e-Commerce in India

A Game Changer
for the Economy
April 2016
Knowledge partner

Supported by
Contents

I. Message from CII 2

II. Message from Deloitte 4

III. Executive Summary 5

IV. Current e-Commerce Market Landscape 6

V. Existing Tax, Forensic and Regulatory Landscape 19

VI. Role of Trade Bodies 24

VII. Challenges faced by major Stakeholders 25

VIII. Key Digital Imperatives 35

IX. Key Recommendations 38

X. Key Future Trends 42

XI. Acknowledgements 43

XI. Appendix 44

XII. Glossary 45

XIII. References 48

e-Commerce in India A Game Changer for the Economy 1

I. Message
from CII

e-Commerce = efficient commerce, empowering Coming back to the empowered consumer – they will
commerce not be obscure anymore. SMAC will take the lead –
Social, mobile, analytics and cloud computing.
India is a shopper’s paradise now, albeit, online. The
unrivalled population in India armed with smart gadgets • Social media has become a platform for active
is spoilt for a choice. Aided by declining broadband engagement between the buyer and the seller. It
subscription prices and launch of 3G and 4G services, will continue to be one of the biggest influencer to
consumers have become the driving force of e-Commerce connect to the end user
in the country. From buying groceries to furniture, movie
• Mobility – One in four Indians carry a smartphone.
tickets, trains tickets to steel, coal and tea – e-Commerce
That data itself proves how large the mobility wave is
has empowered the consumers. As per reports, India will
and the scale of transactions it can execute
see more people come online than any other country in
the next 15 years. With digital device and social media, • Analytics – Predictive analytics will help e-Commerce
online sellers are getting unprecedented opportunity players to optimize their marketing strategy for
for growth and have thus become continuously more targeted advertising that will influence consumers
attractive for investors. Even though B2C is getting all to buy. For B2B companies the analytics will develop
the attention B2B is not far behind. Both in Direct and more reliable sales buying
Online Marketplace B2B have significant presence. The • Cloud computing – Reducing costs and increasing
marketplace model gives customers a plethora of choice speed of business, especially on big traffic days, is one
and the best prices under a single platform. It also gives of the major advantages of Cloud computing
vendors a level playing field. Most B2B players have tied
Further technologies such as Machine learning, Artificial
up with banks and financial institutions for supply chain
Intelligence, Robotics, Internet of Things … are yet to
finance that helps in improving access to credit. B2B
be leveraged in a meaningful and scale-able way by e
e-Commerce has brought in efficiency, convenience,
commerce companies and that will be the next frontier.
choice, reach and lower transactional cost for buyers.
For SMEs, B2B portals is one of the best things that have India has long suffered from the ‘missing middle’
happened. For any SME, marketing and advertising costs syndrome. SMEs were not evolving to become
are huge and many do not have adequate technical mid-sized enterprises for many years. For the millions
expertise to reach out to larger markets. Those areas are of SME’s e-Commerce platforms along with favourable
now taken care by B2B portals. Basically, B2B wipes out Government policies will give that significant push
the weaknesses of SMEs. Having a B2B platform takes to become mid-sized businesses and generate
care of the distribution, advertising and gives access to employment. That will be the actual revolution.
markets. B2B has enabled SME’s growth in sales and
helped them acquire new customers. The steady growth Mr. Viresh Oberoi
of e-Commerce in the country is, thus, ultimately seen at Co-Chairman, CII National Committee on e-Commerce
both ends of the spectrum.
With the launch of Digital India and Make in India,
the Government of India has been active in bringing
out solutions that will help SMEs. Digital India will
provide improved internet accessibility while Make in
India will help in indigenizing product manufacturing.
The technology centric framework by the Government
will provide cloud based platforms for SMEs. All this
is assisting the growth of small businesses in the
e-Commerce era.
However, the tax laws in the country lead to a fair bit
of complication. And for that one vital reform – the
introduction of GST (Goods and Services Tax) will bring
in much awaited relief for the e-Commerce sector.

2
Message
from CII

The Government of India has taken several initiatives for CII is committed to support the government in this
modernisation and for improving sustainability of the endeavour. We have engaged with key stakeholders to
e-Commerce sector. The Digital India project aims to discuss the framework of e-Commerce sector that could
offer online government services that will have mobile accelerate its development.
phone as the backbone for its delivery. The programme
I am hopeful that that this report will provide useful
will give a strong boost to the e-Commerce market by
inputs to make e-Commerce a major contributor to the
bringing internet and broadband to remote corners
economy in the coming years.
of the country, which is expected to give a rise to an
increase in trade and efficiency.
Mr. Chandrajit Banerjee
e-Commerce industry has been directly impacting Director General, CII
the MSMEs in India and has a favourable cascading
effect on other industries. It is helping connect small
merchants with customers across India. The long-term
impact of this on the economy would be-increase in
employment, growth in export revenue, better products
and services to customers and increase in tax collection
by ex-chequers.

e-Commerce in India A Game Changer for the Economy 3

II. Message
from Deloitte

Indians are known for their “street smart” frugal e-Commerce marketplace model has been allowed.
innovative mind-set that enables them to find solutions Additionally, DIPP has clearly defined e-Commerce,
to seemingly impregnable challenges despite the marketplace and inventory based models.
prevailing constraints.
Thus, at a stage when India is rapidly becoming a
This is the same “innovative instinct” which is making digital economy, the role of the government is critical to
Indian entrepreneurs embrace Digitisation, Analytics and enable a conducive and sustainable environment for the
Technology to develop platforms and deliver products entire e-Commerce ecosystem. The recent Government
& services to the end customer – thus creating a new Initiatives such as Digital India, Make in India, Start-up
online buying behaviour. India, Skill India, Innovation Fund and e-market platform
for agro-commodities are positive steps in this direction.
In context, India’s retail opportunity is substantial and
spurred by several factors such as the demographic Deloitte is privileged to collaborate with the
dynamics (hyper-connected young population, rising Confederation of Indian Industry (CII) as a Knowledge
standards of living and upwardly mobile middle class), Partner to create this report that will be recognized
deeper internet penetration, explosion of social-media as a repository on the Indian e-Commerce industry.
platforms, and increased smartphone penetration. Thus, In this report, we have presented the point of view of
a significant growth of e-Commerce is imminent in the major stakeholders in the Indian e-Commerce industry,
next two years. along with the key challenges faced by them and key
recommendations that will help strengthen this nascent
From an investment perspective, considerable funding
industry to scale and sustain.
in the e-Commerce ecosystem has led to emergence
of new business models across B2B, B2C, Logistics We take this opportunity to thank each stakeholder for
Service Providers, Payment Wallets, Digital Advertising making this endeavour possible by sharing important
and Analytics. These investments have enabled the insights for this report.
e-Commerce companies to leverage leading technology
and related practices to reach out to millions of new Mr. Neeraj Jain
online customers by delivering services more effectively Partner
and efficiently. Deloitte Touche Tohmatsu India LLP

Micro, Small and Medium Enterprises (MSMEs) form

the backbone of the Indian economy by contributing
over 8% to the GDP and employing over 22% of work-
force1. In this context, e-Commerce platforms play a
crucial role in connecting MSMEs with buyers in India
and globally. However, MSMEs need to be empowered
through training, technological awareness and financial
assistance to enable and accelerate their adoption of the
e-Commerce platforms.
The Government of India (GoI) policymakers are trying
to develop a conducive regulatory framework and a
level playing field for all stakeholders in the ecosystem.
In the recent guidelines issued by Department of
Industrial Policy & Promotion (DIPP), 100% FDI in B2C

4
III. Executive Summary

e-Commerce has transformed the way business is number of third-party logistics service providers have
done in India. With attractive and convenient shopping entered this space to provide customised last-mile
options at the core of the consumer facing business, deliveries. In line with the trend for increased
the e-Commerce industry offers the power to create e-Commerce uptake in tier two and tier three cities,
innovative, sustainable, consistent and seamless e-Commerce and third party logistics service providers
shopping experience across all channels. In the last 4 are partnering with players with existing infrastructure in
years, while the e-Commerce B2C segment has grown tier two and tier three cities (e.g. India Post) to facilitate
significantly leading to creation of many Unicorns, the deliveries in those cities. However, the increasing logistics
focus of the Investors going forward seems to have costs related to last-mile delivery, especially on account
shifted to profitable growth to achieve a stabilization of return orders, requires innovative and analytical
of the economic model. This seems to be resulting in driven models that will enhance operational efficiencies
collaborations and partnerships across the value chain in the logistics value chain. This will help e-Commerce
with the aim to optimize the costs. Simultaneously, the companies in their drive towards profitability.
e-Commerce B2B segment is showing signs of rapid
From a payment perspective, Cash-on-Delivery (CoD)
digital adoption which is likely to feed the significant rise
continues to dominate the payments for e-Commerce
of MSMEs and entrepreneurs from the Indian hinterland.
sales in India which in turn presents its own set of
The growth of the e-Commerce industry has been unique challenges. Digital payments (eg. mobile wallets)
triggered by increasing internet and smartphone are slowly gaining traction. The growing usage of
penetration in not only metro cities but also in tier two & mobile internet and the implementation of the UPI are
three cities of India. Mobile devices are further expected to expected to give further impetus to the growth of digital
drive sales via e-Commerce platforms over the next 5 years. payments.
While the e-Commerce space has rapidly evolved, In the last 18 months, the Government of India has
several challenges have surfaced primarily in areas of announced several flagship programs namely, Digital India,
taxation, logistics, payments, internet penetration and Make in India, Start-up India, Skill India and Innovation
skilled man power. In taxation, for example, the lack Fund. The timely and effective implementation of these
of a uniform tax structure leads to several issues such programs will support the e-Commerce eco-system to
as double-taxation or impediments in the free flow of overcome the challenges related to ineffective rural internet
goods across the country. However, the ensuing Goods penetration and lack of skilled manpower.
and Services Tax (GST) is expected to help in overcoming
As the digital eco-system evolves in India, the
these challenges through a uniform tax structure. Clearly
e-Commerce companies on their part need to continually
defined rules for e-Commerce transactions in GST and a
innovate, embrace digitisation and analytics to remain
consultative approach while framing these rules will be
relevant. Further, to differentiate, the e-Commerce
favourable to both, the Government of India as well as
companies will have to in parallel, focus both, on
the e-Commerce companies.
business-as-usual and also on disruptive growth towards
Logistics lies at the heart of e-Commerce and a large building legacy firms.

Key Success factors for

e-Commerce industry
Continuous Digitisation High-end and Nimbleness to Training and
innovation and disruptive data scale and sustain technological
integration of analytics to advancement
processes spot ‘real-time’ of merchants
opportunities

Thus, it is imperative for e-Commerce companies to focus not only on business-as-usual

but also on disruptive growth to remain differentiated and build a legacy

e-Commerce in India A Game Changer for the Economy 5

IV. Current e-Commerce
Market Landscape

e-Commerce and the Indian economy these investments have been in e-Commerce industry.
The Indian economy has been consistently showing The e-Commerce industry is expected to form the
Across the globe the
good signs of growth, with the average GDP growth largest part of the Indian Internet market with a value of
e-commerce industry is
rate at 7.5% in 2015-163. The retail sector is showing approximately USD 100 Billion by 20208. In addition to a force which continues
a promising trend of 11% CAGR, growing from an transforming and revolutionising the retail sector in India, to grow, which investors
estimated size of USD 600 Billion now to USD 1 Trillion it is also facilitating MSMEs to jump the evolution loop by cannot afford to ignore.
in 20204. Although, currently the total e-Commerce providing means of financing, technology and training. This is especially true in
India where there are so
spend in India accounts for less than 2% of the total retail Advent of technology enabled innovations such as Digital
many opportunities. For
spending, e-Commerce has become a key driver to create Payments, Hyper-local Logistics, Analytics driven Customer example, just focusing
new markets in erstwhile unreachable geographies. Engagement and Digital Advertisements have enabled the on B2B e-commerce,
e-Commerce industry to grow at a much faster rate. the market is both
The Indian consumers are rapidly advancing towards large and broad which
adopting technology. While the overall tele-density is Within the e-Commerce industry, the Gross Merchandise provides the potential
81.8%, the mobile tele-density is also high at 79.8% Value (GMV) is an important metric for valuations for amazing innovations.
as of November, 20155. Additionally, during the same especially during the early stages of growth. The majority Prime Minister Modi’s
vision for India and the
time, India beat the United States of America to become of B2C e-Commerce companies, globally, despite being
‘Make in India’ and
the 2nd largest market after China6, for smartphones operational for 5-20 years, report low profitability. The ‘Invest India’ initiatives
with 220 Million users – This was attributable to the situation in India is no different i.e. a growing GMV but have swayed the
availability of highly affordable smartphones and with at an overall loss as the e-Commerce companies establish world’s attention on the
easy-to-use features which helped first-time smartphone themselves. The GMV for B2C segment in India was opportunities provided
in the sub-continent.
users leapfrog from the desktop/laptop phase. Internet approximately USD 16 Billion in 201510.
B2C e-commerce in India
penetration is also significantly rising with the number of is changing the ways
This trend however does not hold true for the B2B
internet users at 354 Million as of September, 20157. brands reach consumers
e-Commerce companies which are profitable with
and has made it faster
In addition, there is a shift in mobile usage from voice greater GMV values. The Indian B2B e-Commerce
and easier for them to
to data. Mobile internet spend has risen from 54% to market potential was valued at USD 300 Billion in 2014, make purchases wherever
64% from 2014 to 2015. This is due to an availability of and is expected to reach USD 700 Billion by 202011. they are, not just when
high-speed 3G & 4G internet connectivity at affordable The higher profitability in the B2B segment is attributed they are in stores. The
prices which has led to an increase in transactions done to reasons such as lack of heavy discounts, greater B2B opportunities are
even bigger.
via mobile2. emphasis on quality rather than on price, and higher
volumes of purchases.
India’s rank for ease of doing business went up by
12 in just one year due to an improved regulatory
framework thus creating a conducive business-friendly Nilesh Gopali, cloudBuy,
environment8. These factors have positively impacted CountryHead, India
Private Equity and Venture Capital investments into the
country touching USD 20 Billion in 20159. Majority of

e-Commerce has Smartphones, GMV of B2C Though B2B

become a key driver to Mobile devices and e-Commerce e-Commerce is
create new markets in Internet penetration companies is slowly catching up,
erstwhile unreachable together driving growing but so the companies in
geographies disruption in the are the losses this space are more
marketplace profitable with greater
GMV, compared to
B2C e-Commerce

