The year 2020 began with some major announcements in the online retail space. This week, Amazon reportedly signed a long-term business agreement with Kishore Biyani’s Future Group. The move comes only days after Mukesh Ambani-led Reliance e-commerce debuts in grocery with JioMart. Recently, Walmart and Flipkart announced a joint investment in Agri-tech supply chain startup Ninjacart.
It is indeed exciting times for the India’s ecommerce sector. There will be many more such announcements across categories from retailers in the coming months, indicating that India’s ecommerce sector has the potential for exponential growth, but not without some key obstacles ahead, especially with the new ecommerce policy set to come to the fore.
Policy Challenges
The huge blow for ecommerce players this year is expected to come from the draft ecommerce policy once it is finalized by March 2020. The policy proposed data localization and streamlining of their operations in line with FDA rules and regulations in the country. However, while focusing on promoting the domestic industry, the policy has largely ignored foreign market players.
Experts believe this could have a huge impact on online retail giants such as Walmart-Flipkart and Amazon – who are set to face a tough time in complying with the same. It puts an additional obligation on them to set up a local data centre for collection and storage of such data. According to a recent report in Economic Times, a significant part deals in data and its protection in which the government seems to be overly mindful of protecting non-personal data being collected by e-commerce players, which has not been covered under the proposed Data Protection and Privacy Bill (PDP).
It also poses challenge to the existing players and hinders their entry into the market. As a senior spokesperson of Walmart notes that the objective of an e-commerce business is to have an outreaching market without limited jurisdiction, avoiding burdensome compliances and generating maximum profit from minimum operational cost. However, the draft policy may seem to be ignoring this very idea.
Even smaller e-tailers will be impacted by the provision if more than 25% of their overall inventory is sold on a single e-commerce platform. The Confederation of All India Traders (CAIT) demanded the government to take immediate action against these ecommerce companies for unethical practices, unfair business practices and violation of FDA rules.
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Headroom for Growth
Besides the apprehensions on the Draft Ecommerce Bill, experts see other challenges plaguing the sector. For example, ecommerce currently comprises only 5% of the total retail revenue in the country. If we compare that to the 15% stake e-commerce has in the US market, and it becomes clear there’s still plenty of room for growth. Despite efforts like Digital India, affordability of smartphones and cheaper data plans, a chunk of India’s population have yet to come online.
Again, India’s total internet user base is set to grow from 665 million in 2019 to 829 million by 2021. Despite the inherent potential of the market, ecommerce remains highly underpenetrated with only 50 million online shoppers, of whom only 20 million are active monthly purchasers. This gap indicates a greater collaboration with the government and the corporate sector to ensure that transitions occur seamlessly and with minimal disruption.
To that end, a holistic ecommerce framework needs to be established, one that incorporates best governance practices while catering to the unique needs of this vast new consumer base. A robust physical and digital infrastructure must be created and supported by increased government efforts, such as Make in India, and setting up of industrial corridors, logistics parks and special economic zones (SEZ).
The need of the hour is having in place a sound data protection framework along the lines of European Union’s General Data Protection Regulation (GDPR) and the country’s own PDP Bill that is likely to come to force soon. These will act as level playing fields between offline and online players in terms of indirect taxation thereby easing restrictions on cross-border ecommerce transactions.
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Experts also believe that the future consumers are set to emerge from India’s tier-2 and tier-3 cities. Hence, the key challenges would be to overcome a diverse array of languages, their unfamiliarity with digital systems, and preferences for an array of products across micro markets. All these factors demand the implementation of an appropriate omni-channel strategy. By combining this with a robust offline-to-online model, ecommerce players can look forward to a smooth integration into the broader ecosystem.
Finally, using technologies to bridge the gap in the Indian logistics industry should solve the problem to a great extent. The advent of technologies such as big data and analytics, artificial intelligence (AI) and machine learning (ML), offer a solution to these issues, allowing ecommerce companies to efficiently serve customers across the country.
Read more: How India Can Gain from Its New eB2B Sector
The Road Ahead
Despite these and many more challenges, the Indian ecommerce industry presents massive opportunity for retailers. A report by India Brand Equity Foundation notes that the market will reach $200 billion by 2027 from $38.5 billion in 2017. The sector will continue to witness rapid transformation in terms of product innovations, new channels and implementation of emerging technologies, believe experts.
Nonetheless, to tackle the key issues facing the sector, a collaborative partnership is required between all stakeholders including the government, corporate and individual. It is only then that India’s full potential as an ecommerce destination will be achieved.
