India’s E-commerce Market Opportunities and Challenges

Ankita Tiwari

30 May, 2023

In the recent past, India has seen burgeoning demand for internet and smartphones. The rapid rise in internet users coupled with rising incomes and driven by the “Digital India Programme” has led to the growth of India’s e-commerce sector. In a decade, India’s e-commerce sector has transformed how business is conducted. Various segments of e-commerce have emerged such as business-to-business (B2B), direct-to-consumer (D2C), Consumer-to-consumer (C2C), and consumer-to-business (C2B). India’s e-commerce market is anticipated to be worth US$ 188 billion by 2025.

Investments and Developments in India’s E-commerce Market

1. In June 2022, an MoU was signed between Amazon India and Manipur Handloom & Handicrafts Development Corporation Limited (MHHDCL), a Government of Manipur Enterprise for the benefit of artisans and weavers across the state of Manipur.
2. In 2021, India’s e-commerce sector received US$ 15 billion in Private Equity and Venture Capital investments, which was 5.4% more than the previous year. This is the highest investment made in any sector in India.
3. In February 2022, Xpressbees which is a logistics e-commerce platform became a unicorn valued at US$ 1.2. billion in 2022. Thereafter, the firm raised US$ 300 million in its Series of Funding.
4. To support MSMEs, Amazon India launched one district one product (ODOP) bazaar.
5. Flipkart launched the “sell back program” in February 2022 to aid trade in smartphones.
6. Walmart invited Indian sellers in January 2022 to join the US Market place. The aim was to export US$ 10 billion from India every year till 2027.
7. Flipkart also announced its expansion in grocery services in January 2022 intending to offer services to 1800 Indian cities.
8. US-based e-commerce XPDEL announced its expansion in India in November 2021.
9. India’s leading car e-commerce platform, CARS24 raised US$ 450 million in funding comprising of US$ 340 million Series F equity round and US$ 110 million in debt from various financial institutions in September 2021.
10. Prime Video Channels were launched by Amazon in India in September 2021 which gives a seamless experience and access to several popular video streaming services.
11. A mobile commerce enabler Bikayi raised US$ 10.8 million in Series A funding in September 2021.
12. India’s e-commerce powerhouse Flipkart raised US$ 3.6 billion in new funding from various sources including sovereign funds, private equities, and Walmart its parent company in 2021.

Government Initiatives in India’s E-commerce Market

Since 2014 the Government of India has been taking various initiatives which have supported the growth of E-commerce in the country. Some of the initiatives are Digital India, Make in India, Start-up India, Innovation Fund, and Skill India. Some of the major initiatives taken by the Indian Government to promote E-commerce in India are:

1. Government e-Marketplace (GeM): The GeM portal has taken 12.38 million orders from 5.44 million registered sellers and service providers for 62,247 buyer organizations till November 2022. The orders were a total worth of US$ 40.97 billion. In addition to this, GeM signed an MoU with Union Bank of India to promote a cashless, paperless, and transparent payment system for an array of services in October 2019.
2. Plan to utilize Open Network for Digital Commerce (ONDC): The Department of Promotion of Industry and Internal Trade (DPIIT) in order to systematize the onboarding process of retailers on the e-commerce platforms, is planning to utilize the ONDC for setting protocols for cataloging, vendor discovery, and price discovery. It also aims to provide equal opportunities to all market players to ensure optimum use of the e-commerce ecosystem in the larger interest of the country and its citizens.
3. Consumer Protection (E-commerce) Rules, 2020: The Consumer Affairs Ministry notified the Consumer Protection (E-commerce) Rules in July 2020. As per the Rules, the e-commerce companies are directed to display the country of origin beside the product listing. Apart from this, the companies will also have to reveal parameters based on which product listing is done on the platforms.
4. National Retail Policy: The government has identified 5 areas in which offline retail and e-commerce both need to be administered integrally. These areas are ease of doing business, rationalization of license process, digitization of retail, focus on reforms and open network for digital commerce.
5. Digital India Movement: Under this movement, the Government launched various initiatives such as Umang, Start-up India Portal^[1], Bharat Interface for Money (BHIM), etc. These initiatives aim to boost digitization in India.
6. Registration of start-ups: In October 2020, start-ups were invited to register at the public procurement portal, GeM, and provide goods and services to government organizations and PSUs.
7. Amendment of equalization levy Rules of 2016: In October 2020, the Indian government mandated foreign companies operating e-commerce platforms in India to have a PAN. In the financial year 2021 budget, a 2% tax was levied on the sale of goods or delivery of services via a non-resident e-commerce operator.
8. 100% FDI in the e-commerce marketplace: To increase foreign participation in E-commerce market, the Indian government increased the limit of FDI in B2B models to 100% under the automatic route. Apart from this, the Government has made huge investments to roll out the fibre network for 5G to boost E-commerce in India.