6
Total e-Commerce size ($ Billion)

2013
$2.9
2014
$13.6
2015
$16.0
2018* $40.3
2020*
$101.9

CAGR Figure 1.Size of e-Commerce industry in India (includes only B2C e-tail excluding online travel and classifieds)

34% A 6X growth over 5 years is envisaged for e-Commerce driven by factors like new-age technology,
convenience, higher adoption rates and larger reach
Source – IAMAI, Deloitte analysis *Estimated Numbers Indicates skip in consecutive years

Number of Online Shoppers in India (in million)

39 140
220
2020*
2018*
2013

2015

20

Figure 2. Number of online shoppers in India (includes only B2C e-tail excluding online travel and classifieds)
CAGR

41% Rise of the middle-class consumers and changing shopping habits are adding to the online
shopping demography. Increased access to global products and services at a click of a button, and
delivery to even remote locations would further drive up this number
Source – Euromonitor, IAMAI, Media reports *Estimated Numbers

e-Commerce in India A Game Changer for the Economy 7

Online shoppers of total internet users (as a %)

36%
25%

09% 11%
Online shopping
is increasing its
share in the total
2013 2015 2018* 2020* internet usage in
India. Improved
Figure 3. Online shoppers as a % of internet users in India (includes only B2C e-tail
excluding online travel and classifieds) data connectivity
in both urban and
rural parts of India,
will further boost
this trend. Along
Average spend per online shopper in India (in USD)
with the increase
in basket size, the
average spend on
online shopping
$464
is increasing,
although not at the
same rate
Source – Euromonitor,
Deloitte Analysis, Media
$288 reports
CAGR
$247
18%
*Estimated Numbers

$147

2013 2015 2018* 2020*

Figure 4. Average spend per online shopper in India (includes B2C e-tail, online travel and classifieds)

8
Existing and Emerging e-Commerce business models
Globally, e-Commerce has been operating via various models such as B2B, B2C, C2C, Aggregators,
and Hybrid.
In India, leading current e-Commerce companies under different business models are enumerated:

E-Commerce models Leading companies*

B2C e-Commerce marketplace Snapdeal.com, Amazon.com, Flipkart.com

B2C e-Commerce Inventory Led BigBasket.com, FirstCry.com, Zovi.com

B2C e-Commerce Aggregator Uber.com, olacabs.com

C2C e-Commerce Cloudacar.com, quickr.com, olx.in

B2B e-Commerce mjunction services limited (metaljunction, coaljunction, buyjunction,

etc.), cloudBuy.com, tolexo.com, industrybuying.com, power2sme.
com, Amazonbusiness.com

Omni-channel Retailers Shoppers Stop Ltd., Infiniti Retail Limited Croma, Raymond Limited

Table 1: Indicative list of current leading e-Commerce models in India

Source: Deloitte Research *Note: Domain names

Verticals Leading companies*

Online Travel Makemytrip.com, yatra.com, cleatrip.com, goibibo.com

Online Real Estate Magicbricks.com, 99acres.com, commonfloor.com, Housing.com

Online Fashion Jabong.com, Myntra.com, Zovi.com, yepme.com, limeroad.com

Online Furniture Fabfurnish.com, Pepperfry.com, urbanladder.com

Online Education Purple Squirrel Eduventures , Plancess.com

Online Food and grocery Zomato.com, Foodpanda.in, TinyOwl.com, BigBasket.com,

Grofers.com

Table 2: Indicative list of emerging Vertical Specific e-Commerce companies in India

Source: Deloitte Research *Note: Domain names

e-Commerce in India A Game Changer for the Economy 9

The growth of the B2B e-Commerce segment is booking, healthcare, real-estate to name a few which
relatively slower compared to the B2C e-Commerce have been traditionally offline, there has been a rise of
segment in India. This is because the entry barriers in online aggregators.
the B2B e-Commerce are more than those in the B2C
Enumerated are some of these aggregators:
e-Commerce industry. A B2B e-Commerce company has
to have a strong business model, long term logistical
arrangements with rail, road and ports and also adhere Emerging verticals Leading Companies*
to stringent regulatory and taxation governance.
Online Health Portea.com, Healthkart.com,
With an aim to tap the huge potential in the B2B
e-Commerce market in India, apart from the existing B2B
Online Laundry Wassupondemand.com, DoorMint.in,
companies, leading B2C companies have also started
LaundryWala.co.in
to build their own platforms for small business owners
and traders. This is expected to be supported by rising
Online Entertainment Netflix.com, ErosNow.com Hooq.com
expectations among growing number of companies to
conduct buying and selling online and a shift to conduct
Online Truck Booking TruckSuvidha.com, TruckMandi.in, The Karrier.
procurement transactions through internet rather than
com, Fortigo.com
the erstwhile Electronic Data Interchange (EDI).
Understanding this untapped potential of the B2B Table 3: Indicative list of emerging Online Aggregator Models in India
*Note: Domain names
e-Commerce industry, the Government has allowed
100% FDI in B2B e-Commerce which has enabled Online aggregators besides providing comparison of
global successful B2B e-Commerce companies such as price and features across service providers, are also
Walmart and Alibaba to evince interest in the India B2B connecting buyers directly with sellers, thus reducing
e-Commerce industry. costs to consumers by obviating middle-men.
Online retailers going ‘offline’ and vice-versa
Several e-Commerce companies are opening physical
offline stores. Such ‘Experience Centres’ offer online
buyers the touch-and-feel experience, thus offering an
integrated shopping experience especially for products
with high-price points. Companies such as FirstCry,
Pepperfry, Flipkart etc. have opened physical stores to
complement the online sales and experience. Similar
option of click-and-collect is extended by Amazon in
India by providing physical locations for customers to
pick up the products at a time convenient to them. On
the other hand, various offline retailers have started their
online ventures or partnered with leading e-Commerce
companies to attract customers at all touch points. For
example, Future Group inked an exclusive deal with
Amazon while Tata Group owned Croma, partnered with
Snapdeal to sell private brands online.
e-Commerce aggregators digitising traditional
offline businesses
Besides the conventional services for utilities, fashion
& lifestyle, electronics, etc. there is a new trend of
emerging e-Commerce aggregators that are aiming to
digitise several offline services and creating a convenient
ecosystem for consumers. In areas such as truck

10
Evolving e-Commerce ecosystem Information Technology with 666 deals of value USD
4.49 Billion, followed by Consumer Goods with 280
Mergers & Acquisitions (M&A)
deals worth USD 4.69 Billion13. The majority of these
Like any high-growth, the e-Commerce industry investments have been concentrated in e-tailing (70%
has witnessed consolidation in the past 2-3 years. of investment), followed by online classifieds (17%) and
Consolidation has been taking place in the form of larger lastly online travel & taxi (9%)10. However, with growing
e-Commerce companies acquiring smaller companies to importance and push from investors for profitability and
either diversify the offerings or to enhance their business early break-evens, the leading e-Commerce companies
operations. These mergers and acquisitions have largely are aiming to cut down their burn rates by as high
focused on companies in the logistics, payment solutions as 50%. This aggressive drive comes at a point when
and digital advertising space. capital is becoming scarce for top venture-backed
It is estimated that a total of 930 M&A deals with a online retail companies. There is also a reduction in the
cumulative value of USD 26.3 Billion took place in India dependence on discounts as a growth strategy.
in 2015, of which 259 deals worth USD 2.43 Billion Investors are currently focussing on start-ups that may
pertained to the e-Commerce industry12. Also, many scale slowly but have sound fundamentals and strong
strategic deals took place in the hyper-local, food-tech business models. In essence, these start-ups should have
and real estate listing segments. the ability to survive any scenario for e.g. recession etc.
Private Equity /Venture Capital (PE/VC) Funding Therefore, investors today are interested in start-ups
in sectors like health care and education which by the
In yet another record of sorts, the PE/VC investments
nature of their offerings will provide sustainable models
reached an all-time high in 2015 at USD 20 Billion7.
and create legacy firms.
The key sectors in which investments were seen were

Recent corrections in valuation is a sign that investors not only want continuous market penetration but also want e-Commerce
companies to focus on profitable growth. According to a recent ROC filing, Flipkart, Snapdeal and Paytm had a combined loss of USD
557 Million. Therefore, e-Commerce companies need to leverage continuous innovation, analytics, technology and digitisation to realise
profitable orders for a sustainable growth

e-Commerce in India A Game Changer for the Economy 11

Table 3: Major M&A deals in e-Commerce in India since 2014

Buyer Target Industry Year of deal

Flipkart Myntra Fashion & Lifestyle 2014

Snapdeal Exclusively.com Fashion & Lifestyle 2015

Olacabs TaxiForSure Online Cab booking 2015

Housing.com Indian Real Estate Forum Real Estate 2015

Snapdeal RupeePower Digital Financial Distribution 2015

Snapdeal Unicommerce Logistics, Warehousing 2015

Snapdeal Freecharge Payment Solutions 2015

Grofers Mygreenbox Mobile Grocery 2015

Zomato MapleGraph Cloud-based POS 2015

Makemytrip MyGola Travel guide 2015

India is going to become
Zomato NexTable Cloud based table management & reservation 2015 the start-up capital of
the world. e-Commerce
Flipkart Appiterate Mobile application marketing platform 2015 is not only taking India
to the next level, but is
Myntra Native 5 Mobile application development 2015 also causing a global
paradigm shift. We can
Flipkart WeHive Technologies Mobile advertising 2015 leverage e-Commerce
to change lives of our
Snapdeal Martmobi Mobile applications for vendors 2015 citizens. How can we
have cost-effective,
Big Basket Delyver Hyper-local delivery 2015 consumer friendly, value-
add-services at the tip of
Snapdeal Letsgomo Labs Mobile technology 2015 our finger– This is what
Digital India should be.
Jugnoo BookMyCab Online Cab booking 2015

Flipkart FX Mart Payment Solutions 2015

Padmaja Ruparel,
Mahindra BabyOye Maternity & Childcare 2015 President, Indian Angel
Network
Flipkart MapmyIndia Digital Map Platform 2015

Paytm Near.in Hyper-local app 2015

Paytm Shifu Consumer Analytics 2016

UrbanClap Handy Home Services for households 2016

ShopClues Momoe Technologies Mobile Payments 2016

Magicbricks Properji.com Property Analysis Platform 2016

Future Group FabFurnish.com Furniture and Furnishing 2016

Source: Deloitte Research, DealCurry.com

12
Key trends driving e-Commerce in India Start-ups”. The Government of India has taken steps
such as providing funding support through a “Fund of
Trend 1. Government initiatives gaining momentum
Funds” (with a corpus of INR 10,000 Crores); “Start-up
The Government of India has been proactive in embracing India Hub” (a single point contact for the start-up
and leveraging e-Commerce digital platforms to transform ecosystem), tax exemptions for the initial 3 years, faster
and organize traditionally offline markets such as those of exits for start-ups are some steps besides many others
agricultural produce, etc. The Government has launched
• Make in India: Aimed at India’s industrial
an e-market platform to connect farmers with the mandis
development, the key steps taken by the Government
of various states to sell agro-commodities. Besides these,
of India are: Improving the business environment in the
flagship initiatives such as Digital India, Start-up India, Success of the
country, enabling manufacturing, and allowing FDI in
Innovation Fund, Skill India, etc. are contributing to the e-Commerce
key sectors. Key pillars of this program worth noting are
growth of e-Commerce industry. Enumerated is a brief industry to
“research and innovation” and “a conducive business
description of these initiatives: significantly
environment”
• Digital India: One of the highly ambitious and biggest contribute to the
• Skill India: To bridge the shortage of skilled Indian economy
ever conceived projects is Digital India which focuses
manpower, the Government of India has set a target to will be accelerated
on transforming India to a digitally empowered and
train 40.2 Crores people under the new National Policy by the effective
knowledge economy. The three key areas that have
for Skill Development by 2022. The initiative includes and timely
identified are to Build Digital Infrastructure as a Core
National Skill Development Mission, National Policy for implementation of
Utility, enable Government Citizen Services on demand
Skill Development and Entrepreneurship 2015 these Government
and Digital Empowerment of citizens
initiatives
• Start-up India: This program intends to build a strong
eco-system for nurturing “innovation” and “Exponential

Figure 5. Initiatives by Government of India impacting the e-Commerce industry

Proliferation of mobile devices with

internet access will drive online shopping Will help more and more start-ups in
this industry especially in logistics and
Upsurge in online orders from tier 4 payments space to grow and join the
towns connected by NOFN ecosystem making it more sustainable

GOVERNMENT
OF INDIA

Tailored programs will help to train

resources for the e-Commerce industry “Fund of funds” expected to promote
technological development, which
Encouraging players to provide holds the key for a sustainable growth
professional skill training to its workers of the e-Commerce industry

e-Commerce in India A Game Changer for the Economy 13

Trend 2. Increase in internet penetration
The e-Commerce industry in India has been propelled by the rise in internet penetration due to major improvements
in the telecom infrastructure. With 3G and 4G services making way into India along with declining data tariffs, spend
on internet data is growing significantly. While India ranks the lowest in Asia when it comes to internet speed, data
rates in India are 2X cheaper than in China and 3X cheaper than in the US. Government schemes such as National
Optical Fibre Network (NOFN) can significantly increase internet penetration in the rural communities as well as
provide a means to
e-Commerce companies to tap the huge market potential there.

