a firm ground for e-commerce to flourish. With a steady economic growth and moderate inflation levels leading to a high standard of living, Indian people have greater access to a wide variety of products, especially electronics. India is one of the biggest markets for tablets, smartphones, laptops and other technological devices, thus making the prospect of e-commerce optimistic in the future.

The writer is a student at Jindal School of International Affairs.

List of citations and References

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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