E-commerce in India

E-commerce in India by Sam Ghosh 16th March 2020

Why talk about Ecommerce in India?
Why talk about this? Demand Side Supply Side TrendsPolicy

Demand Side Supply Side TrendsPolicy
● The Indian E-commerce market is expected to reach USD $150 billion by 2022, USD $200 billion by
2026 from USD $38.5 billion in 2017.
● Expected to be the second largest E-commerce market by 2034.
Why talk about this?
Data: IBEF
CAGR 31% CAGR 7.5%

Demand Side Supply Side TrendsPolicy
● The Indian consumer market is a USD $6 trillion opportunity by 2030 as per the World Economic
Forum’s report
● The overall retail market in India was $672 billion USD in 2017 and expected to be $1,200 billion USD
by 2021 as per IBEF.
○ I.e. E-commerce at $38.5 billion USD was only 5.73% of the overall Indian retail industry.
○ Consumer spending was $1,824 billion USD - Ecommerce was only 2.11% of consumer
spending.
● 687.62 million internet subscribers as of September 2019 as per TRAI.
● Rural internet penetration is 27.57% compared to 104.25% in Urban - overall 52.08%.
Why talk about this?

Demand Side

Projection: IBEF
Ecommerce Market Retail Market Potential
CAGR 31% CAGR 7.5%

Data: IBEF
CAGR 11%

Data: Bain and Company

Total Internet users as of September 2019 as per TRAI - 687.62 million.
Data: RedSeer

Data: TRAI as of September 2019
● techARC - India had 502.2 million smartphone users by the end of 2019.

Source: IAMAI
Profile of Internet Users - IAMAI
NCCS or New Consumer Classification System is the new tool used to classify consumers in India. The classification
is based on education of the chief earner and number of consumer durables in the household. The classification
ranges from A1 to E3 where A1 is the most households with most purchasing power and E3 is the least. More about
NCCS here.

Supply Side

First mile
logistics
Fulfilment
Processing/
sorting
Line haul
Last mile
delivery
Marketplace Model Inventory-led model Fulfilled by e-retailer
● Inventory is not stored by
e-retailers.
● Packaging and quality
checks are carried out by
the sellers - delivery by
e-retailers.
● Rising issues in product
quality, higher returns,
pilferages and wrong
products.
● Easily scalable.
● Inventory is purchased
by e-retailer.
● E-retailer carries out
end-to-end process.
● Better quality control and
service levels.
● Capital intensive process
with high overheads and
substantial inventory risk.
● Difficult to scale
● Inventory purchased by
sellers.
● Stored in the fulfilment
centres of e-retailers.
● Quality checks,
packaging and labelling
are carried out by the
e-retailer.
● Scalable yet better
quality and less capital
intensive.
Operating Models Offerings Players

Horizontal E-commerce Vertical E-commerce
● One-stop shop - covers various
categories.
● Generalists - offers some offerings of a
wide range of categories but not all
offerings.
● No specific consumer class.
● Difficulty to create the best possible
shopping experience due to lack of focus.
● Suitable for low-involvement products.
● Covers one or few related categories
based on a theme such as home decor or
child care.
● Specialists - offer as much as possible
offerings of one or few related categories.
● Can focus on a specific consumer class.
● Can create the best possible shopping
experience with specialised tools and
experience - ex. Lenskart.
● Suitable for high-involvement products.

Data: IBEF

Data: S&P Global
E-commerce Players in India

Policy

Data and Privacy
Infrastructure
E-commerce Marketplaces
● E-commerce platforms create a huge amount of data of immense strategic value.
● Data can be used to understand consumer behaviour and detect market trends.
● Data raises various privacy concerns.
● A legal and technological framework to be created that can provide the basis for imposing restrictions on
cross-border data flow.
● A suitable framework to be developed for sharing of community data that serve larger public interest
(subject to addressing privacy-related issues) with start-ups and firms.
Draft National E-commerce Policy
Regulatory Issues
Stimulating domestic digital economy
Export promotion through E-commerce
National Ecommerce Policy Personal Data Protection Bill

