24 Aug Harnessing Digital Growth: The Expanding E-Commerce Sector in India”
This article covers “Daily Current Affairs” and topic details of the E-Commerce growth in India.
Syllabus mapping:
GS-3: Economy: Policies and their impact on various sectors of the economy.
For Prelims:
What is E-commerce, Consumer Protection Act and rules, What is predatory pricing, Various schemes are related to E-commerce in India?
For Mains:
What are the factors responsible for E-commerce growth in India, How the Ecommerce is impacting the various traditional sectors in commerce, their challenges, and the way suggested by the committee or scholars to make e-commerce citizen-centric?
Why in the News?
Commerce and Industry Minister Piyush Goyal recently criticized global e-commerce giants like Amazon for their business practices in India. Speaking at the release of the report titled Net Impact of E-Commerce on Employment and Consumer Welfare in India, Goyal accused these companies of using complex corporate structures to bypass regulations and engage in predatory pricing strategies, which resulted in significant losses. He pointed out that when companies like Amazon announce large investments, such as $1 billion in India, these figures often mask underlying issues. According to Goyal, such investments are frequently used to cover substantial losses incurred from aggressive discounting practices, rather than contributing positively to the Indian economy or supporting long-term economic growth.
Key Aspects of E-Commerce in India
Market Size and Growth:
Growth Trajectory: India’s digital economy is set for remarkable growth, with forecasts suggesting it will expand more than fivefold to reach $1 trillion by 2030. This surge is fueled by technological advancements, a rise in digital transactions, and the broadening scope of e-commerce. A key driver of this transformation is the rise of digital payments, exemplified by the Bharat Interface for Money (BHIM) Unified Payments Interface (UPI), which has become a pivotal platform for digital transactions. As of March 2024, BHIM UPI has facilitated over 14 billion transactions with a total value of INR 20.44 trillion, underscoring the widespread shift towards cashless payment methods and the growing adoption of digital financial solutions across India.
Types of E-Commerce:
Business-to-Consumer (B2C): This is the most prominent segment, involving online retail platforms like Amazon, Flipkart, and Myntra, where businesses sell products directly to consumers.
Business-to-Business (B2B): Platforms such as IndiaMART and TradeIndia facilitate transactions between businesses, including bulk purchases and wholesale trading.
Consumer-to-Consumer (C2C): Platforms like OLX and Quikr allow individuals to buy and sell items directly to each other.
Consumer-to-Business (C2B): This segment involves individuals offering products or services to businesses, such as freelance work and influencer marketing.
Key Drivers of Growth:
Internet and Smartphone Penetration: The increase in internet connectivity and the widespread use of smartphones have significantly expanded the reach of e-commerce.
Digital Payments: The rise of digital payment systems, such as mobile wallets (Paytm, Google Pay) and Unified Payments Interface (UPI), has facilitated smoother online transactions.
Urbanization and Changing Consumer Preferences: Growing urbanization and a shift towards digital shopping habits have bolstered the e-commerce sector.
Consumer Trends:
Increased Online Shopping: More consumers are opting for online shopping due to convenience, a wider selection of products, and competitive pricing.
Mobile Commerce: A significant portion of e-commerce transactions occurs through mobile devices, reflecting the high adoption of smartphones.
Advantages of e-commerce in India
Growing Demand: The Indian e-commerce industry is on a robust growth trajectory, projected to reach $300 billion by 2030. This significant expansion is underpinned by a burgeoning internet user base, with approximately 936.16 million internet subscribers in the country. Among these, around 350 million are active online users who engage in transactions. Additionally, the logistics sector is poised for substantial growth, with third-party logistics providers expected to handle about 17 billion shipments over the next seven years. This growing demand underscores the e-commerce sector’s vital role in India’s economic future.
Attractive Opportunities: The e-commerce sector in India is experiencing remarkable growth, as evidenced by the achievement of a Gross Merchandise Value (GMV) of $60 billion in fiscal year 2023, marking a 22% increase from the previous year. The Government e-Marketplace (GeM) has also demonstrated impressive growth, with its GMV doubling to over Rs. 4 lakh crore ($47.96 billion) in fiscal year 2024. This growth is driven by a 205% increase in service procurements, highlighting the expanding opportunities within the e-commerce landscape and the increasing adoption of digital procurement solutions.
Policy Support: India’s policy framework for e-commerce supports significant foreign investment, with 100% Foreign Direct Investment (FDI) permitted in B2B e-commerce. The marketplace model of e-commerce also benefits from 100% FDI under the automatic route. These policy measures are designed to foster a favorable environment for international investors and encourage the growth of the e-commerce sector, reflecting the government’s commitment to boosting digital commerce and enhancing market accessibility.
Increasing Investments: Investment in India’s e-commerce sector is witnessing a surge, with major players securing substantial funding. Flipkart is set to raise $1 billion, with Walmart contributing $600 million to this round. Additionally, Google LLC is investing $350 million in Flipkart as part of a nearly $1 billion funding initiative led by Walmart. This investment aims to expand Flipkart’s business operations and modernize its digital infrastructure. In a parallel development, Tata Group has announced a $1 billion investment in its super app, Tata Neu, complementing the $2 billion previously invested in its digital division earlier this year. These investments reflect growing confidence in India’s e-commerce potential and the ongoing expansion of digital platforms.
