The population of India is 1.3 billion and all signs point to the fact that a majority will soon be active eCommerce participants. A recent Morgan Stanley study forecasts that the current USD 11 billion sector may reach USD 137 billion by 2020. Such growth would exceed that experienced in China, where eCommerce was one of the main drivers of the country’s economic transformation. Investors seeking new growth themes for their portfolios better take notice and study this new trend.Morgan Stanley’s analyst used mostly the expansion of eCommerce to study the growth opportunities of the continent.India catching-up fast on the trail of China.
Internet activities in India follow a similar track to that of their northern neighbour but with a lag of 7 years. Indeed, the Chinese eCommerce boom followed the development of first generation companies, which were at that time still struggling with immature payment systems. It was then the introduction of smart phones that made eCommerce explode in China. In 2013, Chinese online commerce represented USD 314 billion, versus USD 255 billion for the U.S. The pace of eCommerce growth has not relented since, with China representing 35% of world-wide eCommerce.
In China, however, an important driver of growth beyond the advent of smartphones, was also rural population demand for such services. Indeed, while the mega cities of China had both ample physical and virtual markets, this was not the case for the provinces right until the new smartphones brought complete market & payment solutions to the masses.
Such a change had a profound impact on many other sectors according to the the Morgan Stanley analysts, with the explosion of eCommerce serving as a catalyst for the fundamental transformation of the old economy relying on heavy industry activities meand for exports and centralized price controls, to the current booming consumption driven and service-oriented market economy.
The question now is whether India could follow along the same path. All indications are positive, including the fact that the number of Internet users doubled from 50 million to 100 milion between 2007 and 2010, and tripled therafter to 300 million in 2014. India is since the second largest Internet country in the world, while the domestic penetration of Internet users remains at a low 17% vs 46% for China, or 80% for most developed countries.
Growth of Indian Internet usage is only at the begining. Current forecast predict that with the assistance of smart phones, the number of Internet users will again double over the next 5 years to 600 million, when close to half of the Indian population would be using the Internet.Investment Capital is already pouring in
All indications point to the fact that most savvy investors have already started exploiting the many opportunities associated with such a boom. Institutional investors have already poured USD 4.5 billion in the 13 months preceding Jan 2015, with allocations mostly to small and medium size enterprises.
Whether domestic or international, small online enterprises exploded in India, thus popularizing also rapidly eCommerce transactions. One of the largest eCommerce sites in India has reached the point where, every 30 seconds, it sells a new pair of shoes, while expanding is service lineup not long ago to car sales sales.
All of these opportunuities are accompanied by great challenges too. For example, for small eCommerce sites, one of the great obstacle is still the fact that 80% of the population is still uneligible to participate in electronic payments. Cash transactions still represent close to USD 1.4 trillion annual volume. ECommerce firms are exploring a broad range of solutions to be able to bridge the gap to reach also the unbanked masses that do not hold yet bank accoutns, or address the logistic challenges posed by rural deliveries.
Indeed, the dissemination of products to consumers is a great problem. Like in developed countries, Indian online consumers expect next-day delivery, which is for the moment realizable at best in the larges series. In a country spreading from the Himalayas to the Indian ocean, it is unavoidable that large regions will remain for which most eCommerce services will not be available. Because of the rudimentary state of domestic rail and road networks, most eCommerce firms try to exploit air-freight delivery, which substantially increases the cost of delivery to smaller towns and villages.
Current political leadership gives cause for confidence
The economic potential of the continent remains enormous, not only because of its 1.3 billion population, but also because of its vast geographic, social and economic diversity. All indications seem also to confirm that the recently elected (2014) prime minister of India, Narendra Modi, is on the right track to inspire and establish appealing goals for its country.
WIth his election, new possibilities of reforms have been enabled, that provide a sustainable path for the furture of the country. Among them figure increased investments in infrastructure to soldve some of the challenges of eCommerce, which would contribute greatly to the realization of a “Chinese model of growth” for the Indian economy.