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Affect of Demonetization on E-commerce

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Volume - 6 | Issue - 4 | January - 2017

AFFECT OF DEMONETIZATION ON
E-COMMERCE
P. Phani Bhaskar1 and D. Prasanna Kumar2
1
Research Scholar , Department of Management,
KL University, Vaddeswaram, Guntur District,
AP, India.
2
Associate Professor , Department of Management,
KL University, Vaddeswaram, Guntur District,
AP, India.

ABSTRACT:

I ndia had an internet user base of about 365 million as

of June 2016 and is expected to cross 500 million by the
end of 2016. Despite being the second-largest user
base in world, only behind China (650 million, 48% of
population), the penetration of e-commerce is low
compared to markets like the U.S (266 million, 84%), or
France (54 M, 81%), but is growing at an unprecedented
rate, adding around 6 million new entrants every month.
The industry consensus is that growth is at an inflection
point. In India, cash on delivery is the most preferred
payment method, accumulating 75% of the e-retail
activities. Demand for international consumer products
(including long tail items) is growing much faster than in-
country supply from authorized distributors and e-
commerce offerings. In 2015, the largest e-commerce
companies in India were Flip kart, Amazon and Snap deal.
This paper will give the scenario of present and future of e-

commerce business taking consideration of demonetization in country.

KEYWORDS: E-Commerce, Demonetization

INTRODUCTION:
India's e-commerce market was worth about $3.9 billion in 2009, it went up to $12.6 billion in 2013. The
e-retail segment was worth US$2.3 billion, about 70% of India's e-commerce market is travel related. According
to Google India, there were 35 million online shoppers in India in 2014 Q1 and is expected to cross 100 million
mark by end of year 2016. CAGR vis-à-vis a global growth rate of 8–10%. Electronics and Apparel are the biggest
categories in terms of sales. According to a study conducted by the IMAI the e-commerce sector is estimated to
reach Rs. 211,005 crore by December 2016. The study also stated that online travel accounts for 61% of the e-
commerce market. By 2020, India is expected to generate $100 billion online retail revenue out of which $35
billion will be through fashion e-commerce. Online apparel sales are set to grow four times in coming years.

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AFFECT OF DEMONETIZATION ON E-COMMERCE Volume - 6 | Issue - 4 | January - 2017

India's retail market is estimated at $470 billion in 2011 and is expected to grow to $675 by 2016 and $850 billion
by 2020, – estimated CAGR of 10%. According to Forrester, the e-commerce market in India is set to grow the
fastest within the Asia-Pacific Region at a CAGR of over 57% between 2012–16. As per "India Goes Digital", a
report by Avendus Capital, the Indian e-commerce market is estimated at Rs 28,500 Crore ($6.3 billion) for the
year 2011. Online travel constitutes a sizable portion (87%) of this market today. Online travel market in India is
expected to grow at a rate of 22% over the next 4 years and reach Rs 54,800 crore ($12.2 billion) in size by 2015.
Indian e-tailing industry is estimated at Rs 3,600 crore (US$800 million) in 2011 and estimated to grow to Rs
53,000 crore ($11.8 billion) in 2015.
Overall e-commerce market is expected to reach Rs 1,07,800 crores (US$24 billion) by the year 2015 with
both online travel and e-tailing contributing equally. Another big segment in e-commerce is mobile/DTH
recharge with nearly 1 million transactions daily by operator websites. A new sector in e-commerce is online
medicine, selling complementary and alternative medicine or prescription medicine online. There are no
dedicated online pharmacy laws in India and it is permissible to sell prescription medicine online with a
legitimate license. Online sales of luxury products like jewellery also increased over the years. Most of the retail
brands have also started entering into the market and they expect at least 20% sales through online in next 2–3
years.

