News From Telecom World

E-Commerce in India

Posted on: October 28, 2008

India could be a promising market for e-commerce, with its massive population and history of technology adoption, but so far progress has been slow.

The slow growth of e-commerce in India stands in contrast to the booming market for mobile connectivity. Internet and broadband penetration is growing, yet the explosive growth that is possible in this vast country of 1 billion people has remained elusive.

A report by the Internet and Mobile Association of India (IMAI) estimates the size of the business-to-consumer (B2C) e-commerce industry in 2007 at 92,100 million rupees (US$2.10 billion), up around 30% from 70,800 million rupees (US$1.62 billion) the previous year. The figures include some consumer-to-consumer (C2C) categories such as online auctions and classifieds.

But India lags a long way behind other countries in the Asia-Pacific region when it comes to e-commerce transactions (see box below).

In many ways, India should have been an ideal market for e-commerce. The country is vast, and getting timely supplies to tens of thousands of retail outlets spread across the hinterland is never an easy task. The movement of goods through several layers adds to costs and can easily be disrupted by weather or the poor infrastructure across the nation.

Yet retail trade is booming in towns and cities, and malls are the flavour of the season. Indeed, most of the country’s leading business groups, including Reliance Industries, the Tata group and the Aditya Birla group, are all investing in huge brick and mortar retail businesses.

The online retail market has received comparatively less attention. “Online sales are a small fraction of retail sales in India…less than 1%,” says Dr. Subho Ray, president of IMAI.

Conventional reasoning cites poor penetration of broadband, the building block of e-commerce, as a key reason for poor online sales. India has just 4.57 million broadband subscribers, up from 2.47 million a year ago, according to the Telecom Regulatory Authority of India (TRAI). The growth in these numbers is nowhere near the boom seen in mobile telephony, which boasts almost 300 million subscribers, up from under 200 million a year ago (Total Telecom, September, p.12).

But Dr. Ray reasons that, conversely, broadband penetration is not picking up because the supply side has not yet seen value in selling online in India.

“Because there is very little e-commerce happening, penetration isn’t increasing fast enough,” he says. Most of the bigger retail brands do not sell directly and prefer to sell through dealers and retail stores, he adds.

India has not had a tradition of mail order selling, and so the entire business of selling to end consumers is built around a system of dealers, sub dealers and traders that distribute products to the remotest stores with marginal cost additions. Traders form a powerful and highly competitive group, and have virtually taken over the distribution system. On the one hand they have rid manufacturers of the trouble of getting products to market on time, but on the other they have made manufacturers highly dependent on the trader community to reach out to the corner shop.

Dr. Ray sees this as one reason why sellers are not pushing online. “One part of the story is that you do not wish to antagonise your dealers and so prices are often not indicated online. This has to do with the way retail marketing is organised in India. The other side is our complicated array of taxes, like local sales tax and octroi [city municipality fees] that vary from state to state, and even city to city,” he says.

Traders would sometimes circumvent these with local contacts and intelligence: for example, sometimes billing some goods with an address on the outskirts of, say, Mumbai to save local area taxes, and hand delivering the products from Thane city next door.

But perhaps the most critical barrier to e-commerce is the lack of credibility and confidence in the process of buying online. This is made worse by reports of just how poor service can be. And since there is no provision for escrow intermediaries under Indian law, there is little that consumers can do to redress a grievance. Complaints like late delivery, delivery of wrong products and outright misrepresentation are far too frequent to be ignored by prospective buyers.

“In the EU, the law has a big chapter on the escrow service,” says Vamshi Mokshagundam, senior analyst for Technology Research & Analytics at Datamonitor. “The escrow companies are themselves regulated and this is the reason that e-commerce, particularly B2B, is mature in Europe and the US.”

Another major hurdle is logistics. “We do not have any integrated logistics system for seamless movement of goods. This is as much true for offline sales as it is for online,” Mokshagundam says.

In addition, consumers are often unsure of product quality, timely delivery, and worried about online security when paying by credit card. A report published earlier this year by eMarketer, which researches e-business and emerging technologies, says India’s “online payment system lacks credibility”. Worse, there appears to be no immediate perceived benefit in buying online, because prices can often be higher than in physical stores where discounts can be had through dealers.

A litany of bad experiences has been recorded by the Consumer Online Resource & Empowerment (CORE) centre, which runs with the support of India’s Ministry of Consumer Affairs to help consumers resolve complaints of deficient goods and services.

“There are many cases where the order is booked, the money is gone out of the bank and the goods have not reached [the consumer],” says an official at CORE near New Delhi. “Some of the [online businesses] run customer care services that can keep you on hold for more than 30 minutes at a time.”

However, rising incomes and busy schedules mean India still is a fertile ground for growth. Indian online research firm JuxtConsult says 80% of all Indians with online services now “shop” online: they either window shop or actually buy online. It says 23% bought products in the past six months, and of these 92% have bought a travel product online.

Wireless broadband could also boost uptake. WiMAX proponent Intel in August announced support for the “Connected Indians” programme by government and industry in India to facilitate the provision of Internet access. Intel also signed an MOU with India’s largest telco BSNL to help deliver WiMAX solutions across India.