Opportunities in India’s E-commerce Market

1. Growing Demand India’s social e-commerce is expected to expand by US$ 16-20 billion by FY 2025. It is growing at the rate of CAGR of 55-60%. India’s social e-commerce sector is expected to rise to US$ 111 billion by 2024 and US$ 200 billion by the end of 2026.
2. Attractive Opportunities It is an appealing opportunity for foreign investors to invest in India’s E-commerce Market as it is expected to increase by 21.5% and reach US$ 74.8 billion. By 2030 India’s E-commerce Market is expected to reach US$ 350 billion.
3. Policy Support The Indian Government has allowed 100% FDI under automatic route in B2B e-commerce. This implies that the Indian Government is promoting investments in India’s E-commerce Market. This is an opportunity for foreign investors willing to invest in India’s E-commerce Market.
4. Increasing Investments Investment in e-commerce has increased due to the rise in digital literacy among people. People are aware of the market opportunities further these investments are levelling the market for new players to set up their base by disrupting the old pattern of the market.

Challenges in India’s E-commerce Market

• Inventory Management A major reason for the failure of any e-commerce is inventory management. E-commerce is not just viewing the product on the mobile app and ordering it. There is a long back-end process where inventory management comes into the picture. Every E-commerce platform has to maintain a stock of products in the warehouse. If there is too much inventory, then it blocks the capital and if the inventory is too less, then it lowers sales. Effectively managing inventory is important for the success of an e-commerce platform.
• Supply Chain Management In India, the supply chain is majorly affected because of the adoption of inefficient methods and processes. A good supply chain improves sourcing, purchasing, and managing stocks, cost reduction in procurement, decreases processing time and ensures better delivery. This leads to better customer experience, better sales, and better profits.
• Data Protection and Security Data security is one of the major reasons why Indians hesitate to make online payments. Privacy and Security are vulnerable aspects of e-commerce and cyber laws are still in the developing phase in India. They are still not capable of dealing with several issues.
• Preference of COD Indian ecosystem has not completely adopted the digital modes of payment. Cash is still the major mode of payment for e-commerce sales. With the liberty of COD comes consequences of refusal to take deliveries at the doorstep. This can lead to the loss of the e-commerce platform.
• Digital Illiteracy and Consumer Physche Digital Illiteracy is one of the major problems for e-commerce platforms in India. Apart from this, Indian customers prefer to buy products from shops near their houses. They are not willing to go long distances or wait for days for their orders to arrive. So they do not browse the e-commerce platform knowing the hassles of connectivity, payment, etc.
• Payment Gateway Failures Indian Payment Gateway experiences several failures due to this most Indians either prefer COD or nearby shops instead of the online platform.
• Low Internet Penetration Considering the Indian Population, Internet has still not penetrated in India to its maximum. Only a small percentage of population has internet access. Further, for those who have internet, their connectivity is too low. Users face connectivity and speed problems.

Conclusion

In terms of growth of India’s E-commerce Market, it is going to surpass the U.S. to become the 2^nd largest e-commerce marketplace. Government initiatives and technological growth are going to aid in the expansion of India’s e-commerce market. The expansion of the e-commerce industry is adversely affecting the micro, small, and medium enterprises (MSMEs) in India. Not just MSMEs, the e-commerce industry is having a cascading effect on other industries as well.