How would rural India be for e-commerce industry by 2020

The increasing mobile internet penetration, CSCs, NOFN, increasing rural incomes, among various factors have opened the doors for e-commerce in the hinterlands of India. MOHD MUSTAQUIM reports on the recent developments and future projections of online retail business in rural India

How would rural India be for e-commerce industry by 2020

The increasing mobile internet penetration, CSCs, NOFN, increasing rural incomes, among various factors have opened the doors for e-commerce in the hinterlands of India. MOHD MUSTAQUIM reports on the recent developments and future projections of online retail business in rural India

Growing at a Compound Annual Growth Rate (CAGR) of 25 per cent since 2010, the e-commerce industry in India has now become one of the fastest growing industries. Today, the online retail industry has reached more than US$ 10 billion and has potential to grow multi-fold in the future. According to Assocham, e-commerce industry is expected to reach US$ 38 billion mark by 2016.

The rising incomes, growing middle class, need for convenience, increasing internet penetration, multiple options with competitive prices and growing consumerism have played vital role in the growth of e-commerce business in India.

Key Drivers

To connect the 250,000 Gram Panchayats with high-speed broadband connections from 2 Mbps to 20 Mbps, the National Optical Fibre Network (NOFN) programme of Government of India, initiated in 2011, could not be rolled out as desired. However, rising mobile penetration has empowered rural populace with internet services. It has paved the way for the e-commerce business in rural India too.

A report of Internet & Mobile Association of India (IAMAI) estimates that rural India will have 109 million mobile internet users by June 2016, 60.2 per cent higher than figures of June 2015. The fast-growing mobile internet penetration has filled the gap of landline internet service to an extent. Further, the Government has made NOFN, now named as Bharat Net, a part of its flagship Digital India programme and has set a target to connect all Gram Panchayats by 2017.

Another flagship programme under National e-Governance Plan to open internet kiosks – Common Service Centres (CSCs) – at 1,00,000 Gram Panchayats was launched in 2009. Now the Government of India has increased the number to all 2,50,000 Panchayats. These factors are expected to steer the e-commerce business in rural India.

The connectivity factor will push the e-commerce business. Citing the prospects of the online retail business in the hinterlands, Ajay Kumar, Additional Secretary, Department of Electronics & Information Technology, GoI, says, “Earlier, we have been thinking that e-commerce is an urban phenomenon. But, it’s interesting to see that lot of e-commerce is happening in rural areas too. Poor connectivity in rural India is an important challenge in front of e-commerce industry. NOFN could not go as the government wanted to roll it out. It’s stuck in operational part in different States at many levels. One organisation gives connectivity till the block level while another agency has to take the connectivity further to the gram panchayat level.”

Shaping up the scenario

The entrance of international players such as Amazon and Alibaba have increased the competition in the Indian e-commerce industry and their best practices have taken the system to the global standards. Speaking on an example of Indian innovation in the industry, Gopal Jiwarajka, Chairman & Managing Director, Salora International, says, “Lack of trust in e-commerce and credit card transactions has led the e-commerce industry to come up with an invention of cash-on-delivery (CoD) method of payments.” “Due to this, consumer products have wide opportunities to be sold through e-commerce platform in rural India,” he adds.

Apart from the internet penetration, many factors are playing important role in the growth of e-commerce industry in the semi-urban and rural areas. Vineet Pandey, Chief General Manager (Business Development), Department of Post, says, “Non-availability of consumer goods in semi-urban and rural areas, latest apparels, baby products, multiple options with 20-30 per cent lower prices are the reasons for e-commerce growth. Surprisingly, the 60-70 per cent revenue comes from CoD mode of payments.”

“Books and other goods are reaching to the remotest parts of the country through India Post. The Postal services are bridging the urban-rural divide in delivery of products and services. The 1,54,000 post offices in the villages would write the growth story of e-commerce business in the years to come,” Pandey adds.

The inefficient logistics and transportation are the key challenges in the delivery of goods in rural areas. “The availability and cost of the logistics will play important role in delivery of consumer durable and selling them through e-commerce platform,” Jiwarajka says.

Echoing on the logistics front, Rahul Garg, Founder & CEO, Moglix, says, “There are opportunities for e-commerce in rural areas. In tier-III cities, the e-commerce companies are succeeded. As much as the logistics infrastructure will improve and internet penetration will increase, the e-commerce penetration will go up.”

Capital & Investment

The investment is one of the core components for setting up any business. Thus, it has been a big challenge for the start-ups in e-commerce industry. The opening of 100 per cent Foreign Direct Investment (FDI) is seen as booster by the industry.

“The recent guidelines relating to 100 per cent FDI in e-commerce would spur up manufacturing and also encourage domestic sales of indigenous products,” Atul Chaturvedi, Joint Secretary, Department of Industrial Policy & Promotion (DIPP), says. According to him, the decision would promote and prompt Make-in-India.

E-commerce business has access to domestic as well as international investment. The members of World Trade Organization (WTO) has agreed to maintain the current practice of not imposing customs duties on electronic transmissions until the next Ministerial Conference which will be held in 2017. It would necessarily impact the e-commerce industry.

The online activities in India are highly English-centric. If the industry wants to take it to all rural population, it will have to evolve to 22 Indian regional languages. The challenges would come in front of the industry while reaching to the rural masses. To tackle them, it will have to come out with more innovative solutions in the future. The increasing mobile and internet penetration, NOFN, CSCs, India Post, increasing all-weather-roads connectivity and rising rural income will jointly drive the online business in rural India.  

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The Changing Face of Rural India