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E-Commerce Industry Risk Review by Alea Consulting | ||||||||||||||||||||||||
New Delhi, Delhi, India In India, eCommerce accounts for ~1.5% of India's GDP, and is likely to reach 2.5% by 2030. In 2016 the sector grew by 55% to US$16 billion. With the increase in internet users, Indian eCommerce industry is poised to surpass the United States and become second largest in the world, after China, by 2034.
Evolution of eCommerce in India In 2000, a limited number of online shopping firms existed viz. Rediff Shopping, Indiatimes, Sify Shopping, HomeShop18 and Bazee.com. India lacked the required infrastructure and people feared buying online. It was primarily a C2C market. In 2004 eBay came to India. In 2007 the sector gained pace with the entry of Flipkart, Amazon, Snapdeal, Paytm and others. Steps were taken to develop the three critical enablers for eCommerce firms viz. logistics and warehousing; IT infrastructure; and fintech. In 2014-15 several initiatives were taken by the Government; these include Make in India, Digital India, Skill India, Startup India and Bharat Innovation Fund (a public-private-academia partnership by CIIE; to fund innovation driven startups).
Key Drivers
Restrictions In March 2016, Department of Industrial Policy & Promotion (DIPP) restricted eCommerce firms from offering excessive promotional discounts and observing impartial business practices.
Challenges These include cybersecurity issues due to increased use of online payment modes, high reliance on sellers and lack of a robust due diligence mechanism resulting in one of the major challenges encountered by eCommerce players i.e. sale of counterfeits. An added concern is achieving profitability as several online firms have collapsed due to non-achievement of targets.
Key Statistics
Foreign Domestic Investment (FDI) B2B: 100% FDI is permitted in companies engaged in B2B eCommerce.
B2C: 100% FDI is allowed in online retail of multi-brand goods and services B2C under the marketplace model (technology platform to facilitate transaction between buyer and seller.) Any eCommerce entity providing a marketplace cannot exercise ownership over inventory, and is not permitted to sell more than 25% of total sales through its marketplace from one vendor, to their group companies.
Goods and Services Tax (GST) GST has been effective since July 1, 2017. As GST is uniform across India, warehouses can be set up keeping in mind business objectives rather than for reduction of incidence of taxes.
Union Budget 2017-18 In Union Budget 2017-18, the Government had put a restriction on cash payments above INR 200,000 which will help the country move from a cash driven to a digital economy, which in turn would boost eCommerce.
Competitive Landscape eCommerce in India is a consolidated market with a handful of companies accounting for a significant share of the industry. eCommerce witnessed ~259 M&A deals in 2015.
Amazon, Flipkart and Snapdeal are seen as the dominant players. Indian Railways is working on a policy to become official logistics partner of e-retailing giants.
Other players in the industry (by category/predominant product) are:
Industry Opportunity Amidst the favorable conditions for eCommerce in India, the industry is projected to reach US$120 billion by 2020. Online marketplace is available for items such as groceries, real estate, insurance and even automobiles. SMEs want to reach out to more customers and improve efficiencies by connecting through digital trade. B2B is emerging as an important vertical. Early mover advantage remains for investors seeking a pan-India market and even creating a global eCommerce ecosystem.
About Alea Alea is a global risk mitigation and investigative consulting firm, which helps organizations reduce reputation and operational concerns. The firm has conducted significant assignments for international organizations and industries including insurance, banking, financial services, telecom, manufacturing, healthcare, pharmaceutical, mining, real estate, retail, EPC, renewable energy, hotels, education, logistics, and diagnostics, power and infrastructure.
Alea's risk mitigation services include: senior employee background checks, KYC/AML checks, corporate intelligence, asset searches, intellectual property protection, crisis management response, insurance & fraud investigations, litigation support and due diligence of business partners.
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