Global e-commerce, Part 4

E-commerce in India: Early birds, expensive worms

Low Internet penetration and high infrastructure barriers are hobbling—but not crippling—online shopping.

By Upasna Kakroo

In the last decade, India has made a name for itself as a tech player. But that reputation, however well-deserved, belies important limitations—and these are having a big effect on the development of online commerce.

For a start, Internet penetration is still very low, with only 8.4 percent of the population online. Then there is India's great size, unpredictable logistics and creaky transport. Bricks-and-mortar retailers, many of whom have cultivated rich and long-lasting relationships with their customers, offer tough competition. And finally, 90 percent of all retail transactions are conducted in cash; online works best with plastic or electronic money. No wonder, then, that e-commerce accounts for less 1 percent of total retail sales (compared to more than 4 percent in Brazil).

And yet… the opportunity is just too alluring to ignore. 80 percent of current Internet users say they are planning to shop online in the near future, for reasons as varied as convenience and privacy (for items like lingerie). Moreover, India’s online retailers are making progress. The e-commerce market has grown an average of 34 percent a year since 2005 and will continue to grow briskly for the foreseeable future, reaching $2 billion in sales by 2015. By then, it is estimated that India will have 38 million active online shoppers.

In a country of 1.3 billion people, that is still a drop in the bucket. But by any standard, 38 million is an appetizingly big drop. Money is talking, too: In 2011, investors poured $305 million into Indian e-commerce.

To read the rest of this report, download “E-Commerce in India: Early birds, expensive worms” (PDF–1.04 MB).

This is the fourth in a series of articles about global e-commerce. The others were on JapanChina and Brazil.