Number of 3G and Mobile Internet Users (in million)

Number of 3G subscribers

42 146
3G 82 219

2013 2014 2015 2016*

150 306
173 371
Number of mobile internet users

*Estimated Numbers 3G 3G users

mobile internet users

Figure 6. Number of 3G and Mobile Internet Users in India

Source: Mobile Internet in India, 2015 IAMAI

High-speed data (3G/4G) connectivity Given the cultural and language diversification in
in rural areas is a challenge as well as India, localized online content and customized
a huge opportunity e-Commerce services is a significant opportunity to
enhance the online buying experience

14
Trend 3. Growth in smartphone adoption driving mobile based e-Commerce sales
Smartphones are outpacing feature phones and are expected to exhibit massive growth in the coming years. The
widespread adoption of smartphones is being propelled by several factors such as – high competition leading to low
prices, prevalence of internet enabled services and ease of accessibility to content. According to a report by venture
capital firm KPCB, India has the highest share of mobile based e-Commerce sales globally at 41%14. The leading
e-Commerce companies state that almost 70-75% of their online traffic comes from mobile phones and thus higher
revenues are coming from mobile applications. For e.g. 50% for Flipkart while 70% for Quikr15.

Smartphone Shipments vs. Average cost of Smartphones

120 600

Average cost of smartphones (USD)

530
Smartphone Shipments (millions)

100 459 500

394
80 400
330
60 300
276

40 200

20 100

11 16 44 81 100
2011 2012 2013 2014 2015
Shipments Avg cost

Figure 7. Smartphone shipments and change in average cost of high-end smartphone in India Source – Statista.com, Media Reports
Mobile based e-Commerce sales in different countries
Mobile based e-Commerce sales in different countries

21%
UK
20%
15% France 37%
China
USA
41%
India

20%
Brazil
17%
Australia

Figure 8. Mobile based e-Commerce sales in different countries as of 2015 Source – Internet Trends 2015, KPCB

India already ranks No.1 globally for A Deloitte study indicates, customer purchases worth
the highest share of mobile based USD 9 Billion in India were impacted by digital & mobile
e-Commerce transactions technology in 2015

e-Commerce in India A Game Changer for the Economy 15

 Growth of Digital Payment Services
Modes of payment for e-Commerce (USD Billion)
Modes of payment for e-Commerce

13% 9%
Debit
Net
Banking
$115 2018*
cards
Growth

17% <1% of Digital

Payment
Credit
cards
EMI
Services (*USD 2017* $56
Billion)

Figure 10. Size of

Digital Payment
Services in India
$40 2016*
Source – IAMAI,
<0.5% Media Reports
60% 3rd Party 2015* $28
CoD Wallets

$20 2014

Figure 9. Modes of payment used in e-Commerce in India

* Estimated numbers
Source – Company data, Deloitte Research

Trend 4. Evolution of new payment solutions banks for faster check-in and check-out of e-Commerce
transactions to ease the payment process in e-Commerce.
Cash-on-Delivery (CoD) remains a popular mode of
payment for Indian e-Commerce transactions. Cash The launch of Unified Payments Interface (UPI) by
transactions result in high administration costs even Reserve Bank of India is aimed to transform the mobile
for the e-Commerce companies which reduces their banking. UPI is expected to benefit the e-Commerce
margins. Hence, new digital payment solutions are industry as well by reducing the number of failed
evolving to address these challenges. e-Commerce transactions due to complicated
transaction flows in the current payment systems. The
Further, the Indian government’s initiative to extend
implementation of UPI will enable the e-Commerce
banking facilities to its previously unbanked citizens
delivery staff to collect money electronically for
through the ‘Jan Dhan Yojna’ scheme has added
even CoD transactions. For early adaptability, several
significant number of debit cards (over 110 Million)
e-Commerce companies have already started building
thereby providing these customers access to electronic
applications that will facilitate mobile payments on
payments. There has been launch of electronic wallets
UPI. However, the challenge will be to balance safety,
and also digital payment products from traditional
integration and mass-adoption.

CoD still winning the race with a 60% share as a preferred While EMIs and digital wallets
mode of payment, followed by credit & debit cards and net account for less than 2% share
banking. Overall size of digital payments estimated to grow currently, they will grow faster than
from USD 40 Billion in 2016 to USD 115 Billion in 2018 plastic money

16
Trend 5. Logistics space witnessing partnerships with enhanced customer experience.
hyper-local companies and India Post
India Post with its extensive reach of 19,000 pin-codes
Customers are getting accustomed to next-day delivery and 1,54,725 post offices across the country has
of products. Due to challenges in terms of handling set-up dedicated processing centres to handle last-mile
huge volumes of delivery, return orders and higher deliveries of the e-Commerce companies.
standards of customer service, the industry has seen rise
Even in the B2B e-Commerce space, logistics service
of several third-party logistics service providers (3PLs)
providers are beginning to partner with online truck
who handle last-mile deliveries.
aggregators and freight marketplaces such as Freight
There is an increasing incidence of partnerships of Tiger to build trust and accelerate intercity freight
e-Commerce companies with the 3PLs in order to reach transactions. Such aggregators are increasingly poised
the hinterlands of the country mainly in tier 2 and to become leading B2B marketplaces for the logistics
3 cities. Also leading e-tailers have set up their own industry in India.
logistics arms for greater control on deliveries and for

Number of Parcels handled by India Post per month

Number of parcels handled per month by India Post

Each of the players

2014-15 2015-16 (e-commerce companies)
needs assistance to build
Amazon 50,000 300,000 end-to-end networks.
Forming partnerships for
last-mile deliveries enable

Snapdeal 35,000 80,000 LSPs to provide same-day

delivery and reach
hinterlands. However,
hyper-locals cannot
Flipkart - 30,000 entirely serve these
smaller areas as they
don’t have economies
Myntra - 50,000 of scale. Large delivery
players will have to
co-exist with smaller
Yepme - 60,000 delivery players

Pritam Banerjee,
Senior Director Corporate
Policy South Asia, DHL
Figure 11. Association of India Post with leading e-Commerce companies
Source – Department of Posts, Company data, Deloitte Research

Logistics challenges India Post shaping up a large opportunity in terms New age entrepreneurs
in meeting customer of remote location accessibility and wider coverage entering online
expectations of to untapped markets, thus reducing the need for aggregator platforms for
next-day delivery e-Commerce companies to ‘own’ last-mile delivery freight transactions

e-Commerce in India A Game Changer for the Economy 17

Trend 6. GST expected to enhance the growth of
e-Commerce
GST will enforce a single comprehensive indirect tax
regime that will be applicable across all states on the
supply of goods and services. The implementation of
GST is expected to subsume the central excise duty,
service tax and additional customs duty at the central
level and VAT, CST, entry tax etc. at the state level.
GST will enhance operational efficiency of the
e-Commerce industry in the enumerated ways:
• Transparency and simplification of taxes across the
borders in India
• Elimination of the incidence of double-taxation and
improvement in the efficiency of supply chain
• Logistics service providers can leverage seamless
hub-and-spoke models for delivery resulting in lower
costs and fewer bottlenecks. Warehouses can be
set-up keeping in mind business objectives rather than
for reduction in incidence of tax
Trend 7. Empowerment of MSMEs
MSMEs are characterised as a highly fragmented and
unorganised sector across vast geographies but account
for almost 8% of India’s GDP1. With the advent of training and integration of technology
e-Commerce, many MSMEs are exploring the option of • They are also encouraging MSMEs to engage with
selling online and thus accessing new customers across customers on a real-time basis by providing analytical
the country. tools for better preparedness and insights on future
It has been observed that MSMEs that adopt advanced trends
level of digital engagement experience annual revenue Additionally, the government is making attempts to
growth that is 27% higher than those of offline make MSMEs more familiar with technology through
businesses due to factors such as reduction in marketing initiatives such as Technology Centre Framework that will
and distribution costs, shorter time to market, etc. provide support for adoption of cloud based technology
The leading e-Commerce companies are taking major by MSMEs. The B2C marketplace, MSMEShopping.com
initiatives to tackle some of the adoption challenges that was launched by National Small Industries Corporation
MSMEs face: (NSIC) with no transaction costs and expects to on-board
• They are assisting MSMEs in procurement of loans, 5,000 – 10,000 MSMEs by 2016.

The much-awaited GST MSMEs to join Lack of financial training

implementation to impact and shape the e-Commerce and technological
e-Commerce through a uniform tax bandwagon in understanding pose a
structure, simpler inter-State goods larger numbers challenge for the adoption
transfer, merchant compliances and of the e-Commerce way of
easier tax refunds doing business

18
V. Existing Tax, Forensic and
Regulatory Landscape

Direct Tax Landscape non-resident payees, withholding tax is applicable for

any payment which is chargeable to tax in India. In this
There are no distinctive incentives or special governing
context, the provisions of the tax treaty with the relevant
provisions that have been set out as such for the
country need to be evaluated, if applicable, since these
e-Commerce industry. However, the e-Commerce
can be invoked to the extent they are more beneficial.
companies are subject to regular provisions of the
Income-tax Act, 1961. Withholding tax provisions are Nonetheless, for payees who do not have a Permanent
also relevant to e-commerce companies in India. As the Account Number, withholding tax applies at a higher
e-Commerce companies typically are technology driven, rate. Generally, foreign payees do not prefer to have a
their operations entail payments for various online Permanent Account Number in India as they may have
services and facilities, many of which are sourced from only few and sporadic transactions with Indian payers.
non-resident service providers. As a result, withholding
The characterisation of payments plays a key role
tax provisions assume relevance for them.
in determining applicability of withholding tax. For
Withholding Tax example:
Under the domestic tax law, withholding tax is inter • Copyrights - If a payment towards a software is for the
alia attracted on payments that are in the nature of use of copyright, and therefore ‘royalty’, withholding
royalty or fees for technical services. Also, in the case of tax would trigger. However, if the payment is

Some services / facilities which attract the question of withholding for an e-Commerce player

1 Website 2 3 Server/Cloud
4 Bandwidth and
5 Online use/
Online download
hosting and arrangements
Advertisements communication
maintenance of software

Figure 12. Applicability of Withholding Tax to an e-Commerce company

No special Ambiguity in In most cases, Owing to the Equalisation Proposed

provisions applicability of the tax cost is significant levy of 6% tax
for withholding commercially agreed increase in proposed incentives
taxation on provisions to be borne by cost in such to be for eligible
e-Commerce the Indian payer arrangements, applicable start-ups
companies (particularly where the question on certain companies
non-resident payees of withholding online
are involved). tax is of great services
This also requires concern to
grossing up of Indian payers
income, if taxes are
to be withheld

e-Commerce in India A Game Changer for the Economy 19

 categorised as for purchase of a copyrighted article, and
therefore ‘business profits’, generally, there would be no
requirement to withhold tax Relevant Proposals of Finance Bill, 2016
• Server - Similarly, if a payment for storage on server • Tax incentives for eligible start-ups: Deduction of 100% of the profits
is regarded as use of equipment, withholding tax derived by such start-up in three out of initial five years
on royalty would apply. However, if the payment is
o Could apply to e-Commerce companies that meet the eligibility
construed as payment for a standard facility of storage
criteria including developing and commercialising a new / significantly
on server, it would not attract withholding tax
improved service or process and hold a patent in their area of business
Equalisation Levy
• Introduction of an equalisation levy of 6%
Recently, the focus has been on taxation issues
o Presently, the levy is proposed to be applicable only with respect
concerning e-Commerce transactions that are
of payments for online advertisements or any provision of digital
undertaken from outside India i.e. without requiring
advertising space or any other facility / service for the purpose of
physical presence of the service provider in India. A
online advertisement
committee was constituted to examine these issues and
to suggest a workable approach to deal with them. o The proposed provisions allow extending the levy to any other
online service that may be notified by the Central Government
The committee proposed imposition of an equalisation
levy (in the range of 6 – 8% of gross payment) on the
payer availing specified digital services and facilities,
including online marketing and advertisements,
cloud computing, website designing, hosting and to service tax at the rate 14% and Swachh Bharat Cess
maintenance, digital space, digital platforms, etc. As at 0.5% and proposed Krishi Kalyan Cess at 0.5% (with
proposed in the Committee’s report, the levy would not effect from 1 June 2016), thereby summing the effective Service Tax
be a tax on income, and therefore, not governed by the rate to 15%. Typically, service tax is applicable to on provision of
Income-tax Act, 1961. However, the income would be e-Commerce operators engaged in providing a platform services
exempt in the hands of the payees, in case of payments for facilitation fee or commission, online travel portals,
that have been subjected to the equalization levy online intermediaries, digital content service providers,
Indirect Tax Landscape online advertisers, aggregators and so on.
VAT/CST
The e-Commerce industry typically serves as a platform Value Added Tax / Central Sales Tax on sale
to enable B2B, B2C and C2C to interact and enter Sale of goods is subjected to VAT/CST, wherein VAT is of goods
into a transaction for supply of goods and services. levied on intra-State sale and CST is levied on inter-State
e-Commerce companies have transformed the movement of goods. Typically, rate of VAT/CST ranges
traditional stock-and-sell model to multi-model platforms Excise duty
from 0% to 15%.
such as market place/services model attracting VAT/CST, on goods
Excise Duty manufactured in
service tax etc. However, indirect tax laws have not kept
the pace with the evolving business complexities. This Excise duty is a federal levy and is levied on the goods India on provision
has resulted in significant business challenges. Ambiguity manufactured in India. At present the standard rate of of services
of tax laws coupled with delays in business clarifications excise duty is 12.5%.
by tax authorities poses significant challenges to the
Customs Duty Customs duty
e-Commerce companies.
Customs duty is levied on the import of goods from on import of
Service Tax
country other than India. Customs duty is determined goods from
Presently all services, except those specified in the based on the percent of ‘assessable value’ and is to be outside India
negative list and specifically exempted, are chargeable paid by the importer of the goods.

20
Goods and Services Tax
Goods and Services Tax (GST) is proposed be a structure. Moreover, sourcing, distribution and
consumption based unified tax which would be levied warehousing strategies that are currently designed
on both goods as well as services. GST proposes to by companies from the perspective of minimising the
subsume most of the current indirect taxes like excise tax liability, will undergo a change. Going by this, it is
duty, service tax, VAT, etc. and a single tax would be expected that the e-Commerce companies stand to gain
levied called GST. tremendously from GST.
GST is expected to possibly eliminate, simplify and Presently, the Constitutional Amendment Bill is passed
streamline multiple indirect tax regimes in India. GST by the Lower House of the Parliament and it is placed
is a single comprehensive tax that will be applicable before the Upper House in order to empower Centre/
across all States in India, hence, e-Commerce companies State Governments to roll out the GST law.
will not have to struggle with the complex regulatory

State cesses & Taxes on

surcharges on lottery, betting,
Central Excise
goods & services gambling
Duty + Additional
Service tax
Excise duties

Entry Tax &

VAT
octroi
CGST SGST

Additional & Central cesses Entertainment

Central tax (except by
special additional & surcharges on
Sales Tax the local bodies)
duty of customs goods & services

Purchase Tax
& Luxury Tax

Figure 14. Taxes which are proposed to subsumed under GST regime

e-Commerce in India A Game Changer for the Economy 21

 Forensic Landscape
Frauds pose a real threat to the financial health and
reputation of organisations, whether large or small.
The Association of Certified Fraud Examiners’ 2016
Report to the Nations on Occupational Fraud and Abuse
estimates the average loss due to fraud to be as much
as 5 % of annual revenues, which globally translates to
As digital technology advances, e-Commerce
approximately USD 6.3 Billion. companies need to think beyond the fundamentals
in order to compete successfully. Fraud risk needs to
The present economic climate, while fostering
be recognized as a key concern and comprehensive
competition and growth, has also exposed organisations fraud risk management processes need to support all
to fraud, misconduct and noncompliance. Given the activities within the life cycle of the business, in order
mounting pressure on margins and the need for cost to mitigate the risk (of fraud) effectively. The focus
optimisation, losses due to fraudulence can significantly needs to be on building a cohesive and consistent
approach addressing emerging issues such as data
impact the profitability of organizations, in particular in
privacy, compliance protocols on sellers, training and
emerging industries such as e-Commerce. awareness standards; to name a few.
In case of e-Commerce businesses, the inherent nature
of complex business operations, sophisticated use of
technology, reliance on multiple stakeholders and third Rohit Mahajan,
parties, and limited sector-focused regulation, have APAC Leader, Partner and Head,
made e-Commerce businesses susceptible to the risk of Forensic – Financial Advisory, Deloitte India
fraudulence all the more.
An indicative list of fraud risks faced by the e-Commerce
industry is enumerated:

Online System/
Seller vendors
placement Network Returns and Delivery
positioning
processing Payment operations refunds logistics
• Inflated MRP for • Credit/Debit • Phishing fraud • Counterfeit • Fake/forged • Leakage/
fake discounts Card fraud (Identity Theft) product returns documents for misappropriation/
using stolen registration theft of goods from
• Unauthorised • Intrusion/Cyber • Return of used
information warehouse
price change attacks (e.g. products • Ghost vendors
• Payment malware) fraud • Change of shipping
• Unauthorised / • Tampering with
gateway address after order
fake orders • Pharming product in order • Impersonation
vulnerabilities placement to deliver
to return it by sellers for buy
• Presence of (Hacking, Lack • System the goods
back of goods
black listed of authenticated manipulation • Customer
• Product intentionally
entities in the credentials, etc.) e.g. redemption initiates • Inadequate
misplaced/replaced/
system (who of coupon even chargeback vendor
• Cash on delivery not delivered
tend to re-apply on cancellation without background
(non-receipt
under a new of order, avail returning the checks resulting • Delivery of
of payment,
name to register discount on product in third party defective/counterfeit
fraud by cash
in the system) in expired coupons, fraud risks products
collection agent)
the absence of order executed
adequate vendor without
due diligence payment

Figure 15. Fraud risks involved in the e-Commerce Industry

22
Regulatory Landscape Guideline Impact
Under the FDI policy, different caps and conditions are
Definition for e-Commerce entity – • Existing e-commerce companies will have to re-look
provided for different categories of trading viz. wholesale
DIPP has clearly defined “marketplace” at their business models to ensure compliance with
trading, single brand retail trading and multi-brand
and “inventory” based models of the guidelines issued. It would help in bringing
retail trading. Within these guidelines, the e-Commerce e-Commerce certainty to exposure had in the past
activities are carved out and treated differently.
100% FDI is allowed in the • Owing to certainty with regard to FDI in
Further clarity on the existing policy has been provided
marketplace model via the automatic e-Commerce marketplace and conditions to be
through guidelines by DIPP in the circular released route fulfilled, foreign companies will be more open to
on 29th March, 2016. The recognition of the online investing in Indian e-Commerce marketplace
marketplace model and permissibility of FDI in such
cases are certainly welcome clarifications. Broad 100% FDI is permitted in B2B • There have been no amendments in this area and
regulatory framework for e-Commerce in India as per the Government continues to support and allow FDI
in B2B e-Commerce
the above mentioned circular is:
B2C e-Commerce marketplace model • Reduce heavy discounting that was used previously
e-Commerce cannot influence sale price
• Create a level playing field between offline and
entity online sellers
• Pricing decision will rest on seller

e-Commerce entity will not permit • Currently many e-Commerce companies are
more than 25% of the sale from its depending on sellers that contribute at times greater
marketplace model from one vendor than 40-50% of their sale. They will now have to
B2C B2B or their group companies restructure the sales process to look at options such
as on-boarding multiple merchants to ensure the 25%
threshold

• 100% FDI is
In marketplace model goods/services • The entire onus of quality and originality of goods
Single Multi- permitted in made available for sale electronically delivered rests on the seller
brand brand e-Commerce, on website should clearly provide
• Customers are empowered to reach out to sellers
subject to the name, address and other contact
directly in case of faulty delivery
• Recently, FDI in B2C satisfying the details of the seller
e-Commerce has otherwise
been permitted in applicable
The post sales, delivery of goods, • Brings clarity on responsibility of counterfeits,
marketplace conditions customer satisfaction, warrant/ after sales - services, warranty, guarantee, etc. on
• FDI in inventory-led • 100% FDI is guarantee of goods and services sold e-Commerce platforms
will be responsibility of the seller
model is not allowed permitted for an • The e-Commerce marketplace model may provide
entity buying / support services to sellers with respect of warehousing,
• A single brand
selling through logistics, order fulfilment, call centre, payment
retail trading entity collection and other services. However, primary
e-Commerce
operating through responsibility remains with the seller
platform
brick and mortar
provided it is
stores is permitted
purely in B2B
to undertake retail FDI in not permitted in inventory based • Provides a level playing field for large offline retailers
e-Commerce
trading through model of e-Commerce
(not in retail)
e-Commerce

Figure 16. Regulatory Additionally, in a notification issued by the Directorate articulated. This indicates that the Government of India
Framework for e-Commerce
General of Foreign Trade (Ministry of Commerce and is aware of the power of e-Commerce and is attempting
in India
Industry) dated 11th April, 2016 - the definition of to foster a favourable regulatory framework to facilitate
e-Commerce with respect to Foreign Trade and export exports leveraging the e-Commerce industry.
of goods via e-Commerce platforms has been clearly

e-Commerce in India A Game Changer for the Economy 23

VI. Role of Trade Bodies

Given the complexities and dynamic environment in

the e-Commerce ecosystem, active participation of
all stakeholders is critical. The Industry Trade Bodies
collectively represent the interest of all stakeholders in
the ecosystem. B2B and B2C e-Commerce industry sell
varied products from different sectors which requires an
active and collaborated participation of Trade Bodies to
shape a conducive framework in India.
The Trade Bodies as a catalyst through:
Industry representation
Trade Bodies represent interest of all members,
consumers and sellers. They create a significant impact
in the industry by increasing transparency and efficiency
amongst different members
Ensuring level playing field
By representing both offline and online companies, Trade
Bodies play a huge role in ensuring a level playing field in
doing business for all
Empowering and enabling the ecosystem
Trade Bodies support the ecosystem in ways such as
encouraging healthy competition, availability of skilled
manpower, driving adoption of new technologies and
and migration to online platforms
continuous awareness and education on global trends
and best practices to its members Facilitator and solution provider

Assisting manufacturers, MSMEs In the event of industries facing challenging situations

Trade Bodies play a primary role to arrive at a feasible
Manufacturers and MSMEs find support and guidance
and conducive solution framework through a
from Trade Bodies in adoption of technology, use of
consultative approach with all stakeholders
new-age payment mechanisms, and access to capital

24
VII. Challenges faced by
major stakeholders

Broad overview of challenges faced in the B2C e-Commerce ecosystem

Key Challenges

Scaling of organizations and • B2C e-Commerce companies have raised and infused capital from investors
profitability to scale operations. However, from a profitability perspective, the losses
have grown faster than sales. Majority of the companies rely on discounting
for customer acquisition leading to an absence of long-term sustainable
business models

Tax framework • Due to the absence of a uniform tax structure, States have adopted
different tax frameworks and Inter-State goods movement is a challenge. It
not only increases operational and compliance costs but also delays timely
delivery of goods

Counterfeit goods • There is an increasing incidence of cyber thefts and payment thefts in the
industry today. Additionally, supply of fake, counterfeit products by the
merchants on the platform are on a rise

Broad overview of challenges faced in the B2B e-Commerce ecosystem

Key Challenges

Highly technical barriers to • The B2B e-Commerce ecosystem currently is highly fragmented with fewer
market entry companies due to factors such as the requirement of domain expertise,
detailed knowledge of product features and specifications.

Lack of robust technology • Users are likely to be using standalone systems prior to adopting B2B
integration e-Commerce for handling inventory and orders. Integrating existing systems
with B2B e-Commerce is critical, but is usually not implemented efficiently
for sharing information and selling online

High costs associated with • The challenge in delivering orders quickly and efficiently often depends on
complex logistics fulfilment size, scale and location that demands the use of specialist freight services
increasing cost considerably.

Long customer acquisition • Impulse purchase is less likely to happen in B2B e-Commerce, owing to the
process bulk nature of orders, and slow decision making process. This makes the
customer acquisition process longer.

Rigid Procurement Processes in • Large corporates have stringent procurement and approval processes for
Large Corporates buying goods in bulk which restricts the procurement teams to buy on B2B
e-Commerce platforms

Lack of level-playing field • There is a lack of level-playing field for doing B2B e-Commerce business as
compared to a traditional B2B offline business establishment

e-Commerce in India A Game Changer for the Economy 25

Challenges faced by key stakeholders
Platform owners – B2C

Key Challenges

Cash on Delivery (CoD) as a mode • Customer’s preference for CoD increases chances of return and results in
of payment locking up of working capital for both the platform and the sellers.

Network and bandwidth • Access to e-Commerce platforms, through desktops, mobiles, and other
dependency devices are dependent on the network bandwidth

Merchant’s lack of online • Small merchants are uncomfortable and unfamiliar with technology and
experience need to be trained on the use of e-Commerce technology

Digital payment transaction • Due to lack of high-speed bandwidth and inefficacies in payment gateway
failure technology, the e-Commerce industry is facing high transactions failure
rates leading to customers dissonance

Dependence on Telecom • E-Commerce companies, who want to expand into tier 2 & 3 cities, are
Operators for rural penetration dependent on the Telecom Operators to roll out 3G/4G into such areas for
Navigating Procurement Process connectivity
of companies

Reverse logistics • Currently, reverse logistics is highly inefficient, which results in high
inventory and increased costs

Lack of customer loyalty • Currently customers are mainly attracted through discounts and have very
little brand loyalty. Customers easily and frequently switch among platforms
based on best discount offered by them.

High cost of customer acquisition • Intense competition and heavy discounting has resulted customer
acquisition and retention costly for e-Commerce companies.