The Indian Railway Catering and Tourism Corporation (IRCTC) and several other travel portals are among those now offering solutions on mobiles, reasoning that wider penetration of mobile services could lead to more deals happening through handheld devices. But mobile-based e-commerce is yet to catch on in a big way. Only a very small number of railway tickets, for example, are booked through mobiles says IRCTC.

Business-to-business e-commerce services have also been slow to take off. “The B2B e-commerce sector, even more reliant on seller volume than the B2C market, has been slow to gain followers in the Indian market,” say Datamonitor analysts in a recent research note. “However, with India pushing to become a major manufacturing outsourcing destination, the B2B e-commerce market is experiencing an upswing thanks to sunrise sectors such as pharmaceutical manufacturing, construction and equipment manufacturing. Lack of market leaders both in the B2B exchange and escrow space, however, may dampen prospective growth.”

But leadership is slowly coming. China’s online marketplace at the end of April signed a strategic partnership with Indian B2B player Infomedia India limited, which publishes Yellow Pages directories among other products. Alibaba has several spots running on television, inviting small and medium-sized enterprises to sell products via its B2B portal.

Arthur Chang, vice president of global sales for Alibaba, said the alliance would help his company address Indian small and medium-sized enterprises not only for exports but also to boost domestic B2B sales. “[India] is our fastest growing operation: it is growing at 100%. That is five times faster than our US business,” said Chang in an interview in The Hindu newspaper.

As a result, the only international channel Alibaba has now is its India-specific site, which also has inputs from Infomedia. There are over 10,000 registered Indian suppliers, with textiles and jewellery the most popular items exported, the paper said.

India lags behind in Asia Pacific

An eMarketer report this year, Asia-Pacific B2C E-Commerce: Focus on China and India, says India had the lowest e-commerce sales in 2006 of the five major Asia Pacific countries it surveyed—India, Japan, Australia, China and South Korea—with just a 1.3% share. The bulk of the pie was with Japan at 62.3%, followed by South Korea with 16.2%, Australia with 16.1% and China with 4.1%.

According to eMarketer, B2C sales in India were US$0.8 billion in calendar 2006 and 1.2 billion in 2007. That compares to sales in Japan of US$36.8 billion in 2006 and 43.7 billion in 2007, the highest in the Asia Pacific region. (The figures include all purchases made on retail Web sites, including online travel, event ticket and digital download sales.)

In fact, eMarketer gives cautious cause for optimism in Indian e-commerce services. “Sales [in India] are forecast to nearly quadruple by 2011, reaching INR200.2 billion (US$5.6 billion). From 2006 to 2011, online sales will grow at a 42.2% annual rate,” says the report. By 2011, India’s share of online B2C sales among the countries covered will be 3.3%, but the rankings among the nations will remain unchanged.

“A growing middle class [in India] is turning to online shopping,” the report continues. “The first purchases online are for travel services. As online buyers gain confidence in the online-shopping process, and its shortcomings are addressed, consumers will likely extend their online purchases into more complex product categories. Movement is already evident from the strong growth in online sales, albeit from a small base.”

Morgan Stanley says Asia Pacific had the world’s largest population of Internet users in 2007: 547 million, amounting to 42% of the world’s total Internet users.

On track: e-commerce progress in India
The bulk of B2C e-commerce business in India comes from the travel segment, pushed by the emergence of low cost carriers. The runaway success story comes from an unlikely player, part of a government-owned giant that moves the Indian economy on its tracks: the Indian Railways that runs the second largest railway network in the world and is spread over 108,700 track kilometres. Its subsidiary, the Indian Railway Catering and Tourism Corporation (IRCTC), stands out as one shining example of just how much e-commerce can achieve in India.

The IRCTC ticket booking site records more than 100,000 transactions a day. It issued 3.3 million tickets in the holiday season in July this year; and it reported turnover of 17,000 million rupees (E269 million) in its last fiscal year and is on track to double that this year. “It is all about providing value,” says IRCTC’s general manager, operations, Sanjay Aggarwal. “There are many disadvantages for a consumer booking online: we ask him to spend to use the Internet, the transaction can be interrupted because of power or connectivity failure and there could be disturbance in delivery of the ticket. So the value we provide should be greater than the inconvenience of all this.”

Long queues are common at ticket counters in India, and it is not possible to check as many options as it is when you are surfing the IRCTC site, says Aggarwal. In addition, IRCTC has appointed some 30,000 agents to enable those without Internet access to book tickets.

Aggarwal says the average transaction size is less than 800 rupees, and over 70% of its customers book non air-conditioned class of travel. In addition, IRCTC’s payment reversal system means a wait listed ticket—issued if another customer cancels—that is not confirmed by the date of the journey is automatically refunded in full.

Total Telecom


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s


  • None
  • shah: i want make need talk to you. regurds
  • yaseen vohra: salam iam producer&director other tv sir i have new program idea tv shwo sub kahdo 4 zong u r intrust tu plz e mail me ya call this
  • md. arfan hossain (hitlar): i want to start the voip business in bd from chittgong . now i don't know how to start that. could you give me some suggestion for doing that?
%d bloggers like this: