February 4, 2014

Is This the Year India Opens Up to Foreign Investment?

Posted by Frannie Jackson Category IconInternational


India’s recent historical development as an incubator for makeshift online entrepreneurs is nothing new. It’s recent willingness to interact with major American e-commerce powers? That’s something else entirely. With major legislative changes on the horizon, 2014 could very well be the year when India receives funding and investment from global players. Here’s a brief run-through of why one of online businesses’ biggest players is looking to tear down walls and build international unions.

Foreign Direct Investment (FDI) in B2B e-commerce has existed in India for years, and American e-com giants like Amazon and eBay already possess footholds in the country through online marketplaces, though these opportunities represent the only option for foreign involvement in the industry. B2C e-commerce is currently illegal in India, leaving a population of 1.2 billion potential shoppers off-limits to outside businesses. Upcoming changes to B2C legislation, however, could eliminate the red tape separating foreign investors from the second-largest population in the world.

Amazon broached the subject of relaxing FDI bans in e-commerce with the Indian government last November, but neither party announced official plans moving forward. As e-commerce holidays in the United States stole the international limelight, the talks were largely forgotten until media hype resurfaced in recent weeks. But the news was worth the wait.

Amazon India
Amazon India

According to the Business Standard, FDI could be allowed into India as early as April. With an open, e-commerce India only months away, understanding the allure of Indian e-commerce is key. Its global power can be traced to two factors: runaway financial gains and the exponential growth of Internet users.

E-commerce in India boasts the fastest industry growth in the Asia-Pacific region. While the final numbers are still rolling in, India’s e-commerce industry in 2013 was estimated to be worth 16 billion USD – an astonishing 88% increase since 2012. (To put it in perspective, e-commerce in the United States grew by less than 15% from 2012 to 2013). The industry shows no signs of slowing down, as Internet penetration in India passed 10% in 2013 and only continues to grow.

India expects its population of Internet users to reach 243 million by June of this year, thereby dethroning the United States as the second-largest, Internet-using population after China. And, unlike China’s aging population, India’s youth-heavy population contributes to its success. Three out of five Internet users shop online, and nearly 90% of all online shoppers fall into the 18 to 35 age range.

Relaxed FDI legislation coupled with rapid industry growth and a booming, Internet-using population cements the country as the key to expansion in e-commerce. What’s this mean for any e-commerce company? Keep your eyes peeled for an opportunity to both invest and sell in a marketplace where online business is on the verge of skyrocketing.