Impacts of E-commerce on the various stakeholders:
Key Points on the Impact of E-Commerce on Employment and Traditional Retail in India
E-Commerce Job Creation: E-commerce is creating substantial employment across various sectors, including retail, logistics, warehousing, and technology.
Projected Employment: By 2025, e-commerce-related jobs are expected to reach 3.4 million, up from 1.7 million in 2020.
Sector Breakdown: Major job gains are anticipated in supply chain and logistics (0.8 million), technology (0.1 million), and other functions.
Impact on Traditional Retail:
Decline in Employment: Traditional retail faces a modest decline in employment due to the rise of e-commerce.
Store Closures: Categories like consumer electronics and media have seen significant store closures, with over 50,000 mobile stores shut down recently.
Resilience of Offline Retail: Despite e-commerce growth, offline retail remains strong, with projections of 5.69 million new jobs and offline sales making up over 90% of total retail transactions.
E-Commerce and Adjacent Sectors:
Downstream Job Creation: E-commerce influences employment in related sectors such as real estate, security, and other support industries. e.g. KPMG and Snapdeal (2016) Estimate: E-commerce could create 1.45 million direct jobs by 2021, a significant increase from 23,500 jobs in 2012.
Challenges for Traditional Retail:
Pricing Pressures: Traditional retailers face competitive pressures and pricing challenges from e-commerce platforms, which often engage in aggressive discounting.
Regulatory Concerns: The Competition Commission of India (CCI) highlights issues with predatory pricing and calls for greater transparency in discounting practices.
Key Points on the Employment Potential of E-Commerce in India
Shift to Formal Sector:
Increased Formal Employment: Singh (2008) highlights that e-commerce in India and other low-income economies has the potential to transition employment from the informal to the formal sector. This shift brings jobs under regulatory protections and enhances work quality.
Skill Level of Jobs:
Higher Skilled Employment: Technopak (2020) observes that e-commerce will result in a higher proportion of skilled and semi-skilled jobs compared to traditional retail formats, reflecting a shift towards more technical roles.
Diverse Employment Opportunities:
Range of Roles: Singh (2008) identifies significant job creation potential in e-commerce for roles such as computer and information system managers, computer engineers, database administrators, and commercial artists.
Technology and Support Functions: KPMG and Snapdeal (2016) note that e-commerce organizations primarily hire for technology-related positions, along with key roles in product marketing, supply chain management, customer experience, and content development.
Digital Skill Demand:
Future Job Market: The Ministry of Electronics and IT projects that India will require 60-65 million jobs with digital skills by 2025-26, underscoring the growing demand for expertise in the digital economy.
Key Points on the Impact of E-Commerce on Brick-and-Mortar Retailers
Stagnation and Decline:
Growth Challenges: Saha (2015) found that offline retailers in Guwahati experienced stagnation in growth, with decreased turnover and profit margins in recent years.
Consumer Behavior:
Window Shopping Trend: Customers are increasingly using brick-and-mortar stores for physical inspection of products before purchasing them online, leading to a shift in purchasing patterns.
Competitive Strategies:
Price Reductions: To compete with e-commerce platforms, traditional retailers have lowered their prices, often sacrificing profit margins to offer discounts.
Limited Variety: Brick-and-mortar stores struggle to match the extensive product ranges of online retailers due to constraints in inventory and the risks associated with unsold stock.
Key Points on the Impact of E-Commerce on Support Infrastructure and Ancillary Industries
Growth in Support Infrastructure:
Capacity Building: The rapid expansion of e-commerce has spurred growth in its support infrastructure, leading to increased capacity and development in various sectors.
Employment Generation:
Indirect and Adjacent Jobs: According to KPMG and Snapdeal (2016), e-commerce has created substantial indirect and adjacent employment opportunities in sectors such as logistics, IT-BPM (Business Process Management), sellers, MSMEs (Micro, Small, and Medium Enterprises), payment solutions, marketing, and advertising.
Impact on Ancillary Industries:
Real Estate and Security: Ancillary industries like real estate and security have benefited significantly from the rise of e-commerce, as they support the infrastructure needed for e-commerce operations.
Housekeeping and Related Services: Increased demand for warehouses and fulfillment centers has led to growth in housekeeping and other support services.
Government Initiatives and E-Commerce Developments in India
The Indian government is actively supporting and promoting digital transactions and e-commerce through various technological advancements and policy measures. These initiatives are aimed at increasing the adoption of digital platforms, particularly in smaller cities and rural areas, and driving innovation in the sector.
Unified Payments Interface (UPI), RuPay, DigiLocker, and eKYC: The government is endorsing technologies such as UPI for seamless digital payments, RuPay for domestic card payments, DigiLocker for secure document storage, and eKYC for electronic know-your-customer processes. These technologies are designed to enhance the ease of digital transactions, foster financial inclusion, and improve the overall efficiency of digital services.
