eMarketer sharply reduced its estimates for India’s retail ecommerce sector, reflecting the expected impact of the country’s new currency laws.
In August 2016 eMarketer forecast that retail ecommerce sales in India would grow by more than 75% to reach $23.39 billion this year. eMarketer has now revised this estimate, and predicts growth of 55.5%—still a healthy level but roughly 20 percentage points lower than the previous estimate. eMarketer now expects total retail ecommerce sales in India to reach $16.02 billion this year.
The downgrade largely reflects the Indian government’s recent efforts to crack down on illegally obtained or undeclared money, banning large denominations of the rupee. It is a significant change for the ecommerce sector because cash on delivery payments are a widely used method for digital transactions in India. In a market where the population is relatively “under-banked,” COD becomes the most effective way of buying online.
In response to the currency change, major ecommerce players in the market, including Amazon and Flipkart, have limited or eliminated COD options.
While the shift is suppressing ecommerce in the short term, it could have the effect of spurring ecommerce in the longer term. “This new system will lead more people to use traditional banking services like credit cards, which is a key factor in allowing consumers to buy online,” said Monica Peart, eMarketer’s forecasting director. “But it will take time for this kind societal change to take effect, so our forecast numbers for the out years are still lower than previous estimates.”
Despite the effects of the currency shift, ecommerce is on a sharp upward trajectory in India. Among the many drivers, a key factor is the increase in smartphone users, which has in turn bolstered mobile commerce.
“The ecommerce market in India is fast-becoming a two player race between Flipkart and Amazon,” said Peart. “Amazon India appears poised to win share from other players, in part because it has the deep pockets to support strong discounting and the cost of merchandise returns, which are a common feature of developing ecommerce markets.”