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The State of Consumer e-Commerce in India

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The Indian e-commerce market is growing rapidly. Better social attainment in terms of education, coupled with advent of Internet, telecommunication and media, has further intensified this growth, closing many gaps between urban and up-country tastes and preferences as well as consumption patterns.

In this scenario, consumer e-commerce is becoming increasingly relevant as an efficient alternative distribution channel to reach out to the consumers across geographies as well as products and services categories.

Growth and Potential of E-commerce

Let us look at the growth of this industry in perspective of the potential. During 2009–10, the overall e-commerce potential was estimated at 146.2 million households or 61.3 percent of total consumer households in the country.

The overall consumer potential is estimated to increase to 228.6 million households by 2024–25 or 76.9 per cent of the total consumer households in India. This represents a compounded annual growth rate (CAGR) of 3 percent in potential as compared to 1.5 percent growth in the total number of households during the period.

Another important feature of this growth will be that rural and up-country markets will become more relevant for businesses across products and services categories. To the extent that a large part of this demand comes from the geographically dispersed locations, it presents exclusive opportunities for space-neutral, technology-enabled trade and distribution channels such as e-commerce.

Defining the Scope and Scale of E-commerce Growth

The Indian e-commerce market is growing rapidly. It is estimated that the industry was worth Rs 46,520 crore or USD 10 billion in 2011. The current e-commerce user base is estimated at around 10 million people. Thus, assuming two users per household, the current overall potential for e-commerce in India including both ‘core’ potential and ‘Low SEC’ is 292 million people. Considering this as the base, the current adoption of e-commerce is only 3.5 per cent. In a business-as-usual case, the adoption is expected to increase to 15 per cent of overall potential by 2024–25.

What’s Doing Well in E-commerce?

While online travel will continue to comprise a major proportion of the overall market, e-tailing and digital downloads could experience high growth. Mobile/digital downloads are expected to grow, given the high proliferation of mobile devices in India. According to the Internet Economy Watch, a monthly tracker by IAMAI, a notable spurt is witnessed in e-ticketing category with .com and airlines recording a y-o-y growth of 36 percent in June this year, compared to the figures of the corresponding month last year. While 5.83 million bookings were registered on .com in June 2012 as compared to 4.30 million in June 2011, airlines witnessed 1.45 million online bookings for the month of June 2012 as compared to 1.07 million in the corresponding period last year.

Famous retail chains are also opening up to embrace the medium to ensure there are sales over the Internet. The Internet Economy Watch also finds that compared to April 2011, April 2012 witnessed an exponential growth in the domain of e-tailing of branded apparel and footware, e-ticketing, and profile uploads on matrimonial sites.

Online recruitment portals have witnessed an increase of 0.23 million resumes, with 2.05 million uploads in April 2012 compared to 1.82 million uploads in April 2011. The number of profile uploads on matrimonial websites has increased to 2.74 million during April 2012 from 1.35 million in April 2011.

Obstacles in E-commerce Growth

For further growth of the consumer e-commerce in India, concerns of people who stay away from shopping online need to be addressed. These are:

• Lack of trust: This pertains to the security of personal information, safety of online financial transactions and the quality of merchandise

• Fulfilment issues: These include non-delivery, late delivery, lack of service guarantee and quick and effective solutions of consumer grievances

• Connectivity: The more important issues are low broadband penetration, low ownership of computers and poor digital literacy.

• Payments: The key issues here are poor payment gateway infrastructure, low penetration of credit/debit cards and wider scope and coverage of mobile payments.

• Delivery: India has a poorly developed supply-chain sector with no ‘top-class’ country-wide service provider. Besides, the Indian postal system which has the widest reach has poor service levels.

• Regulatory: In India taxes and the documentation requirements are complex and vary across states.

Roadmap for the Future

There is a huge gap between the estimated potential and the current consumer participation in e-commerce, which in spite of favourable growth in the last few years, continues to be limited. This gap can be attributed to four key factors: consumer e-commerce is still relatively new; connectivity is still very costly; poor state of financial inclusion that affects the ability to carry out digital payments; and inability to service large parts of the country due to lack of proper supply chain infrastructure severely impacts businesses that deal in physical goods, especially bulky items.

(Source: An article by Internet & Mobile Association of India (IAMAI) in India Retail Report 2013)