'E-commerce in India an economic game changer'

25 Apr '16

3 min read

Courtesy: Deloitte

In the last four years, while the e-commerce B2C segment has grown significantly in India leading to creation of many Unicorns, the focus of the Investors going forward seems to have shifted to profitable growth to achieve a stabilization of the economic model of e-commerce.

This seems to be resulting in collaborations and partnerships across the value chain with the aim to optimize the costs, according to a joint report by CII and global audit and advisory firm Deloitte.

Simultaneously, the e-commerce B2B segment is showing signs of rapid digital adoption which is likely to feed the significant rise of MSMEs and entrepreneurs from the Indian hinterland.
The growth of the e-commerce industry has been triggered by increasing internet and smartphone penetration in not only metro cities but also in tier two and three cities of India. Mobile devices are further expected to drive sales via e-commerce platforms over the next five years.

While the e-commerce space has rapidly evolved, several challenges have surfaced primarily in areas of taxation, logistics, payments, internet penetration and skilled man power.

In taxation, for example, the lack of a uniform tax structure leads to several issues such as double-taxation or impediments in the free flow of goods across the country. However, the ensuing Goods and Services Tax (GST) is expected to help in overcoming these challenges through a uniform tax structure. Clearly defined rules for e-commerce transactions in GST and a consultative approach while framing these rules will be favourable to both, the Government of India as well as the e-commerce companies, the report said.

In line with the trend for increased e-commerce uptake in tier two and tier three cities, e-commerce and third party logistics service providers are partnering with players with existing infrastructure in tier two and tier three cities to facilitate deliveries in those cities. However, the increasing logistics costs related to last-mile delivery, especially on account of return orders, requires innovative and analytical driven models that will enhance operational efficiencies in the logistics value chain. This will help e-commerce companies in their drive towards profitability.

From a payment perspective, Cash-on-Delivery (CoD) continues to dominate the payments for e-commerce sales in India which in turn presents its own set of unique challenges. Digital payments (eg. mobile wallets) are slowly gaining traction. The growing usage of mobile internet and the implementation of the UPI are expected to give further impetus to the growth of digital payments.

As the digital eco-system evolves in India, the e-commerce companies on their part need to continually innovate, embrace digitisation and analytics to remain relevant. Further, to differentiate, the e-Commerce companies will have to in parallel, focus both, on business-as-usual and also on disruptive growth towards building legacy firms.

The report identified innovation in payments, new delivery models, collaboration of e-commerce and offline entities, technology and wearables and efficiencies attained by artificial intelligence and the use of drones as five key future trends. (SH)

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