April 24, 2024

E-Commerce in India

E-commerce is a type of business model, or segment of a larger business model, that enables a firm or individual to conduct business over an electronic network, typically the internet.

Electronic commerce operates in all four of the major market segments in India – business to business, business to consumer, consumer to consumer and consumer to business.

  • While online retail accounted for less than 1% of the retail market in 2013, it is reckoned to have crossed 3% in 2018.
  • In several categories of electronics such as personal computers and smart phones, e-commerce holds a far larger market share.
  • The increased impetus has been attributed to the wider market reach in Tier II and Tier III towns.
  • Small-town India reportedly contributes 82% of Amazon India’s new customers.
  • This is also the main reason for its creation of local language interfaces and its determination to be capable of delivering in every rural pin code.
  • Propelled by rising smart phone penetration, the launch of 4G networks and increasing consumer wealth, the Indian e-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion in 2017.
  • India’s total internet user base is set to grow from 665 million in 2019 to 829 million by 2021. So, the inherent potential of the market is undeniable.

Advantages of e-Commerce

  • The process of e-commerce enables sellers to come closer to customers that lead to increased productivity and perfect competition. The customer can also choose between different sellers and buy the most relevant products as per requirements, preferences, and budget. Moreover, customers now have access to virtual stores 24/7.
  • E-Commerce also leads to significant transaction cost reduction for consumers.
  • E-commerce has emerged as one of the fast-growing trade channels available for the cross-border trade of goods and services.
  • It provides a wider reach and reception across the global market, with minimum investments. It enables sellers to sell to a global audience and also customers to make a global choice. Geographical boundaries and challenges are eradicated/drastically reduced.
  • Through direct interaction with final customers, this e-commerce process cuts the product distribution chain to a significant extent. A direct and transparent channel between the producer or service provider and the final customer is made. This way products and services that are created to cater to the individual preferences of the target audience.
  • Customers can easily locate products since e-commerce can be one store set up for all the customers’ business needs
  • Ease of doing business: It makes starting, managing business easy and simple.
  • The growth in the e-commerce sector can boost employment, increase revenues from export, increase tax collection by exchequers, and provide better products and services to customers in the long-term.
  • The e-commerce industry has been directly impacting the micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favorable cascading effect on other industries as well.

Disadvantages of e-Commerce

  • There is lesser accountability on part of e-commerce companies and the product quality may or may not meet the expectations of the customers.
  • It depends strongly on network connectivity and information technology. Mechanical failures can cause unpredictable effects on total processes.
  • Definite legislations both domestically and internationally to regulate e-commerce transactions are still to be framed leading to lack of regulation of the sector.
  • At times, there is a loss of privacy, culture or economic identity of the customer.
  • There is a chance of fraudulent financial transactions and loss of sensitive financial information.
  • The Internet is borderless with minimum regulation, and therefore protecting intellectual property rights (IPR) on the Internet is a growing concern. There are currently several significant IPR issues including misuse of trademark rights.

Challenges

  • High competition: There are different players in the same area of business leading to decrease in profitability due to reasons such as aggressive pricing strategies, heavy discounts and offers, free delivery, high commissions to affiliates and vendors during sale period to name a few. These firms are losing billions to attracting customers.
  • Gap between internet users and online shoppers is huge: ecommerce remains highly underpenetrated with only 50 million online shoppers, of whom only 20 million are active monthly purchasers.
  • Poor logistic & supply chains: E-commerce companies need to maintain the stock to get the benefit of reach and the ability to stock more items than physical stores as these are their biggest differentiators. With this benefit also comes the challenge of robust supply chains and logistics networks, which are not comparable and developed to global standards in India.
  • Payments: While offering a wide variety of payment options, Cash on Delivery (CoD) option in India is the most prevalent as customers fear to share information online and do not trust the website for secure payments. Also, the return percentage of orders in CoD is much higher compared to online payments. At present, COD rates are almost 90% in tier-3 and tier-4 cities, as compared to 50% in metros.
  •  Moreover there is higher rate of payment failures, especially in rural areas which discourages potential customers from online purchases.
  • Trust of the customer: Due to the constraints of quality, color and texture recognition especially in apparels and luxury products, the customers are not able to trust that what is shown will be delivered. This results in higher rate of returns per orders in India as compared to the world.
  • Postal addresses are not standardized and last mile connectivity adds to logistics woes.

 

Key features of the draft E-commerce Policy:

  • Indian Control Over Data: Government to be given access to source code, algorithms of AI systems Impose custom duties on electronic transmissions to reduce revenue loss. It bars sharing of sensitive data of Indian users with third party entities, even with consent.
  • A ‘data authority‘to look at community data.
  • Local Presence For Apps & Websites: All ecommerce websites, apps available for downloading in India to have a registered business entity here. Non-compliant ecommerce app/website to be denied access here.
  • Incentives for Data Localization: Location of the computing facilities like data centers, server farms within India. Firms to get 3 years to comply with local data storage requirements.
  • Data storage facilities to get ‘infrastructure status’.
  • FDI in E-Commerce: FDI only in marketplace model. No FDI in inventory model.
  • Ecommerce Trade: Curbs on Chinese ecommerce exports. Gifting route, often used by Chinese apps, websites, banned for all parcels except life-saving drugs. Integrating Customs, RBI and India Post to improve tacking of imports through ecommerce.
  • Incentives & e-commerce export promotions.
  • Ecommerce startups may get ‘infant industry’ status raising limit for courier shipments from Rs 25,000 to boost ecommerce export.
  • Regulation: No separate regulator for ecommerce sector.
  • E-consumer courts to be developed.

However, the draft policy was released almost two years ago in 2019 and several stakeholders had voiced concerns regarding various issues. To tackle the many issues facing the sector, a collaborative partnership is required between all stakeholders involved: governmental, corporate, individual. It is only then that India’s full potential as an ecommerce destination will be achieved.

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