Indian e-commerce struggles against intl counterparts that allow FDI

According to IAMAI - KPMG report, countries with FDI in inventory-based e-commerce businesses show tremendous growth - an area where India loses out

e4m by Saloni Surti
Updated: Sep 12, 2013 7:49 AM
Indian e-commerce struggles against intl counterparts that allow FDI

The Indian e-commerce industry, which was initially perceived as a dot com bubble that would burst at the slightest nudge, has managed to exhibit contrary results in the last three years. The industry grew by 150 per cent, increasing from USD 3.8 billion (INR 19,249 crore) in 2009 to USD 9.5 billion (INR 47,349 crore) in 2012.

Despite the northward trend, the Indian e-commerce space has failed to show as much growth as its international counterparts.

According to IAMAI-KPMG report, in the US, there are 245 million internet users and 156 million online buyers, while China has 538 million internet users, with 270 million online buyers. Closer home, Sri Lanka, with 3.2 million internet users, has two million online buyers and Australia, which is a similar economy to India, has 20 million internet users, with 11 million online buyers. Unfortunately, India, which is the third largest in the world with 137 million internet users, has mere 25 million online buyers.

However, the fact that alarms the e-commerce space is that amongst all the aforementioned countries, the size of consumer e-commerce industry is high in countries where FDI in inventory-based e-commerce business is allowed.

“On a larger canvas, we believe that inventory-based e-commerce business needs deep and sustained investments on technology and other back-end operations, marketing and brand building areas, where domestic investment is not forthcoming. Opening up of inventory-based e-commerce would also take care of the current anomaly where FDI in multi-brand retail is allowed up to 51 per cent, whereas it is not allowed on inventory-based e-commerce business,” explained Dr Subho Ray, President, IAMAI.

In the US, the size of the consumer e-commerce industry is USD 224 billion, while in China it is USD 210 billion. In Sri Lanka, it is USD 2 billion, while the size of the consumer e-commerce industry in Australia is USD 30 billion. In India, with 25 million online buyers, the size of the industry is just USD 13 billion.

Thus, while Indian e-commerce space has unimaginable potential, its growth is restricted due to various issues, including the need of more efficient logistics, higher internet penetration and cheaper data plans to boost m-commerce. Growth in FDI will enhance investments, thus helping players resolve these issues.

While the fraternity has been recommending increase in FDI cap, no definite decision has been taken. Presently, FDI in retail in India is currently set at 51 per cent for multi-brand stores and 100 per cent in single brand retail stores, as well as in online B2B structures.

The Indian e-commerce space is now at a very crucial point as it is now when all the technological and economy changes will take place. As of now, internet penetration stands at 11 per cent, an internet penetration of 25 per cent will be the tipping point for e-commerce growth in the country. Also, m-commerce will constitute more than 25 per cent of e-commerce traffic by 2015.

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