India Market Watch: E-Commerce Companies Expand Services, Aviation Sector Soars, Exports Continue to Decline

March 21, 2016 Posted by India Briefing Reading Time: 5 minutes

E-commerce Companies Expand to On-Demand Services

The e-commerce industry in India has identified on-demand services like installation, servicing, and after-sales services as key to improving the online shopping experience. This is particularly relevant for categories like large appliances and furniture that may require additional services like setting up, repair, and maintenance. Such services are easily accessible to customers when buying from brick and mortar stores, and online portals are catching up to the lucrative market.

Different strategies have been adopted to this end. While e-commerce companies Snapdeal, Pepperfry, Paytm, and Quikr have established partnerships with on-demand service platforms, Amazon and Flipkart have instead made targeted investments. Global bigwig Amazon invested US $226,176 (Rs 150 crore) in services start-up Housejoy in 2015, and Indian e-commerce leader Flipkart acquired a stake in the appliances installation service provider Jeeves. Paytm, which has been backed by Chinese e-commerce giant Alibaba, acquired services marketplace Near.in.

These business-to-business relationships have also boosted the revenues of online services start-ups such as LocalOye, Timesaverz, Handymen, and EasyFix. Customized services is next on the agenda as e-commerce companies continue to fight for a larger consumer base in the fiercely competitive market.

RELATED: Pre-Investment Services from Dezan Shira & Associates

India’s Aviation Market Ninth Largest

India has the ninth-largest civil aviation market in the world with a market size of around US $16 billion. International passenger traffic grew by 7.6 percent from April 2015 to January this year to reach 45.4 million. Domestic passengers grew by 20.6 percent over the same period to touch 138.8 million passengers. New policy initiatives now seek to make India the third-largest civil aviation market by 2020 and the largest by 2030.

The strong growth in the aviation industry comes from India’s strong demand-side economics, such as the ever-growing consumer population and rising disposable incomes. This has been assisted by expanding foreign direct investment (FDI), strong bilateral trade prospects with Canada and the US for aviation development, and falling oil prices. However, supply-side problems continue to hinder efficiency and serious reforms are needed to make doing business in this sector more competitive. For instance, the repeated excise tax hikes on ATF (jet fuel) are often challenged in the parliament but remain some of the highest in the world. Similarly, the 5/20 rule, which stipulates that a domestic carrier can only engage in international operations by having at least five years’ worth of operating experience and a fleet of at least 20 aircrafts exists only in India further hampering the industry.

The aviation industry, which is a key transport medium of commerce, is one that can have a multiplier effect on India’s growth and productivity. Diligent policymaking and a greater ease of doing business is required to convert this potential.

RELATED: India’s Economic Initiatives: A Magnet for Investments

India’s Exports Continue to Decline amid Subdued Global Demand

Indian exports declined for the 15^th straight month to reach 5.6 percent year on year in February. From April 2015 to February 2016, exports were US $238.4 billion as compared to US $286.3 billion over the same period in the previous year. Some respite comes from the fact that this is the slowest decline since December 2014 when exports fell by 3.77 percent. However, services exports also dropped, by 12 percent, to reach US $12.5 billion in January (the third monthly drop). Despite these figures, the overall deficit improved due to the decline in India’s imports.

Of the top 30 export sectors, 14 sectors grew in February, including gems and jewelry (11.2%), pharmaceuticals (8.8%), and chemicals (4.5%). Exports that registered a decline include engineering goods (