At a recent event to launch a study on e-commerce by the Pahle India Foundation, Commerce Minister Piyush Goyal launched an unexpected offensive against the e-commerce industry.
Latching on to the report’s prediction that e-commerce would grow at 27 per cent a year to $350 billion by 2030, he said that this was not something to be proud of, as this could cause ‘huge social disruption’ threatening billions of small retailers. He bemoaned the loss of street-corner mobile vendor and neighbourhood pharmacist and critiqued foreign funded platforms for ‘predatory pricing’.
He later clarified that he wasn’t against e-commerce per se, but only wanted fair play.
Late realisation
If the Indian government really believes that e-commerce is doing more harm than good to the economy, it is a bit late to be having this epiphany.
It has been over 15 years now since big-box online retailers such as Flipkart flagged off their operations and seven years since the Centre allowed 100 per cent FDI through the automatic route, in e-commerce marketplaces. Since then, the e-commerce industry has grown from next-to-nothing to a $62 billion business in 2023 (Source: Redseer). It has also spawned a large ecosystem of sellers and support services.
The government has gone to town showcasing e-commerce as a sunrise opportunity. B2C e-commerce alone, without accounting for ancillary services, attracted over $10 billion in FDI in the last five years.
Thus far, e-commerce has captured less than 7 per cent of India’s retail trade pie. It is likely to have displaced small retailers and caused job losses in select segments such as electronics and lifestyle where it has made big inroads.
But these losses need to be weighed against the gains to the consumer and the larger economy.
Empowering the consumer
Warts and all, e-commerce has done more for ease of living in India than policymakers through their regulatory interventions.
India’s consumer protection laws have traditionally been weak and their enforcement ineffectual. This long meant that consumers had limited choices and little recourse against lackadaisical service and defective products.
But online marketplaces have raised the bar manifold on the consumer experience, with their mind-boggling menu of options, efficient delivery and no-questions-asked return policies. Online reviews allow the buyer to benefit from the wisdom of the crowd.
It is not just affluent city folk who are empowered by all this. Online platforms have put inaccessible products and brands within the reach of lower-income shoppers in the hinterland, too. With Covid providing a push, India added 120 million online shoppers between 2019 and 2022 (total 230-250 million). Of these, nearly 70 per cent reside outside Tier-1 cities. A third earn less than ₹5 lakh per annum (Bain & Co, December 2023). E-commerce disrupting segments such as consumer electronics and pharmaceuticals with bloated distribution margins, has meant savings for consumers.
Improving access
The e-commerce industry is now delivering four billion shipments a year. The race by the biggies to expand serviceable pin-codes has dramatically improved last-mile access to India’s small towns. This has spurred investments in warehousing and logistics infrastructure, now an over $29.5 billion industry (EY Industry Trendbook, February 2023).
This has birthed players such as Delhivery, Ecom Express and Shiprocket and unlocked new revenues for India Post. The online shopping addiction has sparked innovation in payment gateway solutions and point-of-sale devices — another $1.7 billion business.
Hopping on as sellers
Despite their tiny size, India’s micro, small and medium enterprises (MSMEs) are not lacking in agility. Therefore, even as MSMEs in some segments of retail trade have been forced to shut shop due to e-commerce, others have hopped on to online marketplaces as sellers, to tap into the vast market. In FY23, about 1.5-2.5 million MSMEs were selling products online, making up about 2-3 per cent of total MSMEs.
The Pahle India survey finds that two-thirds of vendors who got online experienced higher sales. Those who used the government-funded Open Network for Digital Commerce (ONDC) saw a doubling of sales, while those on Amazon and Flipkart reported a 74 per cent increase. Online vendors employed 54 per cent more people across skill levels than offline ones, leading to its finding that e-commerce has a net positive impact on jobs.
Taking on Goliaths
Under India’s traditional retailing model, large consumer segments such as FMCG, personal care, consumer appliances and food were the preserve of deep-pocketed MNCs. They could keep out smaller challengers through a labyrinthine distribution chain. New entrants were kept off store shelves through carpet-bombing tactics with dozens of SKUs (stock keeping units).
But online marketplaces allow even home businesses in small towns to showcase their wares to a pan-India audience. They no longer need to jostle for retail shelf space. The third-party inventory, logistics and payment ecosystem ensures order fulfilment at minimal costs.
This has given scores of Indian businesses — from Mamaearth and Khadi Gram Udyog in personal care, to Atomberg and Boat in appliances to Licious and ID Fresh in foods — a fighting chance at winning against the consumer Goliaths.
This D2C revolution in fact empowers small businesses to such an extent, they may no longer need to rely on giant marketplaces such as Amazon or Flipkart once they reach a critical mass. They can easily set up their own shopping portals and payment gateways to enable D2C transactions. This is a model that many brands from Amul to Kovai Pazhamudir Nilayam are trying out.
In the world of technology, the first mover seldom has the last word. Disruptive models such as D2C, vertical e-tailing and quick commerce are already nipping at the heels of marketplaces such as Amazon. Government-backed ONDC has nurtured a success like Bengaluru’s Namma Yatri, to take on Uber and Ola. This a healthy sign that predatory practices can’t last long in a market where the customer is king.