B2C Aggregators
Key Challenges

Dependence on Network and • Lack of coverage and network congestion, especially in tier 2 & 3 cities,
bandwidth leads to incomplete transactions

Regulatory challenge • B2C aggregators like taxi-hailing category have faced business suspension in
many states due to lack of definition in the regulatory framework

Cash on Delivery (CoD) as a mode • Indian consumers prefer paying in cash as opposed to using digital payments
of payment resulting into cash handling risks as well as locking up of working capital

Dependence on multiple entities • The e-Commerce aggregator model is heavily dependent on multiple
technological integrations and data dependency with several entities, both
online as well as offline.

Lack of high-skilled manpower • There is a scarcity of skilled human resources who have expertise in the
area of analysing consumer data, study user patterns, analytics, algorithms,
simple interface, machine learning, and rules/laws of online platforms

26
Micro, Small and Medium Enterprises - Merchants

Key Challenges

Unskilled staff • MSMEs typically cannot afford high-skilled staff to mandate e-Commerce
operations such as product upload, online marketing, shipment and after-
sales service

Lack of expertise in peripheral • As the merchants move to online channels, they lack expertise in peripheral
activities activities where they seek the support of e-Commerce platforms and
logistics partners such as managing inventory, handling invoicing and
providing consumer insights

Technology integration and • Merchants are not well versed with e-Commerce technology frameworks
perception gap and business operations
• Merchants also have the perception that offline recovery is faster than
online recovery.
• Small merchants fear that their transactions will fall in audit trail

Lack of training • Lack of training for doing e-Commerce transactions is a critical roadblock
for the migration to online platforms

Differential delivery rates • Merchants have to deal with different rate cards with different platforms,
charged by different platforms; which becomes an operational challenge
inadequate coverage of platforms
• Merchants also have to deal with multiple platforms as often one platform
or their delivery partners
might not adequately cover the areas as per their requirement.

Higher “Returns” due to Cash on • Higher “Returns” due to CoD; all add up to logistics costs of SMEs
Delivery (CoD)
• Returns of goods alone account for an estimated loss in the range of 5%
on the MRP of goods sold, with a typical rate of return of goods of 15-20%
expected by platform owners

High cost of finance • Access to finance is difficult from banking due to lack of collaterals and
stringent documentation requirements
• Cost of finance increases due to high interest costs on working capital

Mobile apps by platforms • There is an increasing focus on mobile applications which gives an
advantage to big merchants who can afford the cost of developing a
mobile app, something smaller merchants find much harder to do.

e-Commerce in India A Game Changer for the Economy 27

C2C e-Commerce (Carpooling)

Key Challenges

‘Shortage of Supply’ • Globally, even in the most mature markets, the carpooling industry still lacks
best practices
• The carpooling industry in India is a new and evolving one. It faces massive
‘shortages of supply’ due to low penetration rates of cars in India (3 in 100
people own a car) as well as a mistrust of carpooling with only a few people
offering rides.

Acceptance of “ride sharing” • Globally, this concept is seen as a game changer. However, In India, there
as a game changer isn’t widespread acceptance of “Ride Sharing” yet due to lack of incentive
being offered by Government or socially responsible corporate citizens in
sustainable urban mobility

Platform Owners – B2B

Key Challenges

Unorganised • Almost 95% of the B2B market is unorganised and dominated by

local vendors/mom –and-pop shops. Lack of education on the use of
technologies among customers (to buy) and sellers (to list) put sellers at
a disadvantage as they do not have access to buyers via the internet.
Furthermore, small sellers are unable to scale up and sell to multinationals
at competitive prices compared to those of bigger producers. Critical
feedback for these small sellers to improve operations is also lost by
remaining offline.

Preference for credit • Historically “Credit” is a preferred mode of payment in offline B2B
transactions where payment in offline trade is made 30 days after receipt
of goods. In B2B e-Commerce however, payment will have to be made
upfront. At the most CoD will be accepted.

Nomination for Public Sector • Currently there is a lack of a transparent and efficient competitive bidding
Enterprise (PSE) route to choose the PSEs. It restricts the Public Sector entity or the Public
Exchequer from getting the best options for service providers

28
Logistics Service Providers (LSP)

Key Challenges

Internet’s accessibility and • Bottlenecks of Internet accessibility and affordability specially for last-mile
affordability delivery in remote areas

Poor infrastructure • Poor infrastructure (roads) sometimes forces logistics service providers to take
longer routes. Logistics service providers will also need to improve surface
transportation capabilities via both, road and railway, across various geographies
to create more opportunities and avenues for the growth of the sector

Railways don’t allow partial • Presently logistics service providers are forced to lease full containers as railways
usage of containers don’t allow partial usage of containers which does not justify costs due to lack
of volumes

Air cargo not established • Air cargo in India is not as established as compared to it in developed countries,
and thus restricts the options of logistics service providers

Cash on Delivery • Cash on Delivery (CoD) orders is a challenge for most delivery partners. Handling
CoD capacities will be critical in driving volumes for e-Commerce companies,
especially within the B2C segment

Reverse Logistics • Platform owners providing reverse logistics increase the cost of delivery and
operational efficiencies for the logistic providers

Geographical reach and • LSPs are not able to cater to tier 2 & 3 cities and rural areas due to infrastructure
coverage challenges and high delivery costs

Track and Trace coverage • Logistics service providers earlier faced a problem with respect to delivery
information not reaching the sender due to lack of GPS tracking. Although
presently it has been made possible for as many as 25,000 pin codes for the
largest logistics service provider, tracking within hinterlands still is a challenge. In
some regions in the North East of India, it still takes 3-4 days to receive a status
update on a delivery. Handheld devices that are solar powered are now being
looked at to tackle this problem

Skilled manpower for “Delivery” • The erstwhile delivery boy’s role has evolved. He now wears multiple hats,
and “Sales” including that of a sales boy, but isn’t trained for the job. The e-Commerce
companies struggle to recruit skilled manpower for “Delivery” and “Sales”

Long waiting times at border • Long waiting times at border check posts for stock transfers of multiple
check posts shipments can be a problem when entire consignments are held back due to
certain non-compliances. This impacts the customer experience of many other
stakeholders

Scaling up handling capacity • As volume of deliveries scale up to a few hundred thousand parcels daily for
logistics service providers, logistics service providers are faced with a challenge
of scaling up handling capacities (collection centres, movement, scanning)
within very short time frames

Cost of hardware • Cost of handheld devices and other peripheries for fulfilment is high and
hinders the rapid growth of this industry

e-Commerce in India A Game Changer for the Economy 29

Policy Makers

Key Challenges

Lack of skilled manpower • The Government ecosystem lacks technologically proficient manpower who
have a deep understanding of e-Commerce business operations

Regulatory framework • e-Commerce lacks guidelines, operational framework and policy in areas such as
tax structures, broad policy recommendations, vigilance, overall governance etc.

Differentiate between local goods • A daunting task for state governments today is to differentiate between local
and inter-state goods goods and inter-state goods, especially the ones sent by parcel or speed-post. As
record/registration (via TIN) of the movement of these goods is done voluntarily
by suppliers, there exists a possibility of tax leakage, a significant cost to state
tax authorities

Tax evasion • Fraudulent activities adopted by few merchants in fake registrations, and
fictitious activities etc. lead to difficulties in audit trail and tax collection

Inter-linkages of Government • Several government departments and agencies operate in silos, which leads to
departments and agencies lack of uniform policy recommendation and implementation challenges

Lack of digitisation • Several government departments are not digitised and still operate on paper

• Cost of implementation of digital technology is too high and there is resistance

to upgradation from the obsolete ones

Integration of National borders • National borders too are not integrated. For instance, the “Indo-Nepal” border
doesn’t have the “IceGate Facility” (Customs E-payment gateway) to file
documents

Tracking road and rail transport • Transportation on road and rail, along with border crossing, payment of toll,
octroi etc., is not tracked, making e-commerce transactions inefficient. A robust
transportation system is crucial for the e-Commerce industry to thrive

Price regulation and quality • Price regulation and quality control of core commodities such as coal are some
control other challenges faced by the Central Government that has a direct impact on
the B2B e-Commerce industry

30
Direct Tax – Challenges faced by • The other alternative to e-Commerce companies
e-Commerce companies obtaining lower/nil withholding certificates has its own
challenges:
Applicability of withholding tax:
o The payee is required to furnish information
e-Commerce company as a payer
regarding proposed payers, such that the certificates
Applicability of withholding tax is a critical issue for can be issued individually to each payer. This poses
e-Commerce companies, given their need of various a practical difficulty for the e-Commerce companies
online services and hi-tech facilities. However, a number who transact with numerous payers. Further, due to
of issues crop up in this regard. the dynamic nature of business, the payers may not
• To begin with, characterisation of payments is a be known or identified at the time of making the
contentious issue. Some guidance is available from application at the start of the financial year.
judicial precedents. However, as courts in different o Also, a certificate is typically valid from the date
jurisdictions have taken differing views on certain of issuance till the end of the relevant financial year.
matters, only limited support can be drawn In such a scenario, the period between making the
• In cases where the commercial terms agreed upon application and issuance of the certificate is not
require the Indian payer to bear any Indian withholding covered, and therefore, withholding tax triggers on
tax cost that may arise on payments to non-residents, income of this period. This results in blockage of
the cost burden on the payers is greatly increased if funds to the extent taxes are withheld.
taxes are withheld on a conservative basis Lapsing of business losses:
• In many such cases, the payees are not forthcoming In case of a closely held company, the tax law17
with documentation (such as tax residency certificates) prohibits carry-forward of business losses for set off
or fulfilling other conditions (such as obtaining against future years’ profits if the shareholding of the
Permanent Account Number) to enable the payer to company changes by more than 49%. The e-Commerce
apply a lower rate of withholding tax or a nil rate based companies are liable to be adversely impacted by these
on the relevant tax treaty provisions restrictions.
• Further, there is a strong push back from the • e-Commerce companies usually incur sizeable losses in
payees if the Indian payers apply an interpretation their initial years of operation.
which is different from those set out in international
• Further, there is a pressing need for additional capital
commentaries
to sustain and grow the scale of operations.
• If, based on judicial precedents and guidance from
• As a result, private equity funds and other investors are
international commentary, taxes are not withheld, often,
approached for meeting funding requirements.
the matter is required to be litigated on several fronts
including disallowance of expenses and levy of penalty. • With every round of additional funding, the
Such disputes emerge because the issues are extremely shareholding of the initial shareholders (founders) would
fact-specific be diluted.
e-Commerce company as a payee • If their shareholding falls below 51%, business losses
incurred by the company in the initial years would lapse,
Difficulty is also faced on the other side, i.e. in respect
whereas, the change in shareholding is only due to
of service fee/commission received by the e-Commerce
compelling needs of the business.
companies in India.
Likely ineffectiveness of proposed tax incentive to
Most e-Commerce companies incur significant losses in
start-ups:
the initial years of their operations. Thus, typically, no
tax is payable by them, until they become profitable and The tax incentives proposed in Finance Bill, 2016 with
unutilised tax losses are offset against such profits regards to tax holiday for start-ups may not prove useful
to e-Commerce companies since they generally report
• If taxes are withheld from payments to these
loss in their initial years.
e-Commerce companies, cash-flow issues arise due to
the time taken in obtaining refunds.

e-Commerce in India A Game Changer for the Economy 31

Indirect Tax – Challenges faced by e-Commerce Taxability of digital content and other activities
companies
• Currently, there is a clear demarcation between taxation
Challenges in characterisation of e-Commerce of goods and services. VAT is applicable on sale of goods,
models by State VAT authorities while service tax applies to provision of services. However,
in the context of e-Commerce, which deals in sale of
• Broadly, there are two types of business models
digitised products also, there is a greater challenge in
adopted by an e-Commerce company:
defining these digital articles into ‘goods’ or ‘services’.
a) Stock and sale model
b) Platform for market place • This situation worsens in the case of digital downloads
like music, e-books etc. wherein it becomes challenging
• Under the market place model, an e-Commerce
to determine whether the transaction is for sale of
company generally acts as a facilitator for providing
goods or a provision of service. This sometimes leads to
platform for buyer and seller to interact and execute
double taxation in order to avoid disputes from either of
the sale transaction. The e-Commerce company only
the authorities.
gets a fees/commission for providing the said facilitation
services to the sellers on which service tax is paid. VAT • The aforesaid ambiguity has created a significant
on sale of goods is paid by the actual seller registered on challenge in classifying the material sold as ‘goods’
such e-Commerce companies. or ’services’, especially for electronic downloads like
e-books, wallpaper, ringtones, music, movie clips etc.
• Many e-Commerce companies also provide fulfilment
services to these sellers, under which goods belonging • If the material sold are classified as goods, then same
to the sellers are stored in the warehouses owned by shall be subject to VAT, and if these are classified as
the e-Commerce companies and are delivered from services, then service tax is applicable.
these warehouses to the buyers. Under this model, the
• Such ambiguity related to goods versus services has not
e-Commerce companies do not hold any ownership
reached finality, and this raises potential risks from the tax
of the goods belonging to the seller stored at their
authorities, which is also a significant business risk.
warehouse. However, several state VAT authorities, being
unable to appreciate the essence of the arrangement Registration of multiple vendors at marketplace
and, hence, direct e-Commerce companies to obtain warehouse/fulfilment centre
registration and comply with VAT regulations treating • Under the marketplace model, the e-Commerce
such e-Commerce companies as consignment agent or companies are also engaged in fulfilment services, and
C&F agent within the state with respect to goods stored/ goods belonging to multiple vendors are stocked in order
sold in the warehouse of e-Commerce companies. to deliver the same to customers in minimum possible
Characterization as intra-state or inter-state supply time. It is to be noted that these fulfilment services are
of goods provided by the e-Commerce companies mainly to save
the time and logistics cost and is developed based on the
• In case of inter-state sales, CST is levied in the state
customer preferences and market demand.
from which goods commence/originate their movement.
Given the pan-India presence of e-Commerce • The goods belonging to multiple vendors are stored
companies, sometimes the goods are delivered in a state based on the category of goods rather than vendor.
different from the originating state. The states where However, with the help of advanced storage technology,
the e-Commerce consignments are delivered often have the e-Commerce companies are able to recognise and
been off-late seeking tax on that sale, alleging that the differentiate the goods belonging to different vendor.
appropriation has happened in the destination state. • Presently, storage of goods based on their category, and
• VAT authorities are scrutinising the logistic model not vendor-wise, is not appreciated by most state VAT
followed for final distribution of goods and are making a laws. Often the state VAT authorities insist on physical
case that the activity should be treated as stock transfer demarcation of warehouse space, creating a significant
and not CST sales. logistics challenge for the e-Commerce companies.