Data and Privacy
Infrastructure
Ecommerce Marketplaces
● Developing data storage capacity in India.
○ 2020-21 Budget Speech - policy to enable the private sector to build Data Centre parks throughout
the country is coming.
● “Domestic alternatives to foreign-based clouds and email facilities will be promoted”.
Regulatory Issues

Data and Privacy
Infrastructure
● Foreign Direct Investment (FDI) - 100% FDI is allowed in marketplace model under automatic route but no
FDI is allowed in Inventory-led model.
● Anti-Counterfeiting Measures.
● Anti-Piracy measures
● Authentic ratings and reviews.
● Consumer-Oriented Customer Service.
● Prevention of Sale of Prohibited Items.
Regulatory Issues

Data and Privacy
Infrastructure
● Given the Interdisciplinary nature of Ecommerce, policies need to be aware of changing ways of doing
business and changing business models.
● Access to data can distort the market and regulations need to be seen from a ‘data-lense’.
● “Small firms and start-ups attempting to enter the digital sector can be given ‘infant-industry’ status” - they
can be given access to data.
● Tax - ‘significant economic presence’ as the basis for determining ‘permanent establishment’ for the
purpose of allocating profits of multinational enterprises between ‘resident’ and ‘source’ countries and
expanding the scope of ‘income deemed to accrue or arise in India’ under Section 9(1)(i) of the Income-tax
Act, 1961.
● The necessity of a Consumer Protection Framework specific to this sector.
● Payment related issues, use of data for policy making etc.
Regulatory Issues

Data and Privacy
Infrastructure
● Domestic industrial standards for smart devices and IoT devices to be formulated and facilitated.
● Automation of the logistics sector.
● Online Customs clearance to be facilitated by adopting the Customs Electronic Data Interchange (EDI)
platform, integrating all the departments.
● Customs validation to be enabled where required to benefit from schemes like duty drawbacks etc.
● E-commerce to be included in the National Integrated Logistics Plan being prepared by the Department of
Commerce.
Regulatory Issues

Data and Privacy
Infrastructure
● National Integrated Logistics Policy must take into account the special needs of the sector. E-commerce
should be dealt with separately under the Logistics Policy.
● As E-Commerce shipments are generally sent through courier mode - the existing limit of INR 25,000 to be
increased to make Indian E-commerce exports attractive even for high-value shipments through courier
mode.
● Implementation of EDI mode at courier terminals can be fast-tracked to facilitate quicker and easy dispatch
of export consignments.
● Collecting fee on applications submitted to claim export benefits should be done away with to reduce the
transaction costs for MSMEs and start-ups.
● Setting up of Air Freight Stations (AFS) off the airports can be encouraged, where all necessary cargo
preparation and documentation can be done.
● Lowering the international logistics cost for the shipments of ecommerce companies through India Post.
Regulatory Issues

Guiding Principal
Applicability
Obligations of data fiduciary
The Personal Data Protection Bill
Rights of the individual
Grounds for processing personal data
Social media intermediaries
Data Protection Authority
“to provide for protection of the privacy of individuals relating to their personal data, specify the
flow and usage of personal data, create a relationship of trust between persons and entities
processing the personal data, protect the rights of individuals whose personal data are
processed, to create a framework for organisational and technical measures in processing of
data, laying down norms for social media intermediary, cross-border transfer, accountability of
entities processing personal data, remedies for unauthorised and harmful processing, and to
establish a Data Protection Authority of India for the said purposes and for matters connected
therewith or incidental thereto.”
Transfer of data outside India

Guiding Principal
Applicability
● The processing of personal data where such data has been collected, disclosed, shared or otherwise
processed within the territory of India.
● The processing of personal data by the State, any Indian company, any citizen of India or any person or
body of persons incorporated or created under Indian law.
● The processing of personal data by data fiduciaries or data processors not present within the territory of
India, if such processing is in connection with any business carried on in India, or any systematic activity of
offering goods or services to data principals within the territory of India, or in connection with any activity
which involves profiling of data principals within the territory of India.
● Shall not apply to the processing of anonymised data.

