Online transactions not growing fast enough

Despite having over 400 million Internet users in India, the truth is only about 10 per cent of them transact online

Hyperlocal deals marketplace Little, which raised $50 million in funding, last July planned to expand its base beyond the 11 cities it was present in, bringing on board 50,000 merchants, and expanding its team to 1,000 people by March 2016.

Today, Little is far from hitting those targets. While the company has gained traction with customers, it has not expanded beyond 11 cities, employs 400 people, and has 15,000 merchants on its platform.

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Little’s growth has a lot to do with what is fundamentally wrong with India’s online ecosystem.

“The market is not large yet. Eight months ago the scale of what we believed to be the 4G rollout was different. Transacting users are half the number of what it should have been,” said Manish Chopra, co-founder and CEO of Little.

In March 2014, Accel Partners, one of the leading venture capital firms in India, projected that the country’s online shopper base would double to 40 million by 2016. That number is far from being realised and it is hurting Internet companies, including giants like Flipkart.

Of the 400 million Internet users in India only 10 per cent transact online. Investors pumped in over $5 billion in 2015 eyeing a growing Internet user base, but e-tailers have struggled to turn them into paying customers.

“Internet penetration, good quality broadband, is not scaling much beyond the big cities yet,” added Chopra.

"The uptake is slow because Internet connectivity is really patchy," said Nilotpal Chakravarti, associate vice-president, Internet and Mobile Association Of India. "Once you reach the gateway, the transaction fails. What do you do then?" he added.

Experts point out the spending power of India’s middle class has been overestimated.  “Levis after 20 years sells fewer jeans in India than it does in Australia. Earlier, this miscalculation of the size of India’s middle class caused pain to foreign consumer companies. In this cycle, the late-stage private equity funds are likely to pay the price,” said an expert who works with start-ups.