• Such uncertainty with respect to actual treatment of sales Compliance and Reporting
as inter-state or intra-state is a significant business risk. • Due to its wide reach across the country, the Indian

32
e-Commerce industry is faced with challenging and marketplace model wherein they earn income in the
burdensome compliance requirements. form of marketing fee, facilitation charges, etc. It is
possible that income from marketing fee and facilitation
• In addition to the requirements like obtaining various
registrations and filing periodical VAT and other charges are billed from separate premises. Such incomes,
statistical returns, there are several considerations that presently, are taxable under service tax. Under the GST
are peculiar to this industry. regime, services are to be taxed by both centre and state
authorities. The e-Commerce industry is apprehensive
Statutory declarations, way bills and road permits that multiple authorities taxing the same transaction
for inter-state sale of goods
could increase the complexities. Hence, the e-Commerce
• As stated, the e-Commerce companies operate on a industry is expecting clarity/clear guidelines on this front.
pan-India basis, involving inter-state movement of goods.
Forensic – Challenges faced by e-Commerce
Such inter-state movement of goods from one state
companies
to another has been challenging for the e-Commerce
companies that are required to produce statutory Based on discussions with various stakeholders in
declarations forms, way-bills, road-permits, transit forms etc. the e-Commerce industry, the significant fraud and
and quite often check-post interceptions at state borders. governance concerns threatening the growth of the
e-Commerce industry in India include counterfeiting,
• Besides, the recent requirement of separate local
inadequate governance measures, and data security.
VAT/CST registration, filing of separate returns and
declarations required by certain states under the VAT/ Counterfeiting
CST legislations for entry or sale of goods into the state
Significant dependence on sellers
have been hindering the free flow of goods as well as
adding challenges in terms of managing compliances. • The e-Commerce platforms are increasingly being used
Also, in many states, e-Commerce companies are made for the distribution of banned and counterfeit goods,
liable to furnish the details of sales made through their as observed by media reports in the last few years. This
portal and also required to furnish periodic returns. can typically happen when certain suppliers/distributors
introduce counterfeit products in the supply chain
• Further, if the sales tax authorities contest that the
alongside genuine products, making it difficult for the
e-Commerce company, which provides platform, is
required to obtain VAT registration and pay VAT, it will e-Commerce companies to detect counterfeits. Further,
not only handicap the functioning of the e-Commerce since the onus of ensuring product quality, authenticity
companies (usually operating in multiple states), but also and packaging compliance rests on the seller (having
paralyse the innovative and ever expanding medium by procured the goods), the e-Commerce companies,
which the sellers are able to access and cater the needs which act primarily as aggregators, are often unable to
of the unserved buyers spread across the country. proactively detect counterfeits or inferior/faulty products
that may be sold to customers via their networks.
Imposition of entry tax on inter-state supply of
goods is regressive Lack of a robust due diligence mechanism

• Emergence of e-Commerce companies in India has • While some of the leading e-Commerce marketplaces
resulted in centralisation of logistics and increase in may have already instituted Know Your Sellers (KYS)
end-user transaction on an inter-state basis. One of the procedures to help identify unscrupulous sellers, it has
key commitment of the e-Commerce company is to been observed that the data sought from sellers as
deliver the customer orders within committed timelines. part of these procedures can be quite rudimentary. For
instance, while PAN numbers may be sought from sellers,
• This has resulted into loss of revenue for the destination
there is no process to ensure that duplicate PAN numbers
states. Thus, the states have started to impose entry tax on
do not exist in the seller database. Also, little information
goods bought online via e-Commerce companies. Further,
is collected (or due diligence carried out) pertaining to
entry tax laws, coupled with entry tax regulations such as
check post etc., are resulting in delayed delivery of goods. the credentials of the seller, such as market reputation,
physical verification of the seller’s premises, track record
Place of supply rules for taxation of facilitation fees in ensuring product quality, litigation history, adverse
in GST media history, relationship check to indicate conflict of
• The e-Commerce companies generally operate in a interest, political interests etc.

e-Commerce in India A Game Changer for the Economy 33

Lack of a mechanism to identify unscrupulous sellers Technology Act (IT Act) in its current form being
broad in nature, does not provide clarity on what
• There is currently absence of a trustworthy
data is to be secured.
mechanism for a customer to authenticate sellers
or the products sold by them on e-Commerce sites, Regulatory – Challenges faced
since no independent offline verification of these by e-Commerce companies
aspects is carried out by the e-Commerce companies.
FDI in retail trading and particularly in e-Commerce
Customers, therefore, are left to make a choice based
has been a matter of great debate across the country.
on the seller ratings given by fellow customers (or in
Different organisations and trade bodies/governments
many cases fake reviewers).
have had differing views on the subject.
Lack of a comprehensive law to address
The sector has largely been restricted to protect the
counterfeiting and associated enforcement actions
numerous small companies who may not receive
• It has been felt that one of the major issues leading funding through FDI. However, there are views that FDI
to counterfeiting in the e-Commerce industry is lack in e-Commerce for retail will also benefit MSMEs, who
of comprehensive law against counterfeiting, coupled can receive funding from abroad.
with inadequate enforcement by regulators.
The e-Commerce companies have largely been pressing
Inadequate governance measures for 100% FDI in retail trade (whether single brand or
multi-brand), with no special restriction on transacting
The limited fraud risk governance frameworks in the
through e-Commerce. Through the recently released
e-Commerce industry have resulted in the prevalence
press note, the Government has taken a step in this
of well-known traditional fraud schemes such as
direction by allowing FDI in e-Commerce for single
procurement fraud, supply chain fraud, bribery and
brand retail trading in certain circumstances.
corruption. The industry stakeholders have observed the
enumerated risks arising from inadequate governance Further, some organisations are of the view that retail trade
measures: should be categorised by the item sold and not based on
single/multi brand for the purpose of regulating FDI.
• Misreporting/theft of inventory
As the FDI policy did not explicitly refer to the
• Failure to report damaged/expired inventory
marketplace model, there were concerns whether
• Unauthorised sale of products the same is recognised and FDI permitted for entities
engaged in such models. This issue has recently been
• Kickback received from distributor/wholesaler for
resolved by clarification through the press note.
favourable contractual terms and annuity business
Further, the press note has also defined the terms
• Packaging frauds
‘e-Commerce’ and ‘marketplace-based model of
• Unauthorised sale of free products/gifts e-Commerce’. These definitions could bring up new
Data security questions for the e-Commerce companies on account of
their potential interplay with definition/provisions under
The volume of customer information present with other laws.
e-Commerce companies, including purchasing
There have also been concerns that the e-Commerce
patterns and other customer profiling information,
organisations functioning as online marketplaces are
can be a goldmine for fraudsters and competitors.
actively involved in activities closely linked to retailing
Since some of this information tends to get shared
and also in predatory pricing/offering discounts.
with third parties, such as logistics providers who
However, the recent press note has clarified that
may be making home deliveries, it is difficult to
the online marketplace companies with FDI can also
exercise controls on how such data must be used
engage in support activities such as warehousing,
and safeguarded. In such a scenario, it is easy for
logistics, etc., however, they cannot influence pricing.
individuals (employees and third parties) to feel
The e-Commerce companies will have to analyse
tempted to leak such information in return for money,
their existing operations to ensure conformity of their
goods or better job prospects. Additionally, lack of business model with the guidelines issued and evaluate
a specific data privacy law, along with Information the impact, if any.

34
VIII. Key digital imperatives for
e-Commerce companies:
Deloitte’s Point of View
Continual innovation will help e-Commerce output is disproportionately large -10 X larger- compared
companies to remain disruptive towards building to their peers. Exponential Organizations are led by
Exponential Organisations innovative imperatives and enablers such as digitisation,
technology enablement, analytics, cloud-based solutions
To build sustainable and innovative legacy firms,
and mobilisation of services. They are characterized by
e-Commerce companies need to aim to effuse a strong
6 Ds: Digitised, Deceptive, Disruptive, Dematerialise,
vision to build Exponential Organisations whose impact /
Demonetise and Democratise.
Exponential Organization’s journey for an e-Commerce company to create disproportionate impact

Innovative
Imperatives
Cloud Digitisation Mobile Analytics Social

Digitised
Any technology that becomes
Deceptive
digitized, enters a period of
Deceptive growth

Democratise

Disruptive A digitised environment

enabling such rapid growth,
Rising internet
delivers fundamentally
Enablers & smartphone
Disruptive opportunities
penetration
has Demonetise
Dematerialise Once a technology becomes
Democratised
disruptive, it Dematerialises i.e. it is
our ability to
no longer physically carried
reach out to
people
Then the product
or services are Figure 17. Journey of an
Demonetised Exponential Organization

Source: A Singularity University*

book on “Exponential
Organizations” by Salim Ismail,
Michael S. Malone
Relationship: Deloitte is a
thought leadership partner with
Evolution Start Mobilise Scale Sustain Singularity University

In order to keep up with the pace that is set by the 6 Ds, e-Commerce This will help the e-Commerce companies to build legacy firms with
companies need to be ‘Exponential’ in their thought process and thus need the aim to add value to the overall customer e-buying experience
to be continually innovative, scalable, adaptive and technologically smart.

e-Commerce in India A Game Changer for the Economy 35

Supply Chain Analytics technology and analytics to not only build a robust
supply chain but to also nurture all partner relationships
e-Commerce companies are dealing with multiple
products moving across states and simultaneously • Enables a comprehensive merchant due-diligence
are also managing a large number of merchants, process
delivery personnel and customers. The large volume
• Makes the on-boarding process smoother and faster
of transactions, multiple moving parts coupled with
a Pan India footprint makes the e-Commerce supply • Helps evaluate best practices followed by merchants
chain operations significantly complex keeping the • Ensures performance tracking against Service Level
Infrastructure and Regulatory constraints in perspective. Agreements (SLAs)
To drive cost optimal efficiency in the Supply Chain, • Merchant Scoring Analytics Platform (MSAP) tool
e-Commerce companies need to leverage supply chain tracks and provides information on a merchant’s likely
analytics to facilitate decision making across all levels of credit risk through ongoing monitoring, back testing,
supply chain and use visualization and optimization tools stress testing, benchmarking and statistical analysis
to control, measure, and respond to supply chain events
Recommendation Engine
in real-time. These can result in improvements in both,
the Profit & Loss and the Balance Sheet performance for A customer’s experience can either make or break an
an e-Commerce company. e-Commerce platform (website or apps). In addition
to providing a visual appeal and convenience, these
Key features of a supply chain analytics framework:
platforms attempt to provide value-add to a customer
• Supports live visibility of day-to-day operations through through product recommendations.
exception management and triggers actions to respond
To deliver a sophisticated e-Commerce service model, a
to supply chain events
powerful analytics solution that integrates and analyses
• Enables performance tracking through KPIs (Key portal-generated data is required. This integration
Performance Indicators) and helps in understanding enables a recommendation engine to provide smart,
performance trend real-time and relevant recommendations to customers.
• Supports root cause analysis and facilitates a deep dive Along with recommendations for products, sophisticated
into the key drivers of a problem algorithms that change prices in response to delivery
time, weather and market conditions are required. These
• Enables scenario planning to understand the impact of
have the potential to fundamentally change the way
any improvement across supply chain
businesses work and also what customers pay. They
Merchant Life-cycle Management bring in price transparency, boost supply during peak
hours and also ensure standardised policies for pricing.
Merchants are key partners in an e-Commerce business
and the brand reputation of an e-Commerce company Key features of recommendation engine analytics:
rests on its merchants as much as on its employees.
• Provides customer-specific personalized
Thus, merchant on-boarding and life-cycle management
recommendations based on web behavioural analysis
is critical, given the large number of merchants
associated with any online platform. Quality and delivery • Recommends customised complementary and
standards have to be maintained consistently across alternative products, as the customer browses the site
merchants, else an e-Commerce company runs the risk • Sends targeted promotions and offers to the customer
of brand dilution in a fiercely competitive market. offline
However, managing such a large number of merchants • Helps in keeping customers on the website for a
manually can become a challenge. Digitisation holds longer time thus increasing the likelihood of a purchase
the key to navigate these challenges as also to and thus supporting the growth in sales
enhance customer experience, brand loyalty, and cost
Integrated Business Planning
optimization.
With focus for e-Commerce companies moving to
Benefits of merchant life-cycle management:
profitability, optimization of business processes is
• Combines basic forensic and supply chain skills, becoming imperative. There are several challenges such

36
as lack of intra business unit coordination, high logistics leadership level movements.
costs, complex inventory issues, etc. which surface in
The Digital HR solution will enable e-Commerce
this ever-evolving industry.
companies to drive innovation, process efficiency
To stitch together the different operations and decision and take care of their most important asset i.e. their
making elements within an e-Commerce organisation, people. It will reduce redundancies within the human
an integrated business and financial plan is required. resource function and help reallocate resources to
Integrated Business Planning enhances a traditional Sales more strategic initiatives within an organization. The
& Operating Plan by focusing on end-to-end decision solution will reimagine the role of HR, simplify life of the
making and drive a unified go-to-market plan. Overwhelmed Employee and reduce cost.
Key features of Integrated Business Planning: Key benefits of Digital HR management:
• Provides Executive Reviews and Financial Planning • Manage and control the dynamic changes or adopting
(FP&A) for one integrated review and decision making new ways of working
process
• Aligning culture between parent organization and its
• Integrates forecasts, product launches, promotions, subsidiary
and market sensing in development of consensus
• Expanding operations across multiple business units or
demand
growing rapidly with the desire of maintaining its cultural
• Includes optimal inventory positioning as a key DNA
de-coupler between production and demand
• Undertaking M&A, divestures and amalgamation and
Digital HR ascertain its implication to the organization
e-Commerce is changing the talent ecosystem in the • Assist and support embarking on large digital /
country, which in turn has impacted the human resource technology transformation
function. Considerable time and effort has to be invested
• Manage the talent challenges around quality of talent,
to hire and train young dynamic talent, manage high
leadership and retention
turnaround due to fierce competition, and frequent

e-Commerce in India A Game Changer for the Economy 37

IX. Key Recommendations

Government’s Role and Participation Sector Enterprises as well as all models of e-Commerce
platforms.
Increase internet penetration
Training and Skill development
At the heart of the e-Commerce lies the ability to not
just stay connected online but also to do so at a fast e-Commerce has already become an attractive
speed. India ranks relatively lower when compared to destination for budding entrepreneurs and MSMEs.
its Asian counterparts, the U.S. and China in respect to This has generated both, blue-collar and white-
Internet speed. Additionally, many parts of rural India collar employment opportunities in India. Further,
are yet to receive broadband connection. While efforts functions such as logistics, analytics, pricing, inventory
have been made in this direction, the Government plans management, transportation, last-mile delivery etc. are
to facilitate Internet connectivity for over two lakh Gram unique and highly specialized. Lack of skilled manpower
Panchayats. PPP (Public Private Partnership) projects in in these areas is one of the bottlenecks faced by the
this space would become instrumental in enhancing the e-Commerce industry. To address this challenge, joint
reach of the Internet to rural parts of India. programmes by the private and government sector
would be instrumental to ensure a steady flow of trained
Seamless integration between Government
talent who have the ability to quickly adapt to the
departments and agencies
dynamic growth phases experienced by this industry.
An integrated and coordinated approach is much
Towards institutionalizing this recommendation, strategic
needed between different government agencies, such as
alignment between the Central and State government
Policy-makers, Income Tax, Sales Tax, Direct Tax, Excise,
is imperative to strengthen this talent development
and Registrar of Companies, to ensure faster turnaround,
initiative. For example, e-Commerce private players could
efficiency and transparency for all stakeholders in the
feed into the Skill India initiative of the Government
e-Commerce ecosystem.
to make it more industry relevant while the State
With instances where one state is levying a flat entry governments identify potential talent pockets in their
tax on all e-Commerce consignments and another state area of influence to feed the raw potential into this
barring taxi-hailing companies from dynamic surge programme.
pricing, the Government is likely to limit the business
Follow a procurement process to appoint Public
models of e-Commerce players. The Government should
Sector Enterprises (PSEs)
ensure a uniform regulatory and tax structure across the
states to prevent such instances from dampening the A process whereby PSEs and Private Sectors Companies
growth of e-Commerce in India. are selected using bids or tenders to ensure that the
Public Sector and the Public Exchequers get the best
Faster implementation of initiatives
service possible should be enforced. This will benefit the
The Government has already launched several initiatives B2B e-Commerce companies.
such as Digital India, Skill India, Innovation Fund, and
Create customer and sellers scoring database
Start-up India. However, the success of these initiatives
lies in speedy and result-oriented implementation. Thus, A consultative approach with participation from all
faster implementation of these initiatives would have a stakeholders in the e-Commerce industry should be
positive impact on the e-Commerce industry. encouraged to come up with a scoring database of
customers and sellers. Stakeholders should determine key
Build a conducive environment
scoring parameters based on previous online shopping
A consultative approach with periodic interactions behaviour for buyers. Similarly, scoring can be assigned to
with all stakeholders, Trade Bodies and industry merchants based on their quality of products delivered,
associations such as CII, will help in building a uniform etc. The scoring mechanism will discourage the abuse
and favourable e-Commerce ecosystem. Government and fraud instances from both buyers and sellers.
should provide a level-playing field for Public and Private

38
Empowerment of Logistics Ecosystem Direct Tax
Develop a robust infrastructure Withholding Tax Matters
India needs a deeper and wider network through
As a Payer As a Payee
efficiencies in road, rail, sea and air transportation.
Better road connectivity, shorter turnaround time at
To alleviate the difficulty being faced by •Simplified mechanism to obtain
sea ports; and a resilient railway service ecosystem
the Indian payers who are required to bear lower / nil withholding tax certificates
will enhance fulfilment and last-mile deliveries for
tax cost on transactions: for e-Commerce companies, without
e-Commerce.
requiring payer details
• Higher rate of withholding tax for non-
Enable sharing of railway containers
availability of Permanent Account Number • Mechanism to apply the rate for the
To strengthen logistics in India and to reap cost (PAN) of the payee should not apply preceding financial year in a certificate
benefits in the railway freight system, sharing of freight till such time that the certificate for
• Documentation requirements to be
containers should be allowed. This would enable the current financial year is issued,
simplified for applying tax treaty provisions
e-Commerce companies to find a collaborative approach provided an application is made at the
(such as declaration by the payee, as
to use the current railway freight network. start of the financial year in question
opposed to tax residency certificate)
Promote digital modes of payment
For other transactions:
CoD is a major portion of e-Commerce transactions
today. This results in risks of carrying cash and • Higher rate of withholding tax for
inefficiencies in cash lifecycle management, thus digital non-availability of PAN of the payee 17
payment though credit/debit cards, net banking, should not apply in cases where the
wallets etc. should be promoted. Customers could be relevant tax treaty provides for a lower
incentivized to promote payments via digital mode. withholding tax rate
Launch of the Unified Payments Interface (UPI) is likely
• Simplicity of documentation
to address CoD challenges.
requirements for applying tax treaty
Optimize Reverse Logistics provisions (such as declaration by the
payee, as opposed to tax residency
Technology-enabled efficient solutions need to be
certificate)
developed to manage the complex framework of
reverse logistics. E-Commerce players should consider
Other key aspects:
differential pricing for online shopping to minimize
instances of returned good. • Requirement of obtaining PAN should
be restricted. In the Finance Bill, 2016, an
Facilitate easy movement of goods across States exemption from requirement of furnishing
To ensure faster delivery of goods across the country, PAN has been proposed for certain non-
there needs to be an efficient mechanism in place residents, subject to such conditions that
at border check posts and railway cargo centres, may be prescribed. The Hon’ble Finance
which allows for a thorough yet speedy clearance of Minister in his Budget Speech referred to
e-Commerce consignments. furnishing of alternate documents in place
of PAN.
Adopt smart technology
• Limited compliance requirements in case
Technology-enabled solutions such as apps, low-cost
of non-resident payees (as opposed to
hardware devices, e-signature of customers could be
full-fledged tax returns and transfer pricing
leveraged to reduce dependencies on paper-based
filings)
fulfilment. Also, technology-enabled solutions across the
logistics supply chain could reduce turnaround time and
Other Matters:
enhance traceability of goods-in-transit.
• Unutilised business losses of e-Commerce companies
should not be lost even if the shareholding of the
company changes by more than 49%
• Increasing the number of years within which the tax
holiday can be availed by start-ups in the e-Commerce
industry

e-Commerce in India A Game Changer for the Economy 39

Indirect Tax of business under applicable state VAT as well as the Key Recommendations

The Indirect tax environment in terms of policy as well proposed GST laws
as administration would also be key towards unleashing
Central Committee for
• The Central and the State governments should extend
the potential of e-Commerce industry in India. The Tax Policy
the required relaxation under the proposed GST laws
Indirect tax laws needs to be evolved and re-designed
to enable multiple vendors to register at a marketplace
to consider the changing business dynamics of Clarity on Tax Liability
warehouse/ fulfilment centre
e-Commerce since the activities involve high volume and
low-value supplies. E-invoicing and tax credits
Clarity on Supply of
On the basis of interactions with various stakeholders, • State VAT legislations should also allow issuance of digitised products
the following recommendations, including expectations digitally signed electronic invoices
under the GST regime, were proposed in order to resolve
Registration of
the challenges faced by the e-Commerce industry: • Electronic invoices should be treated as valid
vendors
documents for claiming tax credit of VAT
Facilitate free movement of goods E-invoicing and tax
Institution of Central Committee for tax policy
credits
recommendations and implementation • Entry and exit of e-Commerce consignments across
multiple states should be eased with uniform
• A Central Committee to be constituted to oversee Free movement of
legislative structure
the implementation of a conducive environment for goods
the e-Commerce industry in India; it can also provide • Instead of filling forms on entry into each state, the
recommendations on the proposed GST legislation truck carrying the consignment can be given a number Uniform tax rates
that will give the check post all the details of the
• State and local bodies across administrations to
consignment
cooperate and an integrated approach to be adopted Specific place of
in conjunction with Central Government. Uniform tax rates on supply of goods across states supply rules

• States and local bodies to ensure that a comprehensive • A single common GST rate is proposed on all inter-
tax is uniformly interpreted, and implemented for state supplies so that businesses are not constrained to GST implementation
facilitating the growth of e-Commerce in the country. apply multiple rates

Need for clarity on characterisation of tax liability Need for specific place of supply rules for Figure 18. Key
recommendations for
e-Commerce transactions in GST
• GST laws should take into consideration the actual Indirect Tax
nature of the transaction to determine tax liability of • The place of supply rules under the proposed GST
the sellers and e-Commerce companies regime should effectively address the concerns that
are likely to arise such as: determination of place of
• Taxes under the proposed GST legislation should be
supply in the context of contractual recipient vis-a-vis
based on the actual scope and obligation of each
actual provision/ consumption of the services, excess
parties such that there is no deemed taxation in the
accumulation of credits in one state and liability in
hands of e-Commerce companies
another state and no provision to set off the same
Need for clarity on supply of digitised products and
GST implementation holds the key
place of supply rule
• A consultative approach is adopted to implement GST
• Supply of digitised products sold over the internet to
and roll-out is in accordance with all the e-Commerce
be considered as ‘services’
ecosystem
• In the GST regime, there should be clarity and
• GST is introduced uniformly across all States, to ensure
certainty to reduce double taxation and any efforts to
uniform tax structure
manipulate the classification
• Ensure faster and efficient integration of technology
Registration of multiple vendors at marketplace
systems and processes
warehouse or fulfilment centre
• Sellers should be allowed to register market place
warehouses or fulfilment centres as an additional place

40
Forensic and third parties about larger implications of fraud can
help deter such incidents significantly. The e-Commerce
Enumerated are the top three areas to improve the fraud
companies should put in place specific policies
risk management structure in e-Commerce companies:
pertaining to bribery and corruption, conflict of interest
Reduce Counterfeiting risks and ethical practices, followed by training programmes
• Institute a robust Know Your Seller (KYS) procedure for for employees and third parties. Organisations should
merchant on-boarding – Often, in a bid to improve their also set-up whistleblowing hotlines to encourage the
valuations, e-Commerce companies may be in a rush to reporting of malpractice and fraud by employees and
empanel a large number of vendors and sellers, without third parties
ascertaining their background in detail. Given the past • Fraud risk monitoring of transactions – e-Commerce
boom and bust phases in e-Commerce in overseas companies are intrinsically technology driven and tend
markets, it is recommended that Indian e-Commerce to rely on sophisticated data analytics tools to help them
companies should institute a robust due diligence with business decisions. However, industry stakeholders
mechanism before on-boarding sellers. This will help state that organisations have to gain larger ground to
to establish genuineness, credibility and reputation of leverage analytics for fraud prevention, detection and
sellers. Additionally, once the GSTN portal is active, it response. For this, e-Commerce companies need to
can be leveraged to check the status (active/inactive) and work with forensic experts who can help customise
other statutory information about sellers. prevailing data analytics tools by including rules, routines
• Increased collaboration between companies in and algorithms that can effectively identify red flags
the sector to identify unscrupulous sellers –The pertaining to fraudulent behaviour
e-Commerce companies should collaborate to • Segregation of roles and responsibilities – A
undertake a comprehensive exercise to this effect and segregation of roles and responsibilities, followed by
share the findings amongst themselves. This can help annual rotation of team members within roles, can help
organisations blacklist and take appropriate action prevent conflict of interests and kick-back scenarios
against these sellers. Since the same set of vendors tend
Enhance Data security
to be empanelled on multiple e-Commerce websites, the
knowledge of malpractice identified on one website and • Effective configuration of data leakage prevention
shared amongst the larger e-Commerce community can tool to closely monitor data travelling outside the
be a significant deterrent for these unscrupulous sellers organisation’s domain
from conning other companies
• Information security controls on electronic devices,
• Push for a more comprehensive law to address which not only restrict unauthorised usage but also
counterfeiting and associated enforcement action restrict usage of external storage devices or block cloud
storage
o Industries such as FMCG have long expressed
concerns about the need to strengthen the current • Clearly defined employee contracts that mandate
anti-counterfeiting laws in India backed by stringent disclosure of potential conflicts of interest and penalties
enforcement action. The e-Commerce industry is for violation of the contract with regard to IT security
increasingly finding itself in the same boat. The US, for and conflicts of interest.
example, has specific laws outlining several categories
• Once a potential data breach is suspected within the
of counterfeits and copyright infringements, including
company, attempts should be made to immediately
images and packaging, and states penalties starting at
identify the data breach source (department, team,
USD 500,000
individual) and the nature of information leaked
o There is a need for collaboration between through. A comprehensive forensic investigation
enforcement agencies, consumers and associated (involving logs analysis, usage behaviour, email review,
stakeholders to reduce the risk of counterfeiting in exception testing etc.) should be conducted to identify
e-Commerce the veracity of the suspected breach and root causes of
such incident, if any
Improve Governance Measures
• Setting up an ethical culture – Educating employees

e-Commerce in India A Game Changer for the Economy 41

X. Key Future Trends

e-Commerce industry is driven largely by continuous on-time deliveries to all customers. Therefore, Artificial
innovation and technology-led solutions and these are Intelligence technologies will be leveraged in the future
expected to continue in the future. Enumerated are a to anticipate demand, manage price fluctuations and to
few key future trends: overcome challenges of last-mile deliveries.
Innovation in Payments Automated Guided Vehicles (AGV) could solve many
logistics problems of the e-tailers and result in highly
The ever increasing use of digital wallets together with
successful product deliveries. For example, Amazon
the newly launched UPI platform, will foster innovation
Prime Air is working on drone-based delivery of its
in payments. The UPI platform will be leveraged to
products. Local knowledge of the delivery person
offer innovative payment modes to customers and also
complemented by GPS-based device could lead to
make CoD seamless by cashless fulfilment at the time of
efficient delivery of products.
delivery. This would make payments even more seamless
and will hopefully reduce goods return.
New Delivery models
Keeping in perspective the “choked traffic” situation in
India’s metros leading to late deliveries or increasing the
biker count to meet the delivery timelines, e-Commerce
and Logistics service providers are exploring moving
from synchronous hand delivered parcel system to
an asynchronous model, where parcels are delivered
to a locker secured by a code sent as a text to the
recipient. This experiment, if successful, is likely to
help e-Commerce companies to enhance customer
experience.
Collaboration of e-Commerce and offline entities
There will be a collaborative approach between
e-Commerce companies and offline entities such as
retailers, banking business correspondents, micro-finance
companies, etc. for order fulfilment in tier 2 & 3 cities.
Likewise, the extensive distribution network of entities
who have secured small bank and payments bank
licenses (For e.g. Telecom operators, India Post) will be
leveraged by e-Commerce logistics service providers for
enhancing and optimising the last-mile delivery to the
new markets in the rural hinterland.
Technology and Wearables
The launch of wearables, such as Google Glass,
Apple Watch and other Smart Watches, opens new
opportunities for reaching out to customers. e-tailers
would keep an eye on developments in this arena,
although this might only be an urban phenomenon at
the moment.
Efficiencies attained by Artificial Intelligence and
the use of Drones
Anticipating the seasonal surge especially during festive
seasons is a challenge for e-Commerce companies in
terms of managing the supply chain logistics to provide

42
XI. Acknowledgements

Authors

Neeraj Jain
Partner
[email protected]
Chaitanya Prabhu Rohit Goel
Director Director
[email protected] [email protected]

Kamlesh Dixit Niharika Thakur

Senior Manager Manager
[email protected] [email protected]

Rabani Gupta Prashi Badkur

Senior Consultant Analyst
[email protected] [email protected]

Industry Experts
Prashant Deshpande
Muralidharan Ramaratnam
Amit Bansal
Sumit Makhija
Rajiv Bajoria
Anoop Kalavath

We would also like to thank Shamal Patel, Shivali

Valecha, Hardik Gandhi and Rahul Murarka for their
valuable inputs and contribution

e-Commerce in India A Game Changer for the Economy 43

XII. Appendix

Approach • A telephone, interviewer-led approach or

Primary Research was conducted with key companies • A face-to-face meeting with Deloitte’s team
in each category of stakeholders in the e-Commerce
Responses were evaluated and synthesised by our Subject
ecosystem of India. In order to get comprehensive and
Matter Experts using a framework developed by the team.
deep insights, standardised questionnaires were prepared
for each category of stakeholders. The questionnaires The respondents comprised leading companies from the
were based on the enumerated aspects: enumerated categories of the e-Commerce ecosystem

• Analysis of growth and trends in the Indian S. No. Primary Research Category
e-Commerce industry (B2B and B2C)

• Current regulatory landscape for the e-Commerce 1 e-Commerce and e-tailers (B2C)
companies
2 e-Commerce and e-tailers (B2B)
• Challenges for new age entrepreneurs / SMEs / MSMEs
and probable imperatives in digitising multiple business
3 MSME / Sellers
aspects within the e-Commerce eco-system

• Evaluation of how SMEs, MSMEs and new age 4 Government of India/Ministries

entrepreneurs can leverage government initiatives like
Digital India, Make in India and Start-up India to leapfrog 5 Trade Bodies
and advance their growth

• Recommendations to the Government of India 6 Logistics Service Providers

regarding, the major initiatives it needs to trigger in
order to provide direction for a sustainable and robust 7 Subject Matter Experts
e-Commerce eco-system

Respondents’ specification
In the preparation of this report, we have also referred
A mixed methodological approach was used to capture as to Deloitte’s repository and knowledge resources for
broad a range of ecosystem respondents as possible. This secondary research, wherever required.
comprised:

44
XII. Glossary

Term Definition

1. Aggregator A type of e-Commerce entity which aggregates information on goods and services
and then designs a system which allows easy matching of prices and specifications

2. Angel Investor An investor who provides financial backing at the initial stage to small start-ups or
entrepreneurs

3. B2B Business-to-Business (B2B) refers to commercial transactions between businesses

i.e. both buyer and seller are businesses

4. B2C Business-to-Consumer (B2C) refers to commercial transactions in which one business

sells directly to the consumer i.e. buyer is a consumer and seller is a business

5. CAGR Compound Annual Growth Rate (CAGR) is the growth rate that gets from the initial
investment value to the ending investment value if we assume that the investment
has been compounding over the time period

6. CoD Cash-on-Delivery (CoD) is a type of transaction in which payment for a good is made
at the time of delivery

7. CST Central Sales Tax (CST) is a form of indirect tax imposed only on goods sold from
one state to another state, which particularly takes into account that the buyer and
the seller needs to be in two different states

8. CRM Customer relationship management (CRM) is a term that refers to practices,

strategies and technologies that companies use to manage and analyze customer
interactions and data throughout the customer lifecycle, with the goal of improving
business relationships with customers

9. CGST Central Goods and Services Tax (CGST) is a form of indirect tax levied and collected
by the Centre on goods and services

10. C2C Consumer-to-Consumer (C2C) refers to commercial transactions which take place
between customers i.e. both buyer and seller are consumers

11. e-Commerce Purchase and sale of goods and services, or transmitting funds over an electronic
network, primarily the Internet

12. EDI Electronic Data Interchange (EDI) is the transfer of data from one computer system
to another by standardized message formatting, without the need for human
intervention. EDI permits multiple companies, possibly in different countries, to
exchange documents electronically

13. e-tailing Short for "electronic retailing”. Refers to sale of retail goods on the Internet

14. FDI Foreign Direct Investment (FDI) is a controlling ownership in a business enterprise in
one country by an entity based in another country

e-Commerce in India A Game Changer for the Economy 45

 Term Definition

15. GMV Gross Merchandise Value (GMV) is a total sales dollar value for merchandise sold
through a particular marketplace over a certain time frame. For the purpose of this
report, e-Commerce value refers to B2C only e-tailing and does not include online
travel and classifieds

16. GDP Gross Domestic Product (GDP) represents the monetary value of all goods and
services produced within a nation's geographic borders over a specified period of
time

17. GST Goods and Services Tax (GST) levied on goods and services sold for domestic
consumption. It is perceived as the most radical taxation reform that could alter
India’s economic prospects if implemented

18. Hyper-local delivery Hyper-local delivery mechanisms include neighborhood focused new sources for
products and services

19. Inventory Led Model A type of e-Commerce entity which sources products directly from brands and/
or sellers and stock these. There are no multiple sellers selling one product, unlike
marketplaces where buyers get to choose from several merchants

20. IGST Integrated Goods and Services Tax (IGST) is a form of indirect tax levied by the
Central Government on inter-state supply of goods and services

21. KYS Know your sellers (KYS) is the process of a business verifying the identity of its sellers
and merchants

22. LSP Logistics Service Provider (LSP) is a company that provides management over the
flow of goods and materials between points of origin to end destination

23. Marketplace Model A type of e-Commerce entity in which product or service information is provided
by multiple third parties, whereas transactions are processed by the marketplace
operator

24. MSME Micro, Small & Medium Enterprises (MSME) are defined based on (i) on the
investment in plant and machinery for those engaged in manufacturing or
production, processing or preservation of goods and (ii) on the investment in
equipment for enterprises engaged in providing or rendering of Services

25. NOFN National Optical Fibre Network (NOFN) is a project initiated in 2011. It is funded by
Universal Service Obligation Fund to provide broadband connectivity to over two
lakh (200,000) Gram panchayats of India at a cost of Rs.20,000 crore ($3 Billion)

26. NSIC National Small Industries Corporation (NSIC) is a Public Sector Union established
by the Government of India and falls under the Ministry of Micro, Small & Medium
Enterprises

46
 Term Definition

27. Omni-channel A multi-channel approach to sales that seeks to provide the customer with a
seamless shopping experience. It means providing multiple shopping touch points,
whether the customer is shopping online through a desktop or mobile device or a
telephone or a bricks and mortar store

28. PE Private Equity (PE) consists of investors and funds that make investments directly into
private companies or conduct buyouts of public companies that result in a delisting
of public equity

29. SGST State Goods and Services Tax (SGST) is a form of indirect tax levied and collected by
the respective States on goods and services

30. SLA Service-Level Agreement (SLA) is a part of a standardized service contract where
a service is formally defined. Particular aspects of the service – scope, quality,
responsibilities – are agreed between the service provider and the service user

31. UPI Unified Payments Interface (UPI) is a new process in electronic funds transfer which
will allow customers to transfer money and make payments instantly and very easily

32. VAT Value Added Tax (VAT) is a form of indirect tax imposed only on goods sold within
a particular state, which essentially means that the buyer and the seller needs to
be in the same state., VAT can be imposed only on the sale of tangible goods and
products

33. VC Venture Capital (VC) consists of investors and funds that make investments directly
into start-ups with strong growth potential

Source – Media Reports, Investopedia

e-Commerce in India A Game Changer for the Economy 47

XIII. References

1
Annual Report 2014-15, Ministry of Micro, Small and 11
Size of B2B e-Commerce in India, Walmart Report,
Medium Enterprises. 2014.
http://msme.gov.in/WriteReadData/DocumentFile/ http://articles.economictimes
MSME%20ANNUAL%20REPORT%202014-15_English. indiatimes.com/2015-03-19
pdf news/60286594_1_saif-partners-indiamart-bestprice-in
2
Mobile Internet in India 2015, Report by IAMAI and M&A deals. Deloitte Analysis, Thomson ONE data
12

IMRB 13
PE, M&A deals in technology.
3
Ministry of Statistics and Programme Implementation, http://www.vccircle.com/news/technology/2015/12/29/
2016. recap-2015-top-pe-ma-deals-technology
http://mospi.nic.in/Mospi_New/upload/nad_PR_8feb16.
Online shopping through mobile.
14

pdf
http://www.kpcb.com/internet-trends
4
Growth of retail in India, Deloitte Analysis and Media
Online shopping through mobile.
15

Reports
http://retail.economictimes.indiatimes.com/
5
Increase in tele-density and mobile tele-density in India, news/e-Commerce/e-tailing/why-e-Commerce-firms-
2015. are-rapidly-shifting-focus-to-mobile-phones-to-lure-
http://trai.gov.in/WriteReadData/PressRealease/ customers/46650328
Document/PR-TSD-Nov-15.pdf
Connected Small Business, Deloitte, 2015.
16

6
India, the second largest smartphone market. http://www2.deloitte.com/in/en/pages/technology-
http://www.counterpointresearch.com/ media-and-telecommunications/articles/connected-
indiahandsetmarket2015 small-business.html
Mobile Internet in India 2015, by IAMAI and IMRB
7
Section 79 of the Income-tax Act, 1961
17

8
Ease of doing business, 2015, World Bank. Section 206AA of the Income-tax Act, 1961
18

http://indianexpress.com/article/business/economy/
Trafficking in counterfeit goods or services.
19

india-ranks-130-in-ease-of-doing-business-jumps-12-
https://www.law.cornell.edu/uscode/text/18/2320
places-world-bank-report/
9
PE, VC investments in 2015.
http://www.vccircle.com/news/finance/2015/12/14/
recap-2015-pe-vc-investment-nears-20b-record-year-
deals
Size of B2C e-Commerce in India.
10

http://www.assocham.org/upload/event/recent/
event_1113/Background_Paper_Future_of_e-
Commerce_web.pdf

48
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e-Commerce in India A Game Changer for the Economy 49

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