Background
With over 560 Million internet users, India is the second largest online market in the world, ranked only behind China[1]. In its recent report titled ‘Global Internet: E-Commerce’s Steepening Curve‘, Goldman Sach’s has reported that the growth rate of the e-commerce sector of India for each of the next four years, would outdo the same of developed countries like the US, the UK, Europe, Brazil, and China. It has also reported that India’s e-commerce industry is likely to reach $99 Billion in size while the online penetration of retail is expected to more than double to around 11 per cent by 2024 from 4.7 per cent in 2019[2].
With the increased internet penetration, a young demographic, improved government policies and initiatives and remarkable improvements in the online infrastructure of India, the future of e-commerce sector of India is bright.
Foreign Direct Investment (FDI) in E-Commerce
The FDI Policy of India has undergone several reforms since the early 2000’s. These series of reforms have helped open the e-commerce sector of India to foreign investors.
The current FDI Policy of India divides the e-commerce sector into two models – Inventory Based Model and the Marketplace Based Model.
An Inventory Based Model of e-commerce has been defined as an e-commerce activity where inventory of goods and services is owned by an e-commerce entity and is sold to the consumers directly. Whereas a Marketplace Based Model of e-commerce has been defined as providing of an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.
Under the current FDI Policy of India, 100% FDI under the automatic route (i.e. no prior government approval required) is permitted only under the Marketplace Based Model and FDI in the Inventory Based Model of e-commerce is not permitted.
Walmart and Amazon are the two largest foreign players in the e-commerce sector of India. In 2018, Walmart bought roughly 77% stake in India’s e-commerce start-up company named ‘Flipkart’ for $16 billion—the U.S. giant’s largest-ever acquisition and the largest FDI investment in the e-commerce sector in the world in 2018. In July 2020, Walmart led another investment round in the startup for $1.2 billion, raising Flipkart’s valuation to $24.9 billion[3]. In October 2020, Amazon announced investments of at least $6 billion in India and remarked to export $10 billion worth of India-made goods around the world by 2025[4]. These large investments by Walmart and Flipkart are reflective of the promising future of e-commerce sector of India.
Impact of Covid-19 on E-Commerce
While the pandemic had a devastating impact on the Indian economy, the e-commerce sector of India grew exponentially. A recent report published by a leading american financial service provider Payoneer, ranked India 9th in the cross-border growth. The report remarked that while “the world moved to full or partial lockdown, online shopping behaviour and consumption patterns cemented into a new reality”[5]. India was one of the of the first countries in the world to impose a lockdown in March 2020 which extended in some form or the other till October 2020. This directly had an impact on the consumer behaviour as people were forced to shop online rather than venture outside.
The Future is Bright
As mentioned above, despite the pandemic, the e-commerce sector of India received huge investments from global players such as Facebook and Google. In April 2020, Facebook invested USD 5.7 Billion in Reliance Industries Jio Platforms, making Facebook its largest minority shareholder. Shortly thereafter, Google invested another USD 4.5 Billion in Reliance Industries Jio Platforms as its biggest-ever investment in an Indian company. These large investments are only reflective of the fact that the e-commerce sector of India are on an upward trajectory.
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[1] https://www.statista.com/topics/2157/internet-usage-in-india/
[2] https://www.goldmansachs.com/insights/pages/e-commerces-steepening-curve.html
[3] https://www.wsj.com/articles/walmart-sells-its-indian-stores-to-flipkart-11595484002
[4] https://www.cnbc.com/2020/10/28/india-could-contribute-up-to-20percent-of-amazons-growth-in-next-5-years.html
[5] https://economictimes.indiatimes.com/industry/services/retail/indias-e-commerce-sector-is-now-9th-globally-in-cross-border-growth/articleshow/79262975.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
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