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The Growth of E-Commerce in India: Cybersecurity and Infrastructural Challenges

September 12, 2016

Author:

Minnie Ray Chaudhury

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The e-commerce industry has been rapidly growing in India. The distinct constraints and opportunities of the Indian context has shaped how e-commerce has developed, with online retailers having to address issues such as poor infrastructure and a predominantly cash economy. The rapid development of e-commerce presents serious cybersecurity challenges for the Indian population.

The Growth of E-commerce: Flipkart and Amazon

In 2015, buyers in India spent 13.31 billion U.S. dollars on e-commerce, a figure that has risen from 12.6 billion dollars in 2013. By 2019, sales are predicted to rise to about 65.09 billion U.S. dollars. While these figures are still low compared to sales in the United States, which amounted to 342.96 billion U.S. dollars in 2015, the consistent rise in sales provides exciting opportunities for e-commerce companies in India.

Until June 2016, Flipkart had been India’s biggest e-commerce retailer, but their number one position is currently under threat. In June, Amazon invested an additional three billion dollars in the Indian market after opening up shop in the country in 2013. Amazon’s decision to invest additional money in India came at a critical time for Flipkart, as they had recently changed their business policies–a move that backfired.

Flipkart’s changed business policies were related to their interaction with small, independent businesses. In order to be a successful e-commerce business in India, companies must accommodate the large amount of small, independently owned businesses throughout the country. About 90,000 Indian companies sell their products through Flipkart. The new policies have increased the amount of sales commission Flipkart requires per transaction, while making returns for customers slightly more challenging. Additionally, individual retailers gain more responsibility in weighing and dispatching their own merchandise, where before they had to bring all items to the nearest Flipkart hub where packages were weighed and distributed by the e-commerce company. These new policies prompted some of these businesses to drop their contracts with Flipkart.

It is likely that Flipkart’s new policies did not put much of a dent in their overall sales, but the struggle was enough for Amazon’s sales to pick up. In July, Flipkart reported a figure of less than Rs.2,000 crore (about 298.46 million USD with the current exchange rate), while Amazon’s sales in India surpassed that amount. Another Indian e-commerce company, Snapdeal, reported a 50% decrease in July sales, generating only Rs.600 crore this year. From these figures, it seems that Amazon’s increased monetary attention in India has so far been fruitful.

Tackling Physical Infrastructure Limitations

In upcoming years, the potential for growth in e-commerce will likely increase, as the number of individuals with disposable incomes is also projected to grow annually. But 67% of India’s population resides in rural areas, where a speedy delivery of packages will pose a challenge, making physical infrastructure a huge limiting factor in the growth of e-commerce. Although this is not a factor for Amazon in the United States, the American company has had to adapt their business model to better suit India’s economy. For example, to educate and entice small Indian business owners to sell through Amazon, a program was created called the Amazon Chai Cart.

For 9,400 miles across 31 cities, the Chai Cart team offered refreshing beverages to small businesses while informing them about how e-commerce could help them expand their consumer reach. Similarly, in 2015, Amazon launched Amazon Tatkal, a wheeled studio to help small business owners register their companies on Amazon. In order to get packages to their customers faster, Amazon has also designed a special courier service that operates neighborhood to neighborhood, utilizing bicycles and motorcycles to better navigate smaller Indian streets.

No Credit Cards: Online Purchases in a Cash Economy

India is still predominantly a cash economy, and most Indians still do not own a credit card. Amazon has found a way around this restriction as well, letting individual storeowners handle online transactions. Indians can visit their local corner shops and use the store’s Internet connection to browse and order things from Amazon, paying the store owner in cash. The storeowners then alert their customers when their packages arrive.

While the majority of India still deals in cash, credit card usage is rising rapidly in India. The number of credit card transactions in 2015 was 615 million, an increase from 265 million transactions in 2011. More credit cards are being issues annually, as well. SBI Cards issued 24.5 million credit cards from March 2015-March 2016, a 16% growth from the previous financial year. Credit card spending has also increased 26.7% this past financial year. Axis bank is India’s third largest private sector lender. Sangram Singh, the head of cards and merchant acquisition at Axis bank stated that the bank adds one lakh (100,000) cards every month.

Cybersecurity Challenges

With such a fast rate of credit card usage growth in India, it is easy to think about the cybersecurity vulnerabilities that the banks face. The Department of Electronics and Information Technology of India has outlined a cybersecurity policy, enacted in 2013, to defend and respond against cybersecurity attacks. The policy outlined a five-year plan in which the government would increase attention, both physically and monetarily, to strengthening India’s cyber-environment.

Progress has been slow, however, until June 7, 2016, when India’s Prime Minister Narendra Modi and President Obama met to discuss cybersecurity issues. Together, the leaders agreed to cooperate on improving cybersecurity within and between their respective countries.

Conclusion

Hopefully, with the support of the United States, India can continue to progress on strengthening their cyber-infrastructures. Regardless, more business will no doubt realize the appeal of e-commerce and more consumers will be attracted to their e-stores. For example, in mid-June, the West Bengal Handicrafts Development Corporation Ltd launched their own e-commerce portal. Now, customers can purchase traditionally hand-made items online, including items made from the 300-year-old tradition of Baluchari weaving. Those with Internet access no longer have to travel to individual artisans to purchase these fine handmade products and can instead use an app.

It seems that in order for e-commerce to grow in India, businesses will have to adapt to incorporate traditional means of commerce. Amazon has found some success by adapting in this way. But how will an Indian company do in the United States? In July, Flipkart opened an office in Palo Alto, California and are now operating in the Bay Area. It will be interesting to see how Flipkart adapts to the American business model, and how companies in India will continue to grow and expand in e-commerce. 

This publication was made possible in part by a grant from Carnegie Corporation of New York. The statements made and views expressed are solely the responsibility of the author.