http://indianexpress.com/article/opinion/columns/just-add-to-cart/99/
In spite of the delirium visited upon the country this Diwali, e-commerce will be no more than 3-10 per cent of Indian retail over the coming decade.
Written by Bhaskar Chakravorti | Posted: November 8, 2014
While the Diwali fireworks have died down, it is becoming clear that as far as the annual shopping season goes, 2014 has brought some explosive changes. The business of Diwali may never be quite the same after this year. According to some retailers, not enough shoppers were lining up at the shops, upending a time-honoured tradition. The Future Group’s chief, Kishore Biyani, pretty much summed it up in a quote in The Wall Street Journal: “The market has been bad”. On the flip side, according to almighty Google, “The internet is increasingly becoming the preferred source of research (and even purchase) for Indians, and searches on Google clearly show the rush of searches around Diwali.” More and more Indian shoppers are turning to their phones and computers instead of braving the traffic to make their purchases for the festival season; it seems the trend accelerated this year. Of course, 2014 was also the year when records were broken in Indian e-commerce; in excess of $3 billion poured into the nascent Indian e-commerce market over the summer. ASSOCHAM expects online sales to hit the Rs 10,000 crore milestone this year. With the tech research firm, Gartner, predicting 70 per cent growth in the Indian e-commerce market by next year and The Fletcher School-MasterCard Digital Evolution Index placing India as a “break out” country in terms of digital evolution, we may be looking at a future filled with digital Diwalis.
This is a transition that is remarkable for the simple reason that despite the liberalisation of the Indian economy and the growing interest of international players in getting a toehold in one of the world’s highest potential consumer markets, Indian retail has stubbornly resisted change. It had remained fragmented, chaotic and inefficient, a postcard from the “old” India. The political and regulatory establishment could never quite make up its mind about whether to enact the bold laws to truly nudge it towards modernity. With the rise of digital players, Indian retail may be sidestepping decades of dithering. Digital retail is forcing a competitively feisty space, with innovation in branding, business models and funding that retail has never witnessed before.
Of course, the brick-and-mortar establishments have been served notice that the digital insurgents present a serious alternative to consumers, offering lower prices, reliable service and convenience. Even if they do not rush to create online personae themselves, the digital alternative forces the physical-world retailers to get their act together. Among the insurgents themselves, the Diwali rivalry has been rather — how should one put it — sparkly. The prime shopping season opened with the “Big Billion Day” by Flipkart, countered by Amazon’s “Diwali Dhamaka Sale” and Snapdeal’s 50 per cent off and one-plus-one offers, topped off by 60-70 per cent discounts on the mobile phones with which one can actually do all the shopping. Joining the melee, CouponDunia produced the “Deal-Wali Diwali” extravaganza and Jabong jumped in with its own huge discounts on lifestyle products.
Duelling discounts among the big names is not the only game in town. There are several new contests around the corner, since growth in the digital sector will have wider effects. There are nearly 200 digital commerce and payments start-ups flush with private equity/ venture capital funds. This is also a sector that could create at least 1,50,000 jobs in the next two to three years, according to Antal International Network India managing director Joseph Devasia. India is going deeper into digital territory with some strong momentum: it was ranked 11th out of the 50 countries studied in terms of the pace of change in its digital evolution since 2008, according to the The Fletcher School-MasterCard Digital Evolution Index. India ranked fourth in terms of private equity investments in digital ecosystems, behind only the US, Brazil and China.
Does this burst of new energy spell the beginning of the end of the great Indian bazaar, a fixture that has been part of the national psyche for millennia? Are the cluttered stores, the crowds, the smoke, the smells, the unavailability of parking spots and the not-so-occasional cow occupying the occasional parking spot giving way to the quiet cool of thousands, nay millions, of consumers tapping away on their phones and laptops? Should Walmart abandon its seemingly Sisyphean efforts to crack the Indian big box retail market?
Before we get too carried away, it is useful to put the inevitability of India’s digital progress in perspective. In spite of the delirium visited upon the country this Diwali, e-commerce will be no more than 3-10 per cent of Indian retail over the coming decade. Much progress is needed on the key enablers and bottlenecks. For example, only 15 per cent of the population has access to the internet and 35 per cent have bank accounts. Of the 50 countries in our study , “Digital Planet: Readying for the Rise of the e-Consumer”, which I co-authored with Christopher Tunnard and Ravi Chaturvedi, India ranked the highest in terms of intensity of cash usage, higher than Vietnam, Indonesia, Nigeria or Egypt. It ranked 42 out of 50 countries in its current state of digital evolution.
Our study reveals that the present situation may be dynamic but India is operating from a very low base overall. There are some clear implications for public policy. One of the striking aspects of our results is that government investment in the digital ecosystem is strongly positively correlated with a country’s level of digital evolution. Of the 50 countries studied, the Indian government’s degree of investment in digital ecosystems sits in the bottom 50 per cent. In addition, measures to promote financial inclusion are key. Future consumers need bank accounts and means of paying online for the industry to truly scale up. Cash on delivery and local partnerships make for a highly innovative jugaad business model for now, but they can go only so far. Investment in network security and trust is another factor to keep an eye on. Cyber threats and hacking are problems that are only going to get worse, particularly given the vulnerability of mobile infrastructure. Finally, much of what is bought online has to be delivered in the real world, for which we need roads, storage and transport infrastructure.
The year 2014 is indeed a turning point for India’s digital economy: it has come of age. That said, next year’s Diwali may still remain more dukaan than digital. But the major strides that have been made this year mean that, finally, the Indian consumer has a real and robust choice. These are choices in where and how to shop, which may be the best Diwali gift for the growing Indian consumer class in years to come. The dilapidated storefronts that are hallmarks of every Indian city are well past their “sell-by” date.
The writer is senior associate dean of international business and finance at The Fletcher School at Tufts University, founding executive director of Fletcher’s Institute for Business in the Global Context, author of ‘The Slow Pace of Fast Change’ and co-author of ‘Digital Planet: Readying for the Rise of the e-Consumer and the Digital Planet Index’
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