Guiding Principal
Applicability
● "data fiduciary" means any person, including the State, a company, any juristic entity or any individual who
alone or in conjunction with others determines the purpose and means of the processing of personal data.
● Such processing will be subject to a certain purpose, collection and storage limitations.
○ Personal data can be processed only for specific, clear and lawful purpose.
○ All data fiduciaries must undertake certain transparency and accountability measures such as:
■ implementing security safeguards (such as data encryption and preventing misuse of data),
and
■ instituting grievance redressal mechanisms to address complaints of individuals. They must
also institute mechanisms for age verification and parental consent when processing
sensitive personal data of children.

Guiding Principal
Applicability
● The Bill sets out certain rights of the individual (or data principal).
● These include the right to:
○ obtain confirmation from the fiduciary on whether their personal data has been processed.
○ seek correction of inaccurate, incomplete, or out-of-date personal data.
○ have personal data transferred to any other data fiduciary in certain circumstances, and
○ restrict continuing disclosure of their personal data by a fiduciary, if it is no longer necessary or
consent is withdrawn.

Guiding Principal
Applicability
● The Bill allows the processing of data by fiduciaries only if consent is provided by the individual.
● However, in certain circumstances, personal data can be processed without consent.
● These include:
○ if required by the State for providing benefits to the individual.
○ legal proceedings.
○ to respond to a medical emergency.

Guiding Principal
Applicability
● The Bill defines these to include intermediaries which enable online interaction between users and allow
for sharing of information.
● All such intermediaries which have users above a notified threshold, and whose actions can impact
electoral democracy or public order, have certain obligations, which include providing a voluntary user
verification mechanism for users in India.

Guiding Principal
Applicability
● The Bill sets up a Data Protection Authority which may:
○ take steps to protect the interests of individuals.
○ prevent misuse of personal data, and
○ ensure compliance with the Bill. It will consist of a chairperson and six members, with at least 10
years’ expertise in the field of data protection and information technology. Orders of the Authority
can be appealed to an Appellate Tribunal. Appeals from the Tribunal will go to the Supreme Court.

Guiding Principal
Applicability
● Sensitive personal data may be transferred outside India for processing if explicitly consented to by the
individual, and subject to certain additional conditions.
● However, such sensitive personal data should continue to be stored in India.
● Certain personal data notified as critical personal data by the government can only be processed in India.

Trends

Non-Metro
Mobile Commerce
Vernacular
Assisted
Social Commerce
● Tier - 2 & 3 cities are fueling the E-commerce growth
○ Amazon festive sales - “ 91% of new customers coming from tier 2 & 3 towns”
● Fortune India - “There is a growing demand for international brands such as H&M, Under Armour, and
Mango, from tier 2 and tier 3 markets; e-tailers report 50% growth in sales from non-metros.”

Non-Metro
Mobile Commerce
Vernacular
Assisted
Social Commerce
● techARC - India had 502.2 million smartphone users by the end of 2019.
● ~97% broadband connections are mobile wireless as per TRAI.
● Online retailers growing reach in town and cities beyond metros is driven by an increase in usage of
mobile internet in the country. Increased ownership of smartphones is helping more Indians access
shopping websites easily.

Non-Metro
Mobile Commerce
Vernacular
Assisted
Social Commerce
● IBEF - Indian language users on the internet are expected to reach 540 million by 2021.
● In August 2018, Flipkart acquired an artificial intelligence company Liv.ai, which converts
speech to text in 10 Indian languages.
● INC42 - Hindi queries related to laptops and PCs have doubled.
● There has been a 2.3X increase in Hindi queries about smartphones and mobile phones

Non-Metro
Mobile Commerce
Vernacular
Assisted
Social Commerce
● Dealing with low internet penetration, less technologically exposed buyers and high
involvement products and services.
● Under this, the consumers do not place online orders on their own. Instead, the order is
placed on the merchant shops with their help and the product is either delivered to the shop
or customer’s address.

Non-Metro
Mobile Commerce
Vernacular
Assisted
Social Commerce
● Distribution through WhatsApp, Facebook
etc.social media.
● Easier to overcome the trust barrier as people
are buying from people they already know.
● Meesho - enables small business owners to
run digital shops of social platforms.
● Shop101, BulBul, DealShare and Mall91 are
some other examples.

Thank You

E-commerce in India

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