Ecomm in India to reach $101.9 billion by 2020; government initiatives to help growth

Ecomm in India to reach $101.9 billion by 2020; government initiatives to help growth

Author | Ronald Menezes | Tuesday, May 17,2016 8:20 AM

A+
AA
A-
Ecomm in India to reach $101.9 billion by 2020; government initiatives to help growth

CII and Deloitte released a report recently focusing on the ecommerce sector in India and how it could play the role of a game changer.

Viresh Oberoi, Co-Chairman, CII National Committee on ecommerce, said “With the launch of Digital India and Make in India, the government has been active in bringing out solutions that will help SMEs. Digital India will provide improved internet accessibility while Make in India will help in indigenizing product manufacturing. The technology centric framework by the government will provide cloud based platforms for SMEs. All this is assisting the growth of small businesses in the ecommerce era.”

Further adding that tax laws in the country leads to a fair bit of complication. And for that one vital reform – the introduction of GST (Goods and Services Tax) will bring in much awaited relief for the e-Commerce sector.

Neeraj Jain, Partner, Deloitte Touche Tohmatsu India LLP said, “From an investment perspective, considerable funding in the ecommerce ecosystem has led to emergence of new business models across B2B, B2C, Logistics, Service Providers, Payment Wallets, Digital Advertising and Analytics. These investments have enabled the ecommerce companies to leverage leading technology and related practices to reach out to millions of new online customers by delivering services more effectively and efficiently.”

The total ecommerce size is estimated to be at $101.9 billion by 2020 a rise from $2.9 billion in 2013. The ecommerce industry is expected to form the largest part of the Indian Internet market. The number of online shoppers is set to reach 220 million a steep increase from 20 million users in 2013.

The majority of B2C ecommerce companies, globally, despite being operational for 5-20 years, report low profitability. The Gross Merchandise Volume (GMV) for B2C segment in India was approximately $16 billion in 2015. This trend however does not hold true for the B2B ecommerce companies which are profitable with greater GMV values. The Indian B2B ecommerce market potential was valued at $300 billion in 2014, and is expected to reach $700 billion by 2020. The higher profitability in the B2B segment is attributed to reasons such as lack of heavy discounts, greater emphasis on quality rather than on price, and higher volumes of purchases.

“Across the globe the e-commerce industry is a force which continues to grow, which investors cannot afford to ignore. This is especially true in India where there are so many opportunities like Make in India and Invest India,” said Nilesh Gopali, cloudBuy, Country Head, India.

Source – IAMAI, Deloitte analysis

Online shopping is increasing its share in total internet usage in India. Improved data connectivity in both urban and rural parts of India, will further boost this trend. Along with the increase in basket size, the average spend on online shopping is increasing, although not at the same rate. The total percentage of online shoppers using the internet is expected to grow to 36% in 2020 compared to 3% in 2013, while the average spend per online shopper in India is expected to grow to $464 by 2020 as compared to $147 in 2013.

Source – Euromonitor, Deloitte analysis, MediaReports

Trends supporting the ecommerce growth

Government initiatives

The Digital India campaign, Start up India, Make in India and Skill India are all contributing to the growth of ecommerce. The increase in internet penetration has further helped this sustained growth. The ecommerce industry in India has been propelled by the rise in internet penetration due to major improvements in the telecom infrastructure. With 3G and 4G services making way into India along with declining data tariffs, spend on internet data is growing significantly.

Source – Mobile Internet in India, 2015 IAMAI

Growth in smartphone adoption

There is a constant growth in the smartphone adoption in India. Smartphones are outpacing feature phones and are expected to exhibit massive growth in the coming years. According to a report by venture capital firm KPCB, India has the highest share of mobile based ecommerce sales globally at 41%14. The leading ecommerce companies state that almost 70-75% of their online traffic comes from mobile phones and thus higher revenues are coming from mobile applications.

Source – Statista.com, MediaReports

Payment options for ecommerce

New payment options have fuelled sales on ecommerce sites. Cash-on-Delivery (CoD) remains a popular mode of payment for Indian ecommerce transactions. Cash transactions result in high administration costs even for the ecommerce companies which reduces their margins. Hence, new digital payment solutions are evolving to address these challenges. With the Jan Dhan Yojana in place over 110 million debit cards have been added significantly increasing the capacity to purchase online, the implementation of UPI will enable the ecommerce delivery staff to collect money electronically for even CoD transactions. 60% of payments are made through CoD while Debit and Credit cards account for 13 percent and 17 percent.

Source – Company data, Deloitte Research

Logistics

Logistics has seen a major overhaul with ecommerce players partnering with hyper local companies and India Post. Third part logistics service providers who handle last mile deliveries have seen a rise due to high volumes of delivery, return orders and higher standards of customer service. India Post with its extensive reach of 19,000 pin-codes and 1,54,725 post offices across the country, has set-up dedicated processing centres to handle last-mile deliveries of the ecommerce companies.

“Each of the players (ecommerce companies) needs assistance to build end-to-end networks. Forming partnerships for last-mile deliveries enable LSPs to provide same-day delivery and reach hinterlands. Large delivery players will have to co-exist with smaller delivery players” said Pritam Banerjee, Senior Director Corporate, Policy South Asia, DHL.

Source – Department of Posts, Company Data, Deloitte Research

GST & empowerment of MSME’s

The goods and service tax bill will enforce a single comprehensive indirect tax regime that will be applicable across all states on the supply of goods and services. The implementation of GST is expected to subsume the central excise duty, service tax and additional customs duty at the central level and VAT, CST, entry tax etc. and at the state level. Additionally, the government is making attempts to make MSMEs more familiar with technology through initiatives such as Technology Centre Framework, that will provide support for adoption of cloud based technology by MSMEs. The B2C marketplace, MSMEShopping.com was launched by National Small Industries Corporation (NSIC) with no transaction costs and expects to on-board 5,000 – 10,000 MSMEs by 2016.

Write A Comment