In the biggest corporate face off in India’s fledgling e-commerce sector, global online retail giant Amazon on Wednesday announced an investment of $2 billion (Rs 12,000 crore) for expansion of its India operations, just a day after local player Flipkart raised $1billion (Rs 6,000 crore) to fund its growth plans.
Amazon, which launched its India operations in June last year, has been making a big push into the country’s rapidly-growing online retail market. Even though a late entrant, the company has big plans for India.
Jeff Bezos, founder and CEO, Amazon said that that after company’s first year in India, the response from customers has “far exceeded” expectations. “We see huge potential in the Indian economy and for the growth of e-commerce in India. With this additional investment, our team can continue to think big, innovate and raise the bar for customers in India. At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales,” he said.
Online retailing accounted for $13 billion of India’s $500-billion retail market in 2013, but it is expected to touch $76 billion by 2021. This high growth rate is being fuelled by rising broadband penetration, increase in adoption of Internet-enabled smartphones and a growing penchant for online purchase by Indians.
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Both Amazon and Flipkart are aware of this growth opportunity and are bracing up to expand their operations. But, India’s e-commerce market is still at its nascent stage and companies need to invest in developing the entire ecosystem such as robust payment options, warehousing facilities, transport, delivery and replacement of goods, among others, analysts said. Since all this requires huge cash, it justifies the race for fund infusion.
“You would appreciate such large investment decision is not made overnight. I think the question should be the other way around. You should probably ask the others if Amazon’s rapid growth and leadership ambitions trigger investment activity,” Amit Agarwal, country head of Amazon India told HT in response to whether Amazon was following Flipkart’s funding initiatives. “We have a very long-term outlook. There would be many new models and innovations. If we look at next 10-years, we should win customer trust every day.”
Agarwal did not specify the time frame for this investment.
At present, India doesn’t allow FDI in retail e-commerce but allows it in market places where third-party sellers sell directly to shoppers through online portals as well as in wholesale trading.
Several Indian companies such as Flipkart has moved to a marketplace model to prevent flouting norms. World’s largest retail chain Walmart has also launched its online wholesale stores in India in Lucknow and Hyderabad and will later expand it to other cities.
During April 2000 and April 2014, India received $37.1 million FDI in e-commerce.