Navigating India's E-commerce Crossroads

• 28 Aug 2024

This editorial is based on “E-commerce has done more good than harm” which was published in Hindu Business Line on 25/08/2024. The article highlights the rapid growth of India's e-commerce industry, which, while empowering consumers and small businesses, also raises concerns about potential disruptions to traditional retail.

For Prelims: Indian e-commerce industry, Open Network for Digital Commerce, Unified Payment Interface, BHIM, Competition Commission of India, Gig economy, Foreign Direct Investment, Equalisation Levy Rules 2016, Social-Ecommerce, RBI Guidelines on Payment Aggregators and Gateways.

For Mains: Major Growth Drivers of E-commerce in India, Major Issues Related to the E-Commerce Sector in India.

The Indian e-commerce industry is experiencing rapid growth, with projections estimating it will reach USD 350 billion by 2030. However, this expansion has sparked significant debate. Recently, India's Commerce Minister has expressed concerns that the rise of e-commerce could disrupt traditional retail, potentially harming small businesses, a concern that may seem belated given the government's previous support for the sector.

Conversely, e-commerce has empowered consumers by offering a wider range of choices, efficient delivery systems, and improved return policies. It has also enhanced access to products in smaller towns and strengthened logistics infrastructure. Many small businesses are adapting by leveraging online platforms, leading to increased sales and employment opportunities. E-commerce has disrupted traditional distribution models, enabling smaller Indian brands to compete more effectively with established players. This evolving landscape promotes a consumer-centric market, reducing the likelihood of predatory practices taking root.

What is E-Commerce?

• About: E-commerce, short for electronic commerce, refers to the buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions.
• Types of E-Commerce
  • Based on Parties Involved
    • Business-to-Consumer (B2C): Amazon selling products to individual customers
    • Business-to-Business (B2B): Wholesalers selling to retailers through online platforms
    • Consumer-to-Consumer (C2C): Individuals selling on platforms like eBay or OLX
    • Consumer-to-Business (C2B): Freelancers offering services to companies on platforms like Upwork
    • Business-to-Government (B2G): Companies bidding for government contracts online
  • Based on Platform
    • Social Commerce: Leveraging social media platforms for e-commerce (e.g., Facebook Marketplace)
    • Mobile Commerce (M-Commerce): Transactions conducted through mobile devices
    • Local Commerce: Online platforms connecting local buyers and sellers (e.g., Nextdoor)

What are the Major Growth Drivers of E-commerce in India?

• Digital Revolution-Smartphones and Internet Penetration: India's digital landscape has transformed dramatically, fueling e-commerce growth.
  • India will have 1 billion smartphone users by 2026 with rural areas driving the sale of internet-enabled phones.
  • In the case of India, the average cost of 1GB of mobile internet data is among the lowest globally, at just Rs 13.98, this has brought millions online.
  • This digital accessibility has made online shopping a reality for millions, especially in Tier 2 and 3 cities.
  • Also, the Open Network for Digital Commerce (ONDC) initiative, aims to democratise digital commerce,
• Rise of Digital Payments-UPI and Beyond: The surge in digital payments has been a key enabler for e-commerce.
  • Unified Payment Interface (UPI) transactions clocked a new high in value in May 2024 by processing 14.04 billion transactions worth Rs 20.45 trillion.
  • The ease of digital transactions, coupled with initiatives like BHIM has reduced the reliance on cash-on-delivery.
  • This shift has not only simplified online purchases but also broadened the customer base for e-commerce platforms.
• Evolving Consumer Behavior-Convenience and Choice: Changing lifestyles and increasing time scarcity have tilted consumer preferences towards the convenience of online shopping.
  • E-commerce platforms offer unparalleled product variety, Amazon India alone lists over 170 million products.
  • This vast selection, combined with competitive pricing and doorstep delivery, has made e-commerce an attractive option for urban and rural consumers alike.
• Logistics and Last-Mile Delivery Innovation: Improvements in logistics have been pivotal for e-commerce expansion.
  • India's logistics market, valued at USD 250 billion in 2021, is expected to grow to USD 380 billion by 2025.
  • E-commerce-focused logistics players like Delhivery and Ecom Express have revolutionised last-mile delivery.
  • Innovations like hyperlocal delivery (Dunzo, Swiggy Instamart) have reduced delivery times to as little as 10-30 minutes in some cities.
• Rise of Social Commerce and Live Shopping: Social commerce is emerging as a significant trend, blending social media with e-commerce.
  • Platforms like Meesho have tapped into the power of social networks for product discovery and sales.
  • Live shopping, popularised by platforms like Flipkart's Shopsy and YouTube's integrated shopping features, is expected to be a USD 4-5 billion market in India by 2025.
  • This trend is particularly appealing to young, digitally-native consumers and is driving impulse purchases and engagement.
• Personalisation and AI-Driven Recommendations: Advanced data analytics and AI are enhancing the online shopping experience through personalisation.
  • E-commerce giants like Amazon report that 35% of their sales come from personalised recommendations.
  • AI-powered chatbots handle 30-40% of customer queries on major platforms.
  • These technologies not only improve customer satisfaction but also drive higher conversion rates and average order values.
• Vernacular Approach and Voice Commerce: Catering to India's linguistic diversity has opened up new markets for e-commerce.
  • Voice-based shopping, supported by platforms like Amazon's Alexa and Google Assistant, is gaining traction.
  • According to a report by the Internet and Mobile Association of India, 57% of internet users prefer to access the internet in Indian languages, presenting a massive opportunity for voice and vernacular e-commerce solutions.

