Widget Image
HomeEconomicsE-Commerce in India: A tryst with destiny?

E-Commerce in India: A tryst with destiny?

The ‘digitisation’ of India has captured headlines, valuations and more recently, nightmares of global investor communities.

By Garima Agarwal

Mary Meeker’s Internet trends 2016 states that the global growth in internet users has remained flat at 9%. Actually, it has dropped off slightly from 2013. Maybe there’s a trend there. The report also states that India has emerged as an unlikely contender in the global internet race, next only to China, with an internet adoption of 40% Y-o-Y. Maybe there’s a trend there too.

The ‘digitisation’ of India has captured headlines, valuations and more recently, nightmares of global investor communities. For a country which is less than a century old, the digital transformation has been nothing short of a miraculous journey. India’s internet base has now grown to be the second-largest in the world, with triple digit growth in geographical areas where the domestic government is struggling to introduce free primary education. A major role in this entire process is credited to the growth of e-commerce.

How it began

Though the exact route is debatable, e-commerce in India began with the advent of online travel bookings. Even now, nearly 70% of the e-commerce in India consists of travel and ancillaries. Next came internet banking, which was a nascent step in setting up the requisite infrastructure to support a startup ecosystem. Internet banking morphed into forms such as phone banking and mobile banking which became an industry requisite. This widespread banking movement required a communications infrastructure in place and local telecom providers jumped to the opportunity.

Websites like eBay saw some Indian clientele, and started routing transactions through Paypal. In fact, Paypal became the buzzword for a year or two, very much like Bitcoin now.

Then came in the mobile revolution, somewhere in the early 2000’s. Nokia was suddenly a mass commodity. This unprecedented mobile adoption, strangely enough, continues even now. With banking and mobile on the background, somehow, m-commerce was born. Smartphones became a trend and a necessity. Internet and m-commerce changed the way transactions started happening, and this country drew the attention of more sophisticated venture capitalists, where the financing market earlier was ruled by banks and angel investors.

Fast forward 5 years later, e-commerce is how we know it today.

Where is it now?

With the history in context, e-commerce in India is like betting on the underdog in the global derby. Surpassing the user base in the United States, India has become 400 million strong. Online retail sales have crossed over $20 billion, roughly 1% of total retail sales in India. This number is expected to grow at a startling rate of 95% over the next 2 years.

Online retail sales have crossed over $20 billion, roughly 1% of total retail sales in India. This number is expected to grow at a startling rate of 95% over the next 2 years.

It is undoubtedly the fastest growing e-commerce ecosystem in the world. From mass market retail to extremely niche and sophisticated segments such as personalized gifting, everything is moving at a burgeoning speed. Growing banking and telecom infrastructure, information transparency and the Government’s push to startups is changing the way entrepreneurship is perceived in India.

India has suddenly emerged as a key player on the global strategic map for most of the tech companies. India’s ability to develop sovereign systems, and low entry barriers have made it as one of the ‘most attractive investment opportunity’ in emerging markets. 19,000 startups saw the light of day in 2016, NASSCOM’s report placing that number as third highest in the world.

So what’s next?

From near free mobile data plans to a sudden push towards digital currency, India is at the verge of a revolution, and not the kind we’ve seen before.

India has suddenly emerged as a key player on the global strategic map for most of the tech companies.

Digital transformation has been nothing short of a miraculous journey for India with its internet base grown to be the second-largest in the world. | Photo Courtesy: BluePay

Followed by a wave of ecstatic investments and consequently ballooning valuations in 2015, the ecosystem is being forced into a slowdown of sorts in 2016. The lack of profitability seems to be the plague eating up companies in the industry. Questions are being raised on the sustainability of this ecosystem, and its ability to show a convincing return. There might be a 1.2 billion people strong market available, but there’s a cost associated with getting them onboard. Quite often, while the potential profit is considered, the potential cost is either neglected or underestimated.

There might be a 1.2 billion people strong market available, but there’s a cost associated with getting them onboard. Quite often, while the potential profit is considered, the potential cost is either neglected or underestimated.

While business cycles might be moving on an 8 year period, India is a game of 5. The political turbulence is so profound that it alters the course of the entire business environment every 5 years.

This would mean that in order for e-commerce to succeed here, it has to be sufficiently local. It is still extremely difficult to open up a business and compete with global giants for the few customers. E-commerce here is an aggregation of struggling startups sprawled all over the country. This incredible contrast has led to haywire expectations, and so are the valuations, which tend to be towards the pricey end.

However, as all ecosystems evolve and learn from their mistakes, it is likely that the same would happen in the case of India. To tend to 1.2 billion people isn’t an easy task, and the e-commerce industry is just beginning to show us how.


Garima Agarwal is currently working on launching a healthcare venture. She has worked with Sequoia Capital and India Value Fund Advisors previously.
Featured Image Credits: Blominvest
Fresh insights delivered to your phone each morning. Download our Android App today!