E-COMMERCE and online retailing are on the verge of a major upsurge in India, with billions of dollars of new investments pouring into the sector.

Last month alone saw Amazon.com Inc, the world’s largest e-tailer, announce a hefty $2bn infusion of funds into its India operation, just a day after Flipkart, a home-grown version of the US giant revealed it had raised $1bn in new funding.

Estimates by the Internet Mobile Association of India and two other bodies are that the e-commerce segment is growing at almost 35pc annually. The country’s e-tailing market is currently pegged at less than $2bn, but with players such as Amazon and Flipkart pouring money into it, the business is expected to record phenomenal growth.

Many Indian business leaders and groups are also considering making a foray into the sector, either individually or through their companies. They reportedly include Ratan Tata, the chairman emeritus of the Tata group; Anand Mahindra, the chairman of the Mahindra group; and IT entrepreneurs Narayana Murthy (Infosys) and Azim Premji (Wipro).

Analysts admit that some of the recent valuations of e-tailers does not make sense, as none of them are making any profits. But considering the enormous opportunities for growth in the sector, and the fact that most of the investors have taken a long-term position while making investments, indicates it is not just a bubble.

One of the pre-requisites for a thriving e-commerce and e-tailing segment is the presence of internet users. India has had a slow start in terms of internet usage — especially when compared to China — but the country is now at a take-off point.

Rajan Anandan, managing director, Google India, says that by the end of this year, there will be 200m internet users in India, surpassing even the US. At the current rate of growth — 5m new internet users being added every month — India is expected to have double the number of internet users in the US by 2018. By the 2019 general elections, more than half a billion internet users would be there in India, he says.

Clearly, the impact this will have on e-commerce and e-tailing is enormous. Announcing the $2bn investment in its India operations, Jeff Bezos, chief executive, Amazon, said it would enable his team to continue to think big, innovate and raise the bar for its growing clientele in the country. “At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales,” added Bezos.

Though there has been stiff resistance to the idea of allowing foreign direct investment (FDI) in multi-brand retailing, opposition to FDI in multi-brand e-tailing is virtually non-existent. The ruling Bharatiya Janata Party (BJP) government, which had a few years ago vehemently opposed the Congress-led United Progressive Alliance government’s plans to open up multi-brand retailing to FDI, is not so shrill in its opposition to FDI in e-tailing.

Prime Minister Narendra Modi had earlier urged small grocers and retailers to embrace technology and not be scared of international competition.

WHILE India’s e-commerce market is estimated to be worth more than $12bn, e-tailing adds up to just a sixth of it. However, it is the fastest-growing segment, as Indians — especially the young — are increasingly ordering products including books, electronic products, even clothes and accessories online.

With the spread of broadband internet connectivity, the widespread use of credit and debit cards and internet banking, e-tailing is catching up rapidly. The chaos on Indian roads deters many young professionals from visiting malls on weekends; they end up comparing product features and prices online and also ordering them through their smartphones, tablets, laptops and PCs.

Realising the huge potential for e-tailing, the leading players are investing large sums in building up warehouses, logistics infrastructure and their own IT infrastructure. The e-tailers also offer various payment options, including the cash-on-delivery mode, which is becoming very popular.

The e-tail segment in India is currently dominated by Flipkart, which was started by two young Indian Institute of Technology (IIT) professionals, who had earlier worked with Amazon in the US. Flipkart offers about 75 categories of goods and services and claims that have 4m daily visits. It also boasts of 22m registered users.

Amazon began its India operations last year and has set up warehouses across the country. It promises same-day deliveries in many cities and keeps adding new products and services. Both Amazon and Flipkart are also splurging money on advertisements.

Conscious of the restrictions on FDI in multi-brand retailing, Amazon has developed a unique model for India: it allows other suppliers to sell their products through its site. Amazon India claims to offer 17m products to online buyers.

Flipkart had raised $770m earlier through a few rounds of funding; investors include Tiger Global, Naspers, Iconiq Capital and DST Global and Singapore’s sovereign wealth fund, Government of Singapore Investment Corp.

The latest round of raising $1bn makes this the largest round of fund-raising in the Indian internet space. The fund-raising values Flipkart, the eight-year-old company which still does not make profits, at $7bn. But Sachin and Binny Bansal, the ambitious duo behind the company, aim to make it India’s first $100bn company (by market capitalisation).

India’s largest software and services exporter, TCS (part of the Tata group), has the highest market capitalisation of more than $80bn at present and it has been around for decades.

Other leading Indian e-tailers include Snapdeal — which has raised over $233m in funds, more than half of it being contributed by international major eBay — Myntra, Yebhi.com and Jabong.

Travel and related services account for about 70pc of India’s e-commerce business at present. But with e-tailers raising hefty funds and expanding their infrastructure and presence, very soon it promises to overtake travel to emerge as the most vibrant component of e-commerce.

Published in Dawn, Economic & Business, August 18th, 2014