E stands for Ecommerce in India today

E stands for Ecommerce in India today

India has emerged as the fastest growing ecommerce market in the world by all estimates. This decade of the 21st century is well on its course to be dubbed the ecommerce decade and the government's Digital India programme will be the guiding light. Just look at the array of goods and services Indians buy online - from proposals for arranged marriages to home delivered restaurant meals to clothes, shoes, jewellery, mobile phones, laptops and even property. And that's just an illustrative list; an exhaustive one would take hours to compile. Little wonder that industry body Assocham estimates that the ecommerce market in India will grow 67 per cent to $38 billion this year from an estimated $23 billion in 2015. Almost all studies and reports on the Indian ecommerce market are equally upbeat. In a report released this February, Morgan Stanley Research says: “We now increase our 2020 estimate (of India's ecommerce market) from $102 billion to $119 billion... This takes our estimate of the total Indian internet market size from $137 billion to $159 billion.” This means the Indian ecommerce sector will grow at 68 per cent per year over the next four years, making India the fastest growing market in the world in this segment. New winners, some losers

If the 1990s was marked by the emergence of Indian software majors, with companies such as Infosys, TCS and Wipro emerging from nowhere to become household names and magnets for ambitious young job seekers and the first decade of the 21st century by private telecom majors, the second decade belongs clearly to the early birds of the ecommerce game. The success of Indian ecommerce entrepreneurs is a direct result of a happy marriage between the country's prowess in information technology and the advances of the domestic telecom sector. The proliferation of cheap smartphones has resulted in an explosion in demand for these devices, which facilitate easy access to the internet. The Morgan Stanley report cited above noted that India is adding three internet users every second, many of them experiencing the Net for the first time via their mobile phones, skipping the stage of doing so through laptops and desktops. As a result, India already has the world's second largest base of internet users after China. “We expect internet penetration to increase from 32 per cent in 2015 to 59 per cent in 2020, translating to a near doubling of its internet user base,” the report said. That means India will have more than 600 million internet users within four years. Morgan Stanley estimates that of this number, 320 million, or more than half, will be using ecommerce to shop for their needs compared to 50 million now. This has led to the emergence of several Indian unicorns (start-ups valued at a billion dollars) such as Flipkart, Snapdeal and Paytm, among others. Flush with billions of dollars in investments from deep pocketed (mainly) foreign investors such as Softbank, Alibaba, Tiger Global, Temasek and several others, Indian ecommerce companies have focused on growth by engaging in an all-out discount war - even at the cost of profits. This has allowed the likes of Flipkart and Snapdeal to ramp up gross merchandise value (GMV; roughly equivalent to gross sales) even as the deep discounts offered to acquire new customers have led to burgeoning losses for the entire sector. This has led to serious doubts about the viability of the business model. Billionaire investor Rakesh Jhunjhunwala, often called India's Warrent Buffet, has openly questioned the sky high valuations because of the inability of the sector to generate profits. Several large investors, who have pumped in billions and seen the value of their investments soar on paper, have also come to the same conclusion. In February, Morgan Stanley Institutional Trust Fund marked down the value of its investment in Flipkart by 27 per cent as part of a broader mark down of its global portfolio of technology and internet companies. Fidelity and Valic Co have also marked down their investment in the company by 27 per cent and 13 per cent, respectively. This and other such markdowns in other Indian unicorns and even smaller companies have led to a drying up of the seemingly endless stream of cash investors seemed ready to pour into start-ups in India till recently. “There's a marked slowdown in the flow of fresh funds into this sector. Investors are now beginning to ask serious questions about profitability and want a line of sight on returns before writing out cheques,” said a partner at a fund that has made investments of more than $100 million in Indian start-ups. Game changer The sector may or may not be heading for a shakeout but it cannot be denied that the rise of the ecommerce sector has completely transformed the way many people shop for a variety of goods. To a lesser extent, it has also changed the way people pay for their purchases. And for many small and niche manufacturers and service providers, it has provided low cost access to a market far wider and bigger than anything they could have imagined even five years ago. An Assocham survey last year found that 45 per cent of online shoppers preferred the cash on delivery payment method, while 37 preferred credit and debit cards, 10 per cent paid via internet banking while only 7 per cent used mobile wallets, cash cards and other such modes of payments. Though mobile wallets still only account for a small fraction of the Indian ecommerce market, it is growing rapidly and over the next few years is expected to dramatically alter how Indians pay for purchases, which hasn't changed much since metal currencies replaced the barter system many millennia ago. Employment generator Over the last half a decade, the ecommerce sector has been among the biggest job creators in the country. As companies like Flipkart, Snapdeal, Uber, Ola, Amazon and a host of others created elaborate backend operations, the sector became a magnet for job seekers. The boom in this sector also created tremendous opportunities at the front end - and provided a massive boost to logistics and delivery companies and opened up opportunities for qualified as well as semi-skilled workers to find gainful employment.

Challenges After growing at a breakneck speed for almost a decade, the sector is facing headwinds for the first time. Many companies that are yet to earn profits still depend on investor dollars to balance their books. With investors now showing caution, many companies are facing cash flow problems. This has led to large retrenchments at several start-ups and considerable heartburn and HR anxiety in the industry. The sector will have to take a hard look at its business model and tweak it to ensure profitability in the foreseeable future without which it will no longer be able to attract fresh investors. It will also have to rework its HR practices and reset expectations among employees, many of whom have unrealistic expectations of million-dollar paydays after a few years of toil. The way forward A PwC report from 2014 says: “The Indian government's ambitious Digital India project and the modernisation of India Post will also affect the ecommerce sector. The Digital India project aims to offer a one-stop shop for government services that will have the mobile phone as the backbone of its delivery mechanism. The programme will give a strong boost to the ecommerce market as bringing the internet and broadband to remote corners of the country will give rise to an increase in trade and efficient warehousing and will also present a potentially huge market for goods to be sold.” It adds: “For India Post, the government is keen to develop its distribution channel and other ecommerce related services as a major revenue model going ahead, especially when India Post transacted business worth 280 crore INR in the cash-on-delivery segment for firms such as Flipkart, Snapdeal and Amazon. Both these projects will have significant impact on increasing the reach of ecommerce players to generally non-serviceable areas, thereby boosting growth.” As smartphone penetration increases, the ecommerce sector will continue to grow. Yes, some companies may experience some short-term pain but the boom in the sector as a whole is expected to continue unabated well into the foreseeable future.

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