Amazon continues to invest and expand its footprint on the Indian market, with the e-commerce giant entering into an agreement with India’s Future Group, the country’s second-largest retailer, in January 2020.
Despite continued investment, international e-commerce players face the risk of increasingly coming under pressure in 2020 due to key policy changes and Reliance Retail entering the digital market space with new e-commerce platform JioMart, in January 2020.
The days for deep price promotions on online platforms are likely to be numbered in India, with this projected to be harmful for international e-commerce players while physical retail shops are expected to benefit.
International investment in India’s e-commerce sector can be attributed to thee key components:
Internet Usage: According to the International Telecommunication Union (ITU), there were 453.7 million internet users in India in 2017 (latest data), making it the second largest market globally after China, with this number expanding at a compound annual growth rate (CAGR) of 26% in 2010-2017.
Rising Middle Class: India’s middle class (households with a net income of USD10,000+) is projected to double over the next five years, from 28.2 million households in 2020 to 58.8 million in 2024. While the country’s middle class households account for 10% of total households in 2020, we forecast this number to reach 20% by 2024.
Large Young Population: Young adults (20-39 years old) make up a third of India’s population in 2020, with this demographic being more tech-savvy and familiar with e-commerce than older generations.
Despite continued investment, our view is that international e-commerce players (incl. Amazon India and Flipkart) face the risk of increasingly coming under pressure in 2020 due to key policy changes and Reliance Retail entering the digital market space:
While an e-commerce policy is still in the works, it is likely that a new e-commerce policy will take effect in March 2020. In addition to the earlier draft guidelines, which ban global online retailers from selling products from companies or affiliates in which they own an equity interest, India is examining the possibility to set up a regulatory authority to resolve disputes between large online retailers and small enterprises in the country. Smaller retailers have been claiming that companies such as Amazon India and Flipkart are pricing them out of the market. Under the new policy, international e-commerce companies in India would be banned from influencing pricing, employing unfair promotional activities, as well as misrepresenting the quality or features of their product offering.
Under the new policy, e-commerce players will also be compelled to store generated data on servers in India. This would put an additional burden on companies like Amazon and Flipkart, which will be urged to establish local centres for the collection and storage of their data.
Reliance Retail, a subsidiary of Reliance Industries and one of India’s key retailers (especially in the mass grocery segment), launched its e-commerce platform in January 2020 under the name JioMart. The platform will have a portfolio of over 50,000 grocery products and will offer free home delivery. Reliance Retail will be able to leverage its vast network of over 10,000 stores making it a credible threat to large international e-commerce players Amazon and Walmart’s Flipkart. Additionally, JioMart, being a local player without foreign backing, will be less affected by the e-commerce policy changes, giving it a competitive advantage over its peers.