12 June 2024 – The Hindu

Changing the State of E-Commerce Sector in India

• E-commerce has completely changed the way people shop by enabling them to peruse and buy goods while using mobile devices or from the comfort of their homes. The multibillion-dollar sector has experienced exponential expansion due to factors such as competitive pricing, extensive product assortments, and ease of use.
• The e-commerce industry is fast changing because to the emergence of generative AI technologies like ChatGPT, DALL-E, and Midjourney. Companies who invest in these technologies have seen increased conversion rates and revenue growth of 3–15%. But without human supervision, generative AI models have the tendency to “hallucinate” and produce false or inaccurate data.

How is the E-Commerce Industry Being Revolutionised by Generative AI?

• Generative AI is capable of analysing surfing habits and client data to provide highly personalised product suggestions.
• Eighty percent of consumers are more inclined to make a purchase when firms provide personalised experiences, according to new Epsilon research.
• Automated Product Descriptions and Marketing Content: Artificial intelligence (AI) can create social media posts, advertisements, product descriptions, and more automatically while saving time and preserving quality.
• A World Federation of Advertisers survey found that 55% of marketers who used generative AI for content development reported better results.
• Demand Forecasting and Inventory Optimisation: Generative AI algorithms, trained on historical data, are able to predict demand patterns and seasonality with greater accuracy than conventional techniques.
• This lowers expenses and avoids stockouts by enabling e-commerce companies to optimise inventory levels.
• Enhanced Conversion Rates and Revenue: According to McKinsey, companies that have invested in generative AI have seen improvements in revenue of 3–15% and a sales return on investment of 10%–20%.

What is the Indian e-commerce sector’s current state?

• It is anticipated that the Indian e-commerce market would expand significantly and reach USD 300 billion by 2030.
• The Gross Merchandise Value (GMV) of online sales increased by 22% to USD 60 billion in FY23 from the previous year.
• India is predicted to have 350 million online shoppers by FY26, making it the third-largest online shopper base behind the US and China, with 150 million users in FY21.

E-commerce Growth in India is Driven by:

• Increasing Internet Penetration: India was the second-largest internet market globally, with over 821 million users. The adoption of e-commerce is largely being driven by this increasing connectedness.
• expanding the footprint in cities classified as Tier 2 and Tier 3. Even in tier-2 and tier-3 cities, where they already account for three out of every five orders placed on the top e-retail platforms and nearly half of all shoppers, e-commerce is becoming increasingly popular.
• Tier-3 cities’ proportion of the e-commerce market increased from 34.2% in 2021 to 41.5% in 2022.
• Growing Middle Class and Disposable Incomes: According to the PRICE Report 2023, India’s middle class is expected to almost double in size from 31% in 2020–21 to 61% in 2047.
• More people are shopping online for convenience and brand access as their discretionary incomes rise.
• Positive Demographics: India has one of the youngest populations in the world, with a median age of 28 years, according to World Population Prospects (WPP).
• The population’s tech-savvy nature and demographic dividend are major drivers of e-commerce adoption and growth.
• Development of D2C firms and Social Commerce: Traditional retail models have been upended by the emergence of direct-to-consumer (D2C) firms like boAt, Mamaearth, and Licious.
• Meesho and other social commerce platforms are becoming more popular.
• Fintech Solutions for Simpler Payments: Online transactions have become more convenient and accessible for Indian consumers thanks to digital payment solutions like UPI, mobile wallets, and buy-now-pay-later choices.
• In 2023, the overall amount increased to an astounding 65.7 billion transactions, as per the India Digital Payments Report (H2 2023).
• logistical and Supply Chain Improvements: Companies like Delhivery, Ecom Express, and Xpress Bees have contributed to the expansion of e-commerce in India by investing in warehouses, last-mile delivery networks, and logistical infrastructure.

What are the main problems with Indian e-commerce?

