The Prospects for Indian e-commerce

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The penetration of e-commerce and its growth in recent years has caught the fancy of many Indians. Big names such as Flipkart, Amazon, Snapdeal, Paytm, etc. have come up as brand names in the minds of people. It's not just that but also the much anticipated future growth potential of e-commerce in the country. And recent claims have made this case further appealing.

A recent report by Confederation of Indian Industry (CII) and Deloitte opines that the Indian e-commerce industry is poised for a big leap in the next four years.

The report states that the number of online shoppers in India as a percentage of total internet users grew to 11% in 2015 from 9% in 2013. This is expected to reach 36% by 2020.

It further states that the number of online shoppers in India grew 95% between 2013 and 2015. The number is expected to reach 140 million by 2018 and 220 million by 2020. This will in turn support the growth in business to consumer (B2C) ecommerce going forward.

The report also estimates a significant growth in the digital payments segment. It notes that the digital payments segment is poised to grow from US$ 20 billion in 2014 to US$ 115 billion in 2018. Also, this expansion in e-commerce is said to trigger innovation in payment systems and delivery models and will enable better use of technology such as wearables, drones, and artificial intelligence.

Lastly, the report states the long-term impact of rising e-commerce will aid the economy in many ways. It would mean an increase in employment, growth in export revenue, better products and services, and increase in tax collection.

So going by these estimates, the future prospects of e-commerce in India is very promising.

Such reports do not surprise us. It can be seen that with rapid urbanization, influence of western culture, easy money flowing in through venture capital firms, etc., e-commerce is going to be the next big thing in the Indian economy. The growth potential is huge for ecommerce.

However, not all firms in this space will be the benefit from this megatrend. This is because what ultimately matters for e-commerce firms is profitability. Without profits the ecommerce business model cannot be a long-term success.

Presently, most of these businesses are mired in losses. If these losses keep getting bigger, there will be a point when venture capitalists and private equity funds will re-assess their investments and start thumbing down valuations of these firms. In fact, a valuation correction is underway in the domestic e-commerce segment right now.

And we have already seen a glimpse of this for the biggest one of them all - Flipkart.

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