Terming investor concerns on Indian eCommerce sector as “misplaced”, brokerage firm UBS today said that the ‘etail’ market in the country is well placed for growth and could be worth $50 billion by 2020.
“We believe the Indian eCommerce sector is well placed for significant growth, driven by India’s favourable demographics, multi-fold rise in internet penetration and scarce organised retail,” UBS said in a report.
Initial issues like consumer acceptance, lack of credit and debit card penetration and challenge of last-mile delivery are being overcome as industry has responded with solutions like cash-on-delivery and specialised e-logistics companies, it added.
“Investor concerns about eCommerce being a bubble in India are misplaced, in our view. Our analysis of the supply-chain for offline retail by category implies adequate margins for etail in future,” the report said.
“…we estimate the India etail market could be worth USD 50 billion by 2020, growing 10x from the current level. This is not a conservative estimate and assumes wide acceptability of online purchases by Indian consumers and etail companies overcoming the challenges of logistics and banking,” it said.
The report added that etail in India is at a nascent stage and companies are trying to “Get-Big-Fast”, helped by capital availability.
“This is leading to aggressive discounting, which is driving up GMV (gross merchandise value),” it said.
Highlighting the risks, UBS said current regulations governing foreign direct investment (FDI) in retail has some constraints on multi-brand retail, which has led to the marketplace model as the preferred one for etailers in India.
“Regulations specifically for etail are currently largely absent and there is risk of the government regulations that are not necessarily in the best interests of the sector,” it added.
Also, etailers in India have faced some tax issues recently, including at state-level VAT (value added tax) even for their marketplace model.
“Again, a lack of a clear definition of etail and associated services in various tax legislation makes it a grey area and open to interpretation by tax authorities in a more aggressive manner then may have been envisaged by the legislators,” it said.
The report said introduction of a single GST (Goods and Services Tax a major reform in the Indian tax system) can help take care of some of these concerns, as it is a value-added based tax system.