MUMBAI -- Online shopping is expanding in India.
Domestic shopping-site operators have been growing in the country, and Amazon.com of the U.S. in 2013 began operating there. It is expected that the market will expand nearly fourfold over the next three years. India's middle-income population is beginning to buy more online, at the expense of bricks-and-mortar retail. Meanwhile, the introduction of foreign general merchandise stores, such as supermarkets, to India has been prevented by a public demanding protection for mom-and-pop retailers.
The biggest-ever merger in India's online-shopping market took place in May. Flipkart, the nation's biggest online retailer with some 18 million members, announced it will acquire rival Myntra. The acquired company has an edge in clothing sales, and about 8 million members. It is estimated that Flipkart bought Myntra for $300 million.
A Flipkart executive said the company believes online sales of fashion will grow, and that Myntra's know-how will be valuable in the coming months. The merger shows the momentum building up in Indian online shopping.
Flipkart and other local online retailers began doing businesses in the second half of the 2000s. The market's growth significantly accelerated in the last few years. According to research firm Crisil, the country's online sales in fiscal 2012, which ended March 2013, totaled 139 billion rupee ($2.54 billion). Sales are estimated to grow 260% to 500 billion rupee in fiscal 2015. The market since 2008 has been growing by an average of more than 50% every year, amid sluggish personal spending.
Online retailers have attracted middle-income consumers through innovations, while bricks-and-mortar stores have stagnated. The Indian government in 2012 lifted its ban on foreign investment in Indian general merchandise stores, which include supermarkets and convenience stores. At first, Wal-Mart Stores of the U.S. and other retailers run by multinational companies were expected to enter the Indian market. However, there are still no general merchandise stores operated by overseas companies in the country. Tesco of the U.K. is only company with concrete plans to open shops in India. That is partially because of the population's support of kirana, or mom-and-pop stores. Moreover, even after the government loosened the regulations, overseas companies were obligated to procure certain products from local businesses. Strict requirements such as this one are keeping overseas companies out of India.
The government of the Bharatiya Janata Party, which was formed in May, has opposed the entry by overseas retailers since it was in opposition. It has not changed its stance in power. Small retailers are influential in part because they support local employment. Because of that, governments are generally sensitive in dealings with small shop operators.
"Kirana is basis of our lives," said a Mumbai resident in his 30s. "Even if I am short of money, it does not matter, because those shops sell food and daily items in small units." The man also said he could get a tab at his local store if he was short of money before pay day. All except the wealthiest in India use kirana. Because of that, "modern retail shops," including supermarkets and convenience stores, have struggled to make ground.
Regulations also apply to online retailers. For instance, foreign players are not allowed to sell products directly to consumers. Amazon and eBay operate in the country as intermediaries, selling the products of domestic retailers and individuals. The new government, led by Prime Minister Narendra Modi, appears to be considering easing regulations on overseas online-shop operators.