LITERATURE REVIEW:
Electronic commerce, commonly written as e-commerce or ecommerce, is the trading or facilitation of
trading in products or services using computer networks, such as the internet or online social networks
Electronic commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain
management, internet marketing, online transaction processing, electronic data interchange (EDI), inventory
management system and automated data collection systems. Modern electronic commerce typically uses the
world wide web for at least one part of the transaction's life cycle although it may also use other technologies
such as e-mail.
E-commerce businesses may employ some or all of the following:
• Online shopping web sites for retail sales direct to consumers
• Providing or participating in online market places, which process third-party business-to-consumer or
consumer-to-consumer sales
• Business to business buying and selling
• Gathering and using demographic data through web contacts and social media
• Business-to-business (B2B) electronic data interchange
• Marketing to prospective and established customers by e-mail or fax (for example, with news letters)
• Engaging in pretail for launching new products and services
• Online financial exchanges for currency exchanges or trading purposes
Global trends
In 2010, the United Kingdom had the biggest e-commerce market in the world when measured by the
amount spent per capita as of 2013, the Czech Republic was the European country where ecommerce delivers
the biggest contribution to the enterprises´ total revenue. Almost a quarter (24%) of the country’s total turnover
is generated via the online channel Among emerging economies, China's e-commerce presence continues to
expand every year. With 668 million internet users, China's online shopping sales reached $253 billion in the first
half of 2015, accounting for 10% of total Chinese consumer retail sales in the same period. The Chinese retailers
have been able to help consumers feel more comfortable shopping online. E-commerce transactions between
China and other countries increased 32% to 2.3 trillion yuan ($375.8 billion) in 2012 and accounted for 9.6% of
China's total international trade In 2013, Alibaba had an e-commerce market share of 80% in China In 2014, there
were 600 million Internet users in China (twice as many than in the US), making it the world's biggest online
market. China is also the largest e-commerce market in the world by value of sales, with an estimated US$899
billion in 2016.

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AFFECT OF DEMONETIZATION ON E-COMMERCE Volume - 6 | Issue - 4 | January - 2017

IMPACT ON SUPPLY CHAIN MANAGEMENT

For a long time, companies had been troubled by the gap between the benefits which supply chain
technology has and the solutions to deliver those benefits. However, the emergence of e-commerce has
provided a more practical and effective way of delivering the benefits of the new supply chain technologies. E-
commerce has the capability to integrate all inter-company and intra-company functions, meaning that the
three flows (physical flow, financial flow and information flow) of the supply chain could be also affected by e-
commerce. The affections on physical flows improved the way of product and inventory movement level for
companies. For the information flows, e-commerce optimized the capacity of information processing than
companies used to have, and for the financial flows, e-commerce allows companies to have more efficient
payment and settlement solutions.
In addition, e-commerce has a more sophisticated level of impact on supply chains: Firstly, the
performance gap will be eliminated since companies can identify gaps between different levels of supply chains
by electronic means of solutions; Secondly, as a result of e-commerce emergence, new capabilities such
implementing ERP systems, like SAP ERP, have helped companies to manage operations with customers and
suppliers. Yet these new capabilities are still not fully exploited. Thirdly, technology companies would keep
investing on new e-commerce software solutions as they are expecting investment return. Fourthly, e-
commerce would help to solve many aspects of issues that companies may feel difficult to cope with, such as
political barriers or cross-country changes. Finally, e-commerce provides companies a more efficient and
effective way to collaborate with each other within the supply chain.
The social impact of e-commerce
Along with the e-commerce and its unique charm that has appeared gradually, virtual enterprise, virtual
bank, network marketing, online shopping, payment and advertising, such this new vocabulary which is
unheard-of and now has become as familiar to people. This reflects that the e-commerce has huge impact on the
economy and society from the other side. For instance, B2B is a rapidly growing business in the world that leads
to lower cost and then improves the economic efficiency and also bring along the growth of employment.
To understand how the e-commerce has affected the society and economy,
1. The e-commerce has changed the relative importance of time, but as the pillars of indicator of the country’s
economic state that the importance of time should not be ignored.
2. The e-commerce offers the consumer or enterprise various information they need, making information into
total transparency, will force enterprise no longer is able to use the mode of space or advertisement to raise their
competitive edge.[ Moreover, in theory, perfect competition between the consumer sovereignty and industry
will maximize social welfare.
3. In fact, during the economic activity in the past, large enterprise frequently has advantage of information
resource, and thus at the expense of consumers. Nowadays, the transparent and real-time information protects
the rights of consumers, because the consumers can use internet to pick out the portfolio to the benefit of
themselves. The competitiveness of enterprises will be much more obvious than before, consequently, social
welfare would be improved by the development of the e-commerce.
4. Online merchants gather purchase activity and interests of their customers. This information is being used by
the online marketers to promote relevant products and services. This creates an extra convenience for the online
shoppers.
5. Online merchandise is searchable, which makes it more accessible to the shoppers. Many online retailers offer
a review mechanism, which helps shoppers decide on the product to purchase. This is another convenience and
a satisfaction improvement factor.
Various factors have been driving this trend, such as:
• Declining broadband subscription prices
• Launch of 3G services leading to an ever-increasing number of “netizens”
• Urban India’s changing lifestyle
• Convenience of online shopping
• Changes in the supporting ecosystem
• Growing acceptability of online payments
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AFFECT OF DEMONETIZATION ON E-COMMERCE Volume - 6 | Issue - 4 | January - 2017

• Proliferation of internet-enabled devices

• Favorable demographics

OBJECTIVE OF THE STUDY:

1)To know the present situation of e-commerce in India.
2) How the demonetization help the e-commerce in future.

METHODOLOGY:
This paper is fully done by secondary data, collected from sources like Research agencies, websites and
news papers. The main purpose of this is to give a glance of Demonetization and its effects on e-commerce.

FINDINGS:
Despite the impressive numbers, skepticism around e-commerce is still alive –and for good reason. The
Indian e-commerce industry is still far from making profit. In fact, Flipkart was devalued by 27 percent by Morgan
Stanley and later another 15 percent by T Rowe Price recently. They are valued at less than $10 billion, from $15
billion in 2015. A few weeks ago, online restaurant discover platform Zomato was devalued by 50 percent, to
$500 million, by HSBC. As much as these companies say there is no funding crunch, it is an open secret that most
biggies are struggling. A Live mint report recently stated that Flip kart and Snap deal in fact are stagnant and
seeing a fall in sales. The latter is also scaling down regional operations now. India is a massive E-Commerce
marketplace now with every age group comfortably transacting online – more often preferring shopping online
instead of visiting offline stores for a bigger gamut of choices and offers. The West shops online 10X more than
India, but then India has the world’s 2nd largest number of smart phones and growing
E-Commerce industry is growing at an astounding rate in India and is expected to account for 1.61% of
the global GDP by 2018. The Asia-Pacific region is currently the largest E-Commerce market in the world,
surpassing Europe. While China continues to lead the race, the Indian E-Commerce Industry isn’t far behind.
According to a report by Forrester, India is set to become the fastest growing market in the Asia-Pacific region
with an expected growth rate of over 57% between 2012-2016. To better understand the Indian market, 100+
retailer clients, through 1.4+ million purchases, from over 2+ million transactions. A first of its kind in India, this
study is unique in its findings about the booming Indian E-Commerce industry. Online marketers of every size are
benefiting from these findings.

Figure: 1 Latest study by the Internet and Mobile Association of India (IAMAI)

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AFFECT OF DEMONETIZATION ON E-COMMERCE Volume - 6 | Issue - 4 | January - 2017

DEMONETIZATION:
The goal of the demonetization move in India is to make the economy stronger and eliminate the parallel
cash economy which is unaccounted and untaxed. While this can impact the GDP negatively in the short term, it
should have positive long term consequences. For e-commerce companies, which already have a digital
payments system in place, it should lead to higher online payment and eventually eliminate the painful cash on
delivery option. However, in the short term, witness a decline in GMV from India as the economy adjusts to the
“new normal”.

REDUCTION IN CASH ON DELIVERY:

COD is considered as a necessary evil in the Indian e-commerce market. While it boosts sales of online
companies, it obstructs their cash flows and makes it difficult to scale operations. There are several additional
costs involved with this payment method and the risk of returns and thefts with this form of payment are higher.
The recent government push towards a cashless economy will encourage more online payments and reduce the
total share of COD in e-commerce sales from the current high of nearly 80% of total transactions. This should
help e-commerce companies to reduce overhead costs and other risks associated with the COD model. However,
in a region where a small section of the population owns credit or debit cards (12% according to a 2014 report), a
shift towards a digital payments will be difficult and can impact revenues significantly in the short term.
The present situation in India is the accurate flat form for the development of e-commerce or online
business. Demonetization leads to people make use of net banking for their day today life. This is the good
opportunity for the e-commerce companies to make themselves more loyal to customers whether the
transaction is small or big. Creation of trust in customer is very difficult in today’s business, once he get satisfied
with the goods and services provided by the company starting from the order booking to safe and accurate
delivery customer will get or become loyal to that. In one way the government is also encourage the public to use
net banking by way of doing the online transactions more in day today life. Telecom sector is now has to
concentrate the rural area more to get use of online sale or purchases, simultaneously the banking systems to
provide the net banking facilities to rural people to get touch with the latest technology of online banking or
marketing.
India’s e-Commerce ecosystem
Pros
• Annual disposable income per household to grow by two-and-a-half times by 2015
• Discretionary spending expected to form a major portion of expenditure in India
• Proliferation expected in the sales of PCs, tablets and smart phones
• More Indians increasing time spent online
• Probability of growth in internet user base, mirroring that of the voice user base
• Volume and average value of transactions higher for credit cards than debit cards
• Increase in the number of payment options
Cons
• Low average broadband speed and flat average internet speed cause for concern
• Online payment landscape marred by low penetration of credit and debit cards
• High failure rate of online payment transactions

CHALLENGES FOR THE E-COMMERCE

The phenomenal growth of the e-Commerce sector is accompanied by certain challenges:
• Absence of e-Commerce laws
• Low entry barriers leading to reduced competitive advantages
• Rapidly changing business models
• Urban phenomenon
• Shortage of manpower
• Customer loyalty

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AFFECT OF DEMONETIZATION ON E-COMMERCE Volume - 6 | Issue - 4 | January - 2017

Opportunities for the e-commerce.

• Reduction of money transactions in all sectors.
• Improvement of Net banking facilities across the country.
• Implementation of demonetization policy.
• Government policies on banking and financial sectors.
Now the point will come and stop at the situation how the government will solve the problem and
implement the proper system to regulate the country economy and social life of people. Using of net banking and
doing online transaction through internet and mobiles is not difficult for students or who have some minimum
knowledge of doing transactions. Coming to point of rural area in which 83.3 crore people are staying and only
37.7 crore are in urban, facilities which reach the rural area is less compare to urban area where the population is
less than the half of rural population. Government should think of telecommunications and banking sectors to
invest the funds to reach the maximum people.
Banking sector should create the awareness of using internet banking and ATM’s to get use of service
across the country where ever they travel and minimize the high failures of online transactions. After the
confirmation of order the e-commerce companies should think of proper delivery of goods with accurate
tracking system for that we should set up a tracking order system from order to delivery. It will leads to customer
satisfaction then the consumer trust the product or services offer by the company, after regular purchases he will
become loyal to particular brand or product/ company.

CONCLUSION:
E-commerce is not a new industry, technically speaking, but it is creating a new economic model. Most
people agree that e-commerce will positively impact economic society in the future, but in its early stages its
impacts are difficult to gauge. Some have noted that e-commerce is a sort of incorporeal revolution. E-commerce
has numerous social benefits: one, the cost of running an e-commerce business is very low when compared with
running a physical store; two, there is no rent to pay on expensive premises; and three, business processes are
simplified and less man-hours are required to run a typical business smoothly. In the area of law, education,
culture and also policy, e-commerce will continue to rise in impact. E-commerce will truly take human beings into
the information society.
Demonetization will help the e-commerce industry and insist or encourage the people to use more cash
less transactions in day to day life, so that the people need not carry the money in currency form for any
purchases like Hair oil to shoe from Head to legs of human needs. This will helps the banking sector to expand the
business to rural areas quickly and do the more business to reach the general public for their regular activities.
Lower inflation, lower interest rates and lower budget deficits are likely to be the long term positive
macroeconomic effects of the move, which should stimulate economic growth and benefit businesses in the
region. However, as the country undergoes this huge transformation from a cash dominant economy to a near
cashless economy. This move will definitely bring about a sea of change in the way transactions are done in India.
And help strengthen the economy by wiping out black money and fake notes. While e-commerce companies that
see a huge chunk of payments happening through Cash on Delivery mode will face some challenges in the initial
few days, in the long run this move will only bring about positive changes.

REFERENCES:
E-commerce
www.google.com
Internet and Mobile Association of India (IAMAI)

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