What are the Major Issues Related to the E-Commerce Sector in India?

• Predatory Pricing-The Race to the Bottom: Allegations of predatory pricing have dogged major e-commerce players.
  • In 2020, the Competition Commission of India (CCI) ordered a probe into Amazon and Flipkart for deep discounting practices.
  • For instance, during the 2022 festive season, e-commerce sites offered discounts up to 80% on electronics. While beneficial for consumers in the short term, this practice raises concerns about long-term market health and fair competition.
• Data Privacy- The Double-Edged Sword of Personalisation: As e-commerce platforms collect vast amounts of user data for personalised experiences, concerns about data privacy and security have intensified.
  • High-profile data breaches, like the alleged Domino's India breach affecting 180 million orders in 2021, underscore the risks.
  • Balancing personalisation with privacy remains a significant challenge for the industry.
• Counterfeit Conundrum: The proliferation of counterfeit products on e-commerce platforms poses a major threat to brand integrity and consumer trust.
  • A 2018 LocalCircles survey found that 38% of consumers had received fake products from e-commerce sites.
  • In 2022, a Parliamentary panel recommended stricter penalties for e-commerce firms selling counterfeit goods.
  • The challenge lies in effectively policing millions of listings without stifling legitimate sellers.
• The Small Retailer Squeeze: The rapid growth of e-commerce giants has put immense pressure on India's 63 million small retailers.
  • In FY23, about 1.5-2.5 million MSMEs were selling products online, making up only 2-3% of total MSMEs.
  • Government initiatives like Open Network for Digital Commerce (ONDC) aim to level the playing field, but small retailers still struggle to match the tech prowess and economies of scale of e-commerce behemoths.
• Last-Mile Logistics-The Rural Reach Riddle: While e-commerce has made significant inroads, reaching India's vast rural population remains challenging.
  • Poor road infrastructure, lack of proper addresses, and limited warehousing facilities in remote areas inflate delivery costs.
  • Innovations like Amazon's I Have Space program and Flipkart's partnership with kiranas have helped, but reaching the last mile profitably in a country where 65% of the population is rural remains a formidable challenge.
• The Environmental Cost of Convenience: The e-commerce boom has raised significant environmental concerns.
  • The packaging waste generated by online orders is staggering, India generated 3.4 million tonnes of plastic waste in 2019-20, with e-commerce being a major contributor.
  • The carbon footprint of last-mile deliveries, especially with the rise of quick commerce, is substantial.
• The Gig Economy Grapple: The e-commerce boom has fueled the growth of the gig economy, particularly in logistics and delivery services.
  • While offering flexible employment, quick commerce has raised concerns about worker rights, job security, and safety, particularly with its promise of 10-minute deliveries.
  • Gig workers are typically isolated and lack the ability to unionise or collectively bargain for better working conditions and remuneration.
  • This power imbalance makes it difficult for them to advocate for their rights or negotiate better terms with the platforms they work for.
• The Influencer Impact: The growing role of influencer marketing in e-commerce has raised concerns about authenticity and disclosure.
  • The issues of undisclosed paid partnerships, and misleading product endorsements have come under scrutiny.
  • Advertising Standards Council of India (ASCI) reported that 30% of influencer posts it analysed violated disclosure guidelines.
  • Balancing the power of influencer marketing with maintaining consumer trust and regulatory compliance presents an ongoing challenge for the e-commerce sector.

What are the Government Initiatives Related to the E-Commerce Sector in India?

