The India ecommerce market growth is estimated to miss the market expectations as e-commerce juggernauts which was earlier going full throttle seems to have slowed down ever since the new FDI rules kicked in on February 1, 2019.
Morgan Stanley, the US-based banking and financial services expert, has revised its estimates for the Indian e-commerce sector, citing a number of reasons for doing so. It now expects the Indian online retail market to touch the USD 200 billion mark only in 2027, as against its initial estimate of 2026.
The retail ecommerce market in India touched $32.7 billion in 2018. In the next four years, by 2022, the market would record a phenomenal growth to reach $71.9 billion.
As per the new FDI rules, all Indian online marketplaces are barred from offering deep discounts, entering into exclusive selling arrangements with vendors or selling products from entities in which they hold a stake.
But can the slowdown be entirely blamed upon these new FDI policy guidelines?
India Ecommerce Market: Still Promising
The latest report released by Morgan Stanley goes on to state many reasons behind its revised estimates. And those, according to the experts with Morgan Stanley, go beyond the recently introduced ‘reforms.’
The new report specifically refers to the new policy guidelines released by the Indian government in December 2018 and implemented in February 2019 as striving ‘to tighten the functioning of e-commerce companies in India to ensure those with FDI holdings operate as pure marketplaces without any equity interest or control on seller entities or mandatory exclusivity clauses.’
It is to be noted that the new rules have already caused major disruptions across the ecommerce market in India, leaving everyone disgruntled- be it investors, the owners of major platforms like Amazon and Walmart backed Flipkart or the end users.
As many online vendors were forced to take their products off the virtual shelves to ensure compliance with the new rules, online buyers were left with fewer buying options, longer delivery periods and higher prices.
The ecommerce giants, on the other hand, complained of having to look for alternative routes to create subsidiaries to carry on with the business like before without violating the new policy guidelines. And while these giants are now working overtime to find workarounds, their sales and shares have both nosedived in the wake of implementation of the new FDI rules.
The revenue growth for ecommerce majors in India has been adversely affected by the uncertainty prevailing in the market. The revenue figures which were earlier registering a growth of 25%-30% might get halved to 15% in the coming months.
These restrictive policies are being seen by experts as speed breakers, posing major hurdles to the growth of Indian ecommerce which has till now enjoyed an unrestricted run.
At present, the India ecommerce market has begun to make inroads into the overall retail market only because of attractive pricing options, convenience, a greater variety of goods to choose from and aggregation of demand.
The Morgan Stanly report went on to add that though these new policy guidelines do act as a deterrent to growth by increasing bottlenecks, adding to the cost of doing business and, above all, adding to the uncertainty, the likely impact may not be as significant as earlier imagined, in the overall context.
This is also because investors continue to view India as a good long term opportunity in spite of the currently prevailing fluid situation. Brian Olsavsky, Chief Financial Officer at Amazon, agrees.
And why not, despite all the acceleration, deep discounts and aggressive strategies employed by eocmmerce behemoths, ecommerce market in India still account for only 2.7% of the total retail sales in India. Undoubtedly, investors and entrepreneurs are able to visualise a big window of opportunity in India, and leaving no stone unturned to keep their growth rate intact.
As the new FDI policies have partially created a level playing field for all the ecommerce players in the country, the struggling players, like of eBay India, Snapdeal, are once again gearing up to make the most of the situation.