Govt should incentivise ecommerce growth

Indian retail sector remains a tough nut to crack despite entry of several global and emergence of multiple domestic players. The news of ecommerce platform ShopX filing for bankruptcy is a case in point. This Nandan Nilekani-backed ecommerce enabler company has said in a filing with the Ministry of Corporate Affairs that the company was not able to generate cashflow to sustain operations. "Since the business model has not succeeded, it has not been able to generate enough cash flow from operations or raise new capital and is therefore unable to meet its various payment obligations and has ceased to be a going concern," the company said in the filing.

Indian ecommerce market is one of the fastest growing sectors in the country. It is expected to reach $400 billion by 2030 with rising adoption across the length and breadth of the country. Rapid rise of D2C (direct-to-consumer) and social commerce are other two driving factors for this growth. Not only ecommerce companies, several ecommerce enabling companies have also come up to support the ecosystem. No wonder, the sector has emerged as one of the major job creators in the startup ecosystem. However, things are not that hunky-dory as projected by the industry. The major concern of the industry is that very few players are growing profitably. Though top line is growing at an accelerated pace, most firms are burning cash to grab market share. Amazon Seller Services, which runs the Amazon India marketplace, posted a loss of Rs 4,748 crore in FY21, down from Rs 5,849 crore in FY20. Similarly, Amazon Wholesale (India)'s revenue fell 7 per cent year-on-year to Rs 3,131 crore. Walmart-owned Flipkart's India business -Flipkart India and Flipkart Internet - reported growth of 25 and 32 per cent in revenues from operations in FY21. However, Flipkart India incurred losses at Rs 2,445 crore during this period. Another major player Meesho also posted a loss of around Rs 500 crore in fiscal year 2021. When all the major players are making losses, startups supporting these ecommerce players are also not highly profitable.

In this perspective, all the future projections about the Indian ecommerce ecosystem have to be evaluated in the perspective of profitability. If throwing discounts win customers, it also leads to losses and makes it unviable to operate in the long-run. Therefore, investors pumping in money into these units have to look at valuations objectively. The boards have to make founders accountable. The foreign parent entities have to make their Indian operations profitable. This is the only path to survival and prosperity. No doubt, Indian ecommerce sector has created a lot of jobs both in urban and rural areas of the country. Many technological innovations have also led to more pricing power to producers than middle men. The country, therefore, requires a healthy and steady growth of the sector to make all stakeholders prosperous. Given the growth potential of the sector, the government should also incentivise growth. Not only big ecommerce players, even small retailers are going digital now. It shows the sector is at the cusp of significant growth. And more responsible business practices can help in realising this potential.