Digital Payments Growth: In 2022, digital payments experienced a remarkable increase of 76% in transaction volume and 91% in transaction value. The government has announced continued fiscal support of INR 1,500 crore for digital public infrastructure in 2023-24, reinforcing its commitment to promoting digital transactions and infrastructure.
Key Programs and Initiatives
BharatNet: BharatNet is a significant initiative under Digital India aimed at enhancing broadband connectivity in rural areas. With an outlay of approximately INR 61,000 crore, the program seeks to provide high-speed internet access to 250,000 Gram Panchayats.
One District One Product (ODOP) Programme: The ODOP program aims to select, brand, and promote one unique product from each district of India. This initiative is designed to spur regional economic development and support local industries.
Digital India Program: A flagship initiative aimed at transforming India into a digitally empowered society and knowledge economy. It Supports the growth of e-commerce by improving digital infrastructure and increasing internet access.
Startup India Scheme: Provides support to startups, including those in the e-commerce sector, through incentives such as tax benefits, funding, and regulatory easing. It Encourages innovation and growth in the e-commerce ecosystem.
Pradhan Mantri Jan Dhan Yojana (PMJDY): Aim to increase financial inclusion by providing access to banking services to the underserved population.
This scheme Facilitates online transactions and payment services, contributing to the growth of digital commerce.
Regulatory Framework and Policies
Consumer Protection (E-Commerce) Rules, 2020 (Draft): These draft rules define the roles and responsibilities of e-commerce marketplaces and sellers. They aim to strengthen competition, enhance consumer rights, and improve the efficiency of the e-commerce market.
Information Technology Act, 2000: Regulation: Provides legal recognition for electronic transactions and digital signatures. It also addresses cybercrimes and electronic commerce.
National E-Commerce Policy (2020): Aims to create a framework for the growth of e-commerce while ensuring data protection, fair competition, and consumer rights.
Issues Associated with E-Commerce in India:
1. Regulatory Challenges: The lack of a comprehensive regulatory framework has led to ambiguities in the operational aspects of e-commerce. Issues related to consumer protection, data privacy, and cross-border trade are often under-regulated. The absence of clear guidelines for data protection has raised concerns about consumer privacy and security.
2. Infrastructure and Logistics: Inadequate infrastructure and logistics support, particularly in rural and semi-urban areas, can affect delivery efficiency and customer satisfaction. Example: Delivery delays and high logistics costs can undermine the customer experience and limit market reach.
3. Digital Divide: A significant digital divide exists between urban and rural areas, impacting the reach of e-commerce services and limiting access to technology. Example: Lower internet penetration and digital literacy in rural areas hinder the growth of e-commerce in these regions.
4. Fraud and Cybersecurity Concerns: Increasing incidents of online fraud and cybersecurity breaches pose risks to both consumers and businesses. Example: Cases of phishing, payment fraud, and data breaches have raised concerns about the safety of online transactions.
Way Forward:
1. Establishing Clear Regulations: The Committee on E-Commerce, led by the Department for Promotion of Industry and Internal Trade (DPIIT), has recommended developing a comprehensive regulatory framework that covers data protection, consumer rights, and fair trade practices. This includes clear guidelines for data privacy and cross-border e-commerce.
2. Enhancing Infrastructure: Improve logistics and infrastructure by investing in transportation networks and warehousing facilities. The Committee suggests public-private partnerships to address infrastructure gaps. Developing logistics hubs and integrating technology for efficient supply chain management.
3. Bridging the Digital Divide: Promote digital literacy and increase internet penetration in rural and underserved areas. Initiatives like digital literacy programs and affordable internet access can help bridge the digital divide.
4. Strengthening Cybersecurity: Implement robust cybersecurity measures and create awareness programs to combat online fraud. Strengthening cyber laws and establishing dedicated cybercrime units are also recommended.
The National Cyber Security Policy outlines measures to protect online transactions and data integrity.
Conclusion
The shift to e-commerce has significantly transformed employment across various retail functions, leading to increased job creation in marketing, management, warehousing, operations, and customer service. This growth is evident both in internal hiring and through outsourced roles. New technologies have driven this employment surge by creating advanced skill roles in data management, social media, and digital platforms, rather than displacing workers. Additionally, the rise of e-commerce has increased the demand for skills in packaging, delivery, and inventory management, reflecting a broader evolution in job roles and contributing to a more dynamic and skilled workforce.
PRELIMS QUESTION:
Q. Consider the following statement:
1. The 100 % FDI is allowed in the B2C type of E-commerce business
2. E-commerce is regulated by the Ministry of Finance in India
3. Predatory pricing is prohibited by the legislation in India
How many of the above-given statements are correct?
A. Only one
B. Only two
C. All three
D. None
ANSWER: A
MAINS QUESTION:
How has the rapid growth of e-commerce influenced employment patterns, affected traditional retailers, and impacted ancillary businesses, and what measures can be taken to balance these effects effectively?
(250 words 15 marks)
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