Revolution To Come

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Advertisements by Flipkart, Snapdeal and other e-commerce companies are a common sight these days. But their apparent success conceals the fact that India’s is a small, slow growing e-commerce market, hobbled by poor infrastructure and government policies. By T N ASHOK

Is India witnessing an e-commerce boom? The rapid growth of companies like Flipkart, Snapdeal, Amazon, Myntra and digital wallets such as PayTM in the last five years tends to confirm that impression. Recent studies have estimated the e-commerce market in India at $100 bn by 2020, the figure driven by the explosive growth in the sales of laptops, desk tops, mobile phones and so on.

But it’s important to note that the e-commerce boom is dominated by online to online transactions in urban areas. There is a huge untapped market in rural and semi-urban areas because of internet connectivity issues and lack of awareness. It’s hoped that the Modi government’s Jan DhanYojana, which has already resulted in the opening of 22 crore bank accounts in rural and semi-urban areas, will give a fillip to e-commerce. Commonly referred to as the Offline to Online (O2O) space, it covers a staggering 14 million retail outlets. If they are brought into e-commerce, India is on the threshold of second major IT revolution.

Since this market is untapped and unconnected, not many companies have ventured to risk their money there. But Delhi-based Payworld has. Payworld is an “Assisted e-commerce” company, offering a range of electronic processing services such as money remittances, mobile or DTH recharge, train/air bookings, even dispensing cash to debit/credit card holders in areas where there are no ATM machines. It charges a small fee for these services.

Payworld COO Praveen Dhabhai said the company operates through 60,000 vendors, a figure which he expects could go as high as 300,000 by 2018. These vendors comprise neighbourhood grocery store owners and other shopkeepers who can help the non-tech savvy grandmother or the less literate, to do their electronic transactions for a small fee. Payworld seems to have struck pay dirt, revenues have already crossed Rs. 1600 crore in the last one year.

Payworld’s success pales against the fact that bulk of India’s population remains untouched by this revolution. Like it or not, Amazon, Flipkart or Snapdeal have only reached India’s 4.5 crore tax payers!

Clearly, e-commerce in India has a long way to go. If you look at the potential of the online advertising market, it’s estimated at $0.52 bn in this country whereas in China it’s $12 bn.

The fault lies in the limited internet infrastructure. Demand for the internet outstrips supply and the common man’s access to internet cafés is neither easy nor convenient. New players say there’s no point in entering the internet café business when the internet available is so poor. There’s a lack of sufficient bandwidth, poor speeds and service providers also have to bear the large base of telephone users. It leads to call drops, a constant headache for Airtel subscribers.

Even as firms such as Reliance try to increase the pace of work on the 4G network they plan to launch this year, countries like China are already eyeing 5G and 6G. Government owned and private power producers are not able to ensure reliable and uninterrupted supply. Outages, voltage fluctuation, load shedding, shutdowns don’t necessarily attract new players.

The growth of e-commerce is further hobbled by laws that do not allow FDI in multi brand retail. Then tax laws demand strict compliance. The start-ups that currently dominate mobile app space are ‘cribbed, cabined and confined’ by laws designed to check inflow of dubious money or check money laundering. This, while important, has the effect of discouraging new entrants. Angels and investment companies for start-ups are taxed at a flat 30% rate - this is for amounts exceeding accounting laws of a fair market valuation of the company.

Lack of access to traditional sources of financing such as commercial banks is another obstacle. Angels and Equities also prefer to lend sums of Rs. 3-5 crore to established businesses rather than hand out Rs 50 lakh to a start-up. Add to that India’s traditional minded approach to business, which is averse to any risk taking. Even where fresh graduates have new ideas, these don’t find favour with family business cultures. It explains why Indian enterprises are concentrated in real estate, gold trade and other businesses where there is cash flow, where there is an assured return on investments or a trusted history of returns.

Another problem is the business model of companies like Flipkart or Snapdeal. The model is entirely based on freebees, discount coupons that contribute to revenue growth and user base but result in lower margins. They are all building shipment, cash on delivery systems and a workforce for execution in a market largely crippled by poor logistics and payment procedures. Money has been either raised in market or in association with bigger firms globally.Here is where Mode’s Make in India campaign could help provided the infrastructure and other issues are tackled.

Summary

  • India’s e-commerce market is worth an estimated $100 bn but to reach that figure many obstacles have to be surmounted
  • Government laws are protective of India’s retail space, there are infrastructure issues, poor internet connectivity and speeds
  • Large swathes of the rural countryside remain outside the e-commerce revolution sweeping urban parts of the country
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