Online retail sales in India will reach US$64 billion by 2021, growing at a five-year compound annual growth rate (CAGR) of 31.2 percent.
Despite this projection, a combination of government actions, a slowdown in venture capital funding, logistics challenges, and slow growth in the number of online buyers are holding back India's online retail market, according to Forrester's 'The State of India's Online Retail Market in 2017' report.
In 2016, the Indian online retail market grew by 33.7 percent to reach US$16.3 billion. This is a significant drop from the 114.4 percent growth in 2015, and is a result of a slowdown in venture funding, demonetisation, and other government regulations related to discounts.
E-commerce players targeting the Indian market
2016 was a great year for Amazon in India as this was the year it surpassed Flipkart as the preferred online retail destination for metropolitan Indian consumers for the first time after entering the market in 2013.
Unlike Amazon, Alibaba is playing the waiting game and is still waiting to enter the market after selecting payment and e-commerce company Paytm as its key mode of investment in India. The company announced its plan to invest US$177 million to launch Paytm Mall, the Indian version of Tmall, in March 2017.
As for Flipkart, it has raised funds from eBay, Tencent, and Microsoft and is expected to gain the backing of Softbank. Flipkart will use eBay to gain access to the latter's global cross-border inventory, and plans to leverage Microsoft Azure's artificial intelligence (AI), machine learning, and analytics capabilities in future.
The report also found that Tencent has yet to find success in the Indian market. It thus still requires a platform like Flipkart to capture a share of the Indian online retail market and experiment with the social selling platform in the coming years.
Forrester advises online retailers to invest in forming habits for online buyers and focus on localising to increase their pool of online customers in India.
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