Watch our partner Saurya Bhattacharya in the latest episode of JSA Live, discuss the booming e-commerce landscape in India. A sector that is witnessing unprecedented growth! With up to 24 global brands planning to set up shop in India this year, it’s a thrilling time for Indian businesses and foreign investors alike.
The numbers speak for themselves – the sector valued at $46B in 2020 is projected to soar to $111B in just a couple of years, with an impressive 19% compounded annual growth rate. India is poised to become the world’s second-largest e-commerce market, surpassing the United States in just over a decade!
One of the most encouraging aspects is the rapid expansion of e-commerce in tier 2 and tier 3 cities, especially in segments like grocery, beauty, and fashion. However, it’s essential to understand that e-commerce is a diverse sector, encompassing various business models – B2C, B2B, inventory-based, marketplace-based, and more.
As businesses explore this promising landscape, it’s crucial to navigate the regulatory requirements carefully. Whether you are an Indian business looking to expand or a foreign investor planning to enter India, specific regulations apply to different e-commerce models. Understanding the nuances of foreign investment regulations and compliance obligations is vital for a successful entry into the Indian market.
At JSA, we are committed to assisting clients in comprehensively navigating the Indian regulatory environment. Let’s capitalize on the incredible opportunities that lie ahead in India’s e-commerce domain!
My name is Saurya Bhattacharya. I am a corporate partner with JSA, based out of its Mumbai office. I typically advise my clients on domestic and cross border corporate transactions, such as India entry strategies for foreign entities, foreign investment into India, joint ventures, outbound investments by Indian companies; and navigate the nuances of Indian company law, exchange control regulations and the like.
Today we will speak about the e-commerce in India, a sector that I watch closely. Recently there were news reports that up to 24 global brands are looking to set up shop in India during the year. It is indeed an exciting time to be looking at this rapidly growing space in India, whether you are an Indian business or a foreign investor.
There is plenty of data in the public domain that demonstrates how this space has seen a boom in recent years and the trajectory is only seen going upwards. To give you an example, in 2020 the sector was valued at just over 46 billion USD, and is projected to cross 111 billion USD in another couple of years only. That’s a compounded annual growth rate of over 19 percent. Reports indicate that in just over a decade, India will become the second largest e-commerce market in the world, surpassing the United States.
One particularly encouraging aspect of e-commerce in India is its rapidly expanding base in tier 2 and tier 3 cities. It is believed that segments that have led the growth of the e-commerce sector are grocery, beauty and fashion.
At the same time, it must be kept in mind that e-commerce itself is not a homogenous sector; rather a composite. For instance, a company’s e-commerce business model could be B2C or B2B. It could be standalone e-commerce or it could be tied to a hybrid model where sales take place online as well as through traditional brick and mortar stores. A manufacturer could be interested in carrying out sale of its products through e-commerce. Of course, there are business models that are either inventory based or marketplace based – in other words, aggregation and platform based. Another integral part of e-commerce is the brands of the products or services, especially on the B2C side of things.
The important thing to note for anyone looking at entering the space or diversifying into it is that there are specific regulatory requirements to be kept in mind. In other words, not just if something is permitted under the law, but what is restricted and what is prohibited as well. Even in what is permitted, there may be certain conditions that need to be fulfilled by a company.
For instance, from the perspective of foreign investment regulations, there is a regime prescribed for e-commerce tied to manufacturers, B2B e-commerce, inventory and marketplace based models, as well as single brand and multi-brand retail. These would have to be looked at by a foreign investor looking to establish a presence in India organically or inorganically. Depending on the business model, commercial preferences and applicable regulations, the India entry could be by setting up an Indian entity, by investing in the shares of an existing Indian entity, by acquiring a majority or full stake in an Indian company, or by entering into equity or commercial joint ventures or franchising arrangements with an Indian player. This also means that factoring in the foreign investment regulatory regime would prudent for an Indian entity as well, in case they are looking to collaborate with a foreign investor.
In addition, there are a few other areas that would be crucial for the sector, such as rules around e-commerce that are present under the existing consumer protection laws in India, as well as potential intermediary related obligations under the Indian Information Technology Act and its rules. Depending on the products and services, there might be other specific regulations as well, such as legal metrology related compliances or food safety related registrations and compliances.
To sum up, the Indian e-commerce landscape presents tremendous opportunities for both domestic as well as foreign players for the foreseeable future. At JSA, as always, we look forward to continuing to assist clients navigate the Indian regulatory environment in a meaningful and comprehensive manner.