Chinese firms moving into India's e-commerce sector

India seen as huge growth market driven by increasing Internet connectivity among youth

China's online travel company Ctrip.com invested US$180 million (S$249 million) in popular Indian online travel company MakeMyTrip in January.

Six months earlier, Chinese e-commerce giant Alibaba Group and its affiliate invested in India's shopping website Snapdeal and online payment firm Paytm in separate deals. The Paytm deal alone was put at US$680 million to US$890 million.

These two deals are part of more than half a dozen investments by Chinese companies into India's e-commerce sector over the last 18 months, in what many analysts believe is growing Chinese interest.

Mr Sandeep Ladda, leader of the technology and e-commerce sector practice at consultants PWC, said: "Chinese investors are looking at globalising and there have been quite a few instances of investments in India. They see India as a big opportunity."

The Chinese typically buy into existing companies to gain a foothold in India, he said. "This is because of several differences in how business works (in India); they would rather rely on existing set-ups."

Investments by Chinese companies into India totalled only US$1.2 billion between April 2000 and September last year partly because of security concerns and political distrust of India caused by a festering border row with China.

India's e-commerce industry is growing fast because of increasing Internet connectivity. The industry is forecast to grow in revenue from US$38 billion this year to US$120 billion by 2020, according to a report by the Associated Chambers of Commerce of India and research outfit Forrester.

This jumped to more than US$2.3 billion between June and August this year alone, according to calculations by CCircle Network, a financial data services group. The new data includes a US$900 million buyout by a Chinese consortium led by Beijing Miteno Communication Technology of advertising tech start-up media.net.

India's e-commerce industry is growing fast because of increasing Internet connectivity. The industry is forecast to grow in revenue from US$38 billion this year to US$120 billion by 2020, according to a report by the Associated Chambers of Commerce of India and research outfit Forrester.

The surge in Internet usage is driven by a young demographic profile. Over 400 million Indians in a population of 1.25 billion are estimated to be online, with 25 million new Internet users added every year.

The injection of funds into India has been spurred by the Modi government, which this year allowed 100 per cent foreign investments in its e-commerce sector, which has already attracted companies such as online retail giant Amazon and Japan's SoftBank, a global Internet and telecommunications company.

Alibaba, which is trying to grow its own business in India, said it saw "tremendous opportunities" here.

"We see the Indian market as a natural progression of our strategy to expand Alibaba's global footprint, and believe that it offers tremendous opportunities for expansion of our ecosystem," Alibaba said in response to a query on its presence in the Indian market.

While mutual political distrust between the two giant Asian neighbours will remain, analysts predict that more Chinese investments will come into India, particularly in e-commerce.

Mr Mrigank Gutgutia, engagement manager at Redseer Consulting, an advisory firm focusing on e-commerce, said: "We see lot of investor interest coming in from China. The Chinese have a lot of capital to spend. India is a relatively new e-commerce market."

Analysts say another boost to India's e-commerce sector is the industry's shake-up since last year that has weeded out the non-performing companies .

Said Mr Gutgutia: "Chinese companies were not willing to commit capital and were waiting for the sector to stabilise and it has happened this year.

"So the next wave of money should be coming in from China."

A version of this article appeared in the print edition of The Straits Times on November 07, 2016, with the headline 'Chinese firms moving into India's e-commerce sector'. Print Edition | Subscribe