NEW DELHI • India is shaping up to become the next big e-commerce battleground for global players from Alibaba and Amazon to local champions Flipkart and Snapdeal.
Despite concerns that industry valuations may be ahead of reality, with a Morgan Stanley fund writing down its Flipkart stake by more than a quarter, the lure is a US$25 billion (S$34 billion) market growing at up to 40 per cent annually that is still considered virgin territory. A historic rate of first-time smartphone usage and under-developed logistics and payments render the industry ripe for investment.
India's attraction is growing also because China and the United States have been staked out by a handful of operators. The country draws frequent comparisons to China, that other vast Asian market that in the past decade learnt the ropes of online commerce and welcomed foreign investors.
Yet eBay pulled out after taking a drubbing from Alibaba, while Amazon has struggled to make headway. Contrast that with India, where the US leader ranks No. 3 and Alibaba is a major investor in both Snapdeal and rising payments provider Paytm Mobile Solutions.
"India is the last big thing in e-commerce," said Mr Nandan Nilekani, the billionaire co-founder of IT services firm Infosys and an active start-up investor. China created indigenous companies in most spaces and blocked US firms, yet the Chinese themselves have not been successful in the US, he added.
"Now, both Chinese firms such as Alibaba and American players like Amazon see India's open market as a huge opportunity."
But the playing field is not exactly level. India caps foreign ownership of retailers selling multiple brands at 51 per cent - forcing them to take local partners - and only last year relaxed curbs on single-brand retail to allow firms like Apple to open stores. Taxes on goods and services vary from region to region.
But Prime Minister Narendra Modi has pledged to be more open to foreign investment and untangle byzantine regulations. And India is open compared with China, said Mr Mahesh Murthy, co-founder of early-stage investor Seedfund.
"About 50 per cent of India's Internet economy is made up of Google, Amazon and Facebook," he said. "We have an open economy where Indians, Chinese and Americans can all go head-to-head."
India is mobile-led and often mobile-only. Chennai-based company Uniphore's Indian-language speech recognition software is helping payment providers reach the farthest corners of a country that transacts business in dozens of languages.
"The e-commerce landscape will grow five or six times in the next few years. Who's going to capture it?" Mr Nilekani pointed out.