What's Driving 'Sharing Economy' In India?

by CXOtoday News Desk    Oct 14, 2015

sharing

The “sharing economy” has attracted a great deal of attention in recent months. A key part of the technological revolution that is changing how individuals, companies and governments operate, globally, the sharing economy is estimated to grow at a CAGR of 139.4% to reach US$115 billion by 2016 from $3.5 billion in 2012, according to a new study.

The study report titled “The rise of the sharing economy: India Landscape” published jointly by EY and Nasscom provides insights on the emerging concept of the ‘sharing economy.’

The report defines  “sharing economy” as a socio-economic ecosystem that is built around the sharing of human and physical resources including shared creation, production, distribution, trade and consumption of goods and services by different people and organizations. 

The economics aspect of the sharing economy is anchored on innovative on-demand technologies that have significantly reduced transaction costs of exchange of goods and services. They have done this by making dispersed knowledge inexpensive and ubiquitous. Combining this with innovative software platforms, it has significantly extended the ability to coordinate economic exchanges.

“Still at its nascent stage across most sectors in India, the concept of the sharing economy, at the moment, is more about consuming services than sharing resources,” Ranjan Biswas, Partner and National Director - Technology, Media, Telecom, EY said.

he noted that the three most prominent sectors of interest to players evaluating to leverage this model include transportation, accommodation, and food & beverages.

The sharing economy also benefits, indirectly, some of the Government of India (GoI) initiatives like, Digital India program, Skill India program and Smart city program. Massive job creation is yet another one of the major advantage of the proliferating players in the Sharing Economy.

The report also mentioned the factors key to driving shared economy opportunities. These include: 

- Security and trust mitigation: Authenticating the identity of the service provider is a good measure to build a basic level of trust between strangers but this is more challenging in a peer-to-peer business model as compared to the business-to-consumer model. Suppliers will have to significantly invest in infrastructure and processes that can effectively address consumer grievances and help in winning consumer trust.

Consistency in service quality: Since the level of customer services may vary from place to place and supplier to supplier, ability to scale up and deliver a high service quality consistent across all touch points will determine the long term viability of any service offered through the sharing economy model.

Managing and skilling an unconventional workforce: Adequate background verification, training and skilling of such workforce are imperative for the successful delivery of services due to consumer-facing nature of the businesses in a sharing economy.          As the sharing economy is dependent on maintaining a steady supply stream to meet its demand, dynamic pricing is an effective way for market participants to ensure the same.

Tax compliance: The structure of sharing economy business models has serious implications for the compliance enforcement of consumption taxes such as service tax etc.

Enabling regulatory environment: While the Government has enacted guidelines that limit the liability of intermediaries, many platforms believe that governments and regulators must clarify the applicability of these rules to various sectors within the sharing economy. 

Whether it is regulatory flexibility that could include low corporate tax rates; better access to credit through financial market reform; labor market reforms to attract talented staff and flexible contracting laws, key enabling factors stemming from governmental intervention will play a key role in the future success of the shared economy.

Further, India is poised to surpass the US to become the country with the second-largest internet user base in 2015. With internet penetration at just 19.2%, there is a significant opportunity for the companies in this space to expand.

Mobile proliferation has been a key driver for the sharing economy based companies in all countries including India. The number of mobile subscribers is expected to grow at a much faster rate due to the decreasing costs of smart phones and reduced connectivity costs. 4G roll-out and increase in 3G penetration will boost speeds. Since most of the sharing economy companies leverage mobiles as a medium to reach customers, these companies are all set for a rapid growth.

As clarity on the regulatory environment around these business models emerges with time, the existing models will adapt to the changes and platforms and will become more secure business models. This will also enable consumers to experience a better and more consistent level of service.

“The Indian sharing economy is increasingly driven by high growth startups impacting urban transportation, instant food delivery and affordable accommodations across metros and socio-economic groups. Combined with ubiquity, India as a mobile first nation and one of the fastest growing startup economies - the prevalence of payment innovations will ensure uptake of these software products in an exceptionally favourable investment scenario,” said Vidhyashankar, Head -Partner Alliances, Nasscom.

According to the report, the sharing economy has also increased job opportunities in India. It has made self-employment easier and more people are turning entrepreneurs, translating into increased income for stakeholders in the sharing economy.