The quest for a robust e-commerce economy in India

  • Indians have begun to prefer shopping online. In light of this shift in consumer behaviour, the government must make policy changes to ensure a level playing field for all platforms
E-commerce has been the saving grace for consumers and sellers, especially small- and medium-sized businesses, which struggled to stay afloat during the Covid-19 pandemic. (File photo for representation) PREMIUM
E-commerce has been the saving grace for consumers and sellers, especially small- and medium-sized businesses, which struggled to stay afloat during the Covid-19 pandemic. (File photo for representation)
Published on Jan 14, 2022 06:47 PM IST
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India is a land of festivities, with another season underway. Throughout the year, festivities boost markets, and the reverse is also true. Digitally driven e-commerce has taken to the Indian festive mood as fish takes to water. The Covid-19 pandemic has expedited the digital adoption manifold. According to a report by Shopify, 86% of Indians have adopted online shopping during the pandemic.

Initially, the shift happened due to the lockdowns and the growing fear of infection. However, last year, during Diwali, even though no major restrictions were in place, e-commerce witnessed phenomenal sales of $8.3 billion during a one-month festive sale from October 15 to November 15 — 18% more than the predicted $7 billion (according to consulting firm, RedSeer).

This indicates a structural shift in consumer behaviour. Retail usually picks up at that time of the year in India as consumers shop for the festival. With Diwali bonuses, consumers have more disposable income. Banks also reduce interest rates to boost consumer demand. Sellers look forward to the festive season to make some extra sales and clear out their inventories.

For certain businesses such as handicrafts and gift items, the bulk of the sales happens during the festive season. E-commerce has been the saving grace for consumers and sellers, especially small- and medium-sized businesses (SMBs), which struggled to stay afloat during the pandemic.

CUTS Institute for Regulation and Competition (CIRC) is undertaking a study to understand the e-commerce festive economy in India to ascertain if joining e-commerce platforms has benefitted SMBs, logistics partners and consumers during festival times. The research involves a consumer survey and a few case studies of small sellers to study their e-commerce usage and experience.

Preliminary findings suggest that approximately 50% of consumers preferred shopping online during the festivals amid the pandemic and sellers think that their presence online has become essential. The sellers interviewed deal in different goods: Handicrafts, gift items, grocery, jewellery, home decor, apparel, health care.

Some of the sellers, who have been running their brick-and-mortar outlets for several years, said they now operate in a hybrid online and offline mode. Several others started their businesses online during the pandemic. The seasonal item sellers said they have benefitted from the e-commerce festive sale events. One of the sellers even claimed to have made 300% higher sales during the e-commerce festive sale in October. Before joining the e-commerce platforms, small sellers were restricted only to local geographies. E-commerce has enabled them to expand their reach to national — and for some, even international — markets. This has increased sales significantly. The festive season deals and discounts also attract more customers. Most of these sellers said they add new products to their offerings during the festive season.

Looking at the benefits that e-commerce brings to all stakeholders, the government must work towards supporting and promoting the emerging e-commerce economy and ecosystem. With an increase in online sales, the government will also collect more taxes. In India, small sellers mostly trade in cash and provide “kaccha” bills. Through e-commerce, the government will widen the tax net considerably.

Unfortunately, in the last two years, policy changes have been frequent for e-commerce. Most of these are restrictive and increase the compliance burden for online platforms. India’s e-commerce foreign direct investment (FDI) policy has been revised several times in the last two years to restrict operations of foreign e-commerce platforms.

The recent draft Consumer Protection (e-commerce) rules also attempt to control their operations, including the sales they can organise on their platforms. The regulatory framework should create a level playing field for all platforms.

However, the direction of regulatory changes suggests protection for domestic players vis-à-vis foreign platforms. This not only skews competition, but is also detrimental to the induction of the latest innovations in retail technologies and logistic chain development that foreign platforms can bring to India that contribute to making e-commerce more efficient, and ensure wider reach.

While the regulatory compliance burden may not deter large platforms, it will create barriers for new entrants into the platform economy and distort competition. This will result in increased prices or quality deterioration of the goods and services detrimental to consumer interests.

Stable long-term policies will allow these platforms to grow and encourage the growth of new ones. In addition, government agencies, industry associations, and platforms should undertake extensive capacity-building programmes to get onboard more SMBs, especially in peri-urban and rural areas.

Several small sellers in these areas depend greatly on the festive season sales for their livelihood, with the season again on us over the next few days. E-commerce expansion to these areas will provide wider market penetration to them.

Arvind Mayaram is former Union finance secretary and chairman, CUTS Institute for Regulation and Competition 

Garima Sodhi is senior policy analyst, CUTS Institute for Regulation and Competition 

The views expressed are personal

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Monday, January 17, 2022