• Foreign Direct Investment (FDI) in E-Commerce: The government has allowed 100% FDI in the e-commerce marketplace model, particularly in B2B transactions.
• Government e-Marketplace (GeM) Portal: Launched in August 2016 by the Ministry of Commerce and Industry, the GeM portal promotes transparent and efficient public procurement, with procurement crossing ₹2 lakh crore in FY23.
• Open Network for Digital Commerce (ONDC): Introduced in 2022, ONDC aims to democratise e-commerce by providing equal opportunities for MSMEs to thrive in digital commerce.
• Consumer Protection (E-commerce) Rules 2020: These rules mandate e-commerce platforms to display the country of origin and disclose product listing parameters to ensure transparency for consumers.
• Equalisation Levy Rules 2016 (Amended in 2020): These rules impose a 2% tax on foreign e-commerce operators selling goods or services in India, ensuring fair taxation of digital businesses.
• RBI Guidelines on Payment Aggregators and Gateways: In 2020, the Reserve Bank of India issued guidelines for payment aggregators and payment gateways, crucial for e-commerce transactions.
  • These guidelines mandate licensing for payment aggregators, impose stricter operational and governance requirements, and enhance customer grievance redressal mechanisms.
• National E-Commerce Policy: The forthcoming National E-Commerce Policy, initially proposed in 2018, seeks to enhance sector growth and boost exports, with a draft released in 2019.

What Measures can be Adopted Related to the E-Commerce Sector in India?

• Leveling the Playing Field of Small Retailers: Launch a nationwide "Digital Kirana" initiative to equip small retailers with digital tools and skills.
  • Partner with established e-commerce players to create dedicated "local seller" sections on their platforms, highlighting nearby small businesses.
  • Provide subsidised access to e-commerce enablement platforms, digital payment systems, and inventory management software.
  • Implement a tiered commission structure on e-commerce platforms, with lower rates for small sellers to boost their competitiveness.
• ONDC Acceleration-Democratizing Digital Commerce: Fast-track the implementation of the ONDC initiative across all major cities.
  • Provide financial incentives for early adopters, both sellers and technology providers, to boost participation.
  • Launch a nationwide awareness campaign to educate consumers and businesses about ONDC's benefits and usage.
• Streamlining the E-commerce Ecosystem: Formulate a comprehensive, forward-looking e-commerce policy that provides clear guidelines on FDI, data localisation, and cross-border trade.
  • Establish a dedicated e-commerce regulatory body to oversee compliance, address grievances, and promote fair competition.
  • Simplify GST compliance for e-commerce transactions, potentially introducing a single-point GST collection mechanism for marketplaces.
• Last-Mile Innovation Fund-Bridging the Rural-Urban Divide: Create a government-backed "Last-Mile Innovation Fund" to support startups and existing players in developing cost-effective rural delivery solutions.
  • Offer tax incentives for companies investing in rural logistics infrastructure, including micro-warehouses and digital addressing systems.
  • Partner with India Post to leverage its extensive rural network for e-commerce deliveries, potentially creating a "rural e-commerce assistant" role within post offices.
• Green E-commerce Push: Implement a mandatory "Green Rating" system for e-commerce packaging, incentivizing the use of eco-friendly materials.
  • Introduce tax benefits for e-commerce companies adopting electric vehicles for last-mile delivery.
  • Launch a "Circular E-commerce" initiative, promoting refurbished goods marketplaces and incentivizing product repair and recycling.
• Consumer Protection Enhancement: Strengthen the e-commerce dispute resolution mechanism by establishing dedicated online consumer courts for faster grievance redressal.
  • Implement a blockchain-based product verification system to combat counterfeits, starting with high-value and commonly faked items.
  • Mandate clear disclosure of pricing components, including base price, discounts, and platform fees, to enhance pricing transparency.
• Inclusive Gig Economy Framework: Develop a comprehensive social security scheme for e-commerce gig workers, including health insurance and retirement benefits.
  • Implement a "Portable Benefits" system allowing gig workers to accumulate benefits across multiple platforms.
  • Establish minimum wage guidelines for gig workers based on local cost of living and task complexity.
  • Launch a "Gig Worker Upskilling Program" to help delivery personnel and other gig workers transition to higher-skilled roles in the e-commerce ecosystem.

Drishti Mains Question:

Discuss the impact of the rapid growth of e-commerce on traditional retail in India. What measures should the government consider to ensure a balanced and inclusive growth of the retail sector?

UPSC Civil Services Examination, Previous Year Question:

Q. With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct? (2022)

1. They can sell their own goods in addition to offering their platforms as market-places.
2. The degree to which they can own big sellers on their platforms is limited.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans: (b)