• Inefficiencies in supply chains and logistics: Although progressing, India’s infrastructure in these sectors is still behind, which drives up costs and causes delays in delivery, particularly in rural areas.
• According to the Economic Survey 2022–2023 India’s logistics expenses have ranged between 14 and 18% of GDP, compared to the global average of 8%.
• Concerns about the wider ecological and social consequences are brought up by problems such as excessive packaging waste, unethical labour practices in the supply chain, and unsustainable business strategies.
• Delivery partners for Swiggy went on strike in Chennai in May 2023 in protest of their wages and working conditions.
• Allegations of antitrust and anti-competitive activities, such as deep discounting, preferential treatment, and data misuse by huge e-commerce enterprises, pose a danger to fair competition.
• Example: In 2021, Amazon was fined ₹202 crore by the Competition Commission of India (CCI) for failing to disclose the true nature and purpose of the Future Group corporate acquisition.
• Concerns about Counterfeiting and Piracy: The spread of products that are counterfeit and pirated on online marketplaces threatens consumer safety and ecosystem confidence in addition to having an adverse effect on sales of legitimate companies.
• The Mumbai Crime Branch has found ₹55,000 worth of fake goods being offered as “WoW” items.
• Human Resource Challenges: Due to the quick expansion, there is a shortage of qualified IT, supply chain, and logistics workers.

Which are the main e-commerce-related government initiatives?

• The Ministry of Commerce and Industry launched the Government e-Marketplace (GeM) Portal in August 2016 with the goal of providing a transparent, efficient, and inclusive platform for buyers and sellers to engage in public procurement activities.
• Procurement exceeded Rs. 2 lakh crore in FY23.
• Launched by the Indian government in 2022, the Open Network for Digital Commerce (ONDC) is an internet network that seeks to democratise e-commerce by giving MSMEs equal opportunities to prosper in the digital economy.
• National E-Commerce Policy: To encourage industry growth and increase exports, the Indian government is about to release a national e-commerce policy.
• The policy’s draft was made public in 2019 after it was first suggested in 2018.
• The 2020 Consumer Protection (E-commerce) Rules mandate that product listings include the country of origin information.
• It also required businesses to disclose the criteria used to determine which products are included on their platforms.
• FDI in E-commerce: The maximum FDI allowed under the marketplace model for E-commerce was raised to 100% (for B2B models).
• The Equalisation Levy Rules of 2016 (Amended in October 2020) are designed to prevent double taxation and guarantee that the tax on the digital economy is distributed fairly.
• International businesses using Indian e-commerce platforms are required to obtain Permanent Account Numbers (PAN)
• a 2% tax levied in the budget for FY21 on products sold or services rendered by non-resident e-commerce operators.

What Steps Can Be Taken to Modernise India’s E-Commerce Scene?

• Develop Logistics Parks and Multimodal Hubs: Through public-private collaborations and creative financing mechanisms, promote the development of cutting-edge logistics parks and multimodal logistics hubs.
• The integration of various transportation modes, such as road, rail, air, and waterways, along with the provision of contemporary warehousing, packaging, and distribution facilities, would result in these hubs simplifying the entire supply chain.
• Promote Rural E-Commerce Logistics firms: By giving them access to capital, technology, training, and mentorship, you may promote and assist the expansion of rural e-commerce logistics firms.
• By bridging the last-mile delivery gap in remote locations, these firms could increase employment prospects and foster rural entrepreneurship by utilising local knowledge and resources.
• Enact “Logistics Reverse” and Circular Economy Models: Require the use of environmentally friendly packaging materials and promote the idea of “Logistics Reverse,” in which online retailers reward consumers who recycle or reuse their packaging.
• Moreover, promoting the adoption of circular economy ideas and making it easier for things to be recycled, resold, or renovated in order to cut waste and encourage sustainable consumption.
• Create a Specialised Division or Dedicated E-Commerce Regulatory Authority: The Competition Commission of India should create a specialised division or dedicated e-commerce regulatory authority to proactively monitor and address unfair business practices, data misuse, and anti-competitive practices in the e-commerce industry.
• This body might also supervise how “Fairness by Design” guidelines are incorporated into the rules and algorithms of e-commerce sites.
• Adopt Advanced Authentication and Traceability technology: To prevent counterfeiting and guarantee product authenticity, laws should be put in place requiring the use of advanced product authentication technology such as RFID tags, QR codes, and blockchain-based traceability systems.
• Work together with law enforcement and industry associations to build a task force specifically tasked with addressing the sale of counterfeit goods on e-commerce platforms, as well as a centralised reporting mechanism.
• Promote Gig Talent Pools: Promoting the creation of “Gig Talent Pools,” which would give e-commerce businesses access to a well screened pool of independent contractors and freelancers for project- or short-term work.
• Regulating Generative AI in E-Commerce: Regulations need to require openness in algorithms and material produced by AI in order to preserve ethical behaviour and competition.
• E-commerce businesses must to be obligated to follow moral guidelines and reveal how AI is used.
• Accountability and fairness will be guaranteed by routine audits and compliance inspections.