Demonetization Might Shake the Business Growth of E-Commerce Giant Amazon in India

While India still dawdling at the nascent stage for E-Commerce market, the recent ban on old currencies of Rs. 500 and 1000 has put a huge barricade on the business growth of Amazon.

The company believes that although India is still in the nascent stage there is a huge growth potentials for e-commerce market. India is also one of the key growth countries for the company. Some experts and economists believe that this recent economic crash due to demonetization might put the company in trouble and also to many other small businesses. In India 95 per cent of transactions are still done in cash, and this bold move to eliminate “black” money and craft a cashless society has created hullabaloos among the citizens.

According to Forbes and Ambit Capital, a research company in India, has revised its FY18 GDP growth estimate to 5.8% as opposed to the 7.3% figure earlier. The cash crunch has impacted business of several industries and can have a significant impact on the “Cash on Delivery” model of e-commerce companies in India. About 70% of online shoppers in India, including those on Amazon’s platform, opt for cash while buying a product. Cash payments are more frequent for high value products where the unaccounted “black” money is spent on luxuries. According to Forrester Research, the shortage of cash will fetch the CoD share of e-commerce sales diminish immensely and escalate the digital payment system.

In spite of this heavy economic downturn Amazon on yesterday explained to Economic Times that this business disruption is a short-term impact, but then they are back on the track to "triple digit growth rate", with ten-fold jump in consumers choosing for e-payment at their doorsteps.

No ‘CoD’ can be Fruitful for the Future

According to Forbes and Forrester, 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 including Amazon 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 primary aim of implementing demonetization is to curb out black money, make the economy and inflation stronger, and most importantly wipe out complete parallel cash economy that is mostly untaxed. But this move can massively affect the GDP for now, while the government still believe that it will have positive long term significances. Large businessman are saying that multinational e-commerce company like Amazon, which is already equipped with strong digital wallet payment system should eliminate the agonizing CoD delivery option. But middle class and semi middle class people are completely against this move as they think it will be more costly to them. Nonetheless, in the coming few months, Amazon is expected to observe a deterioration in GMV from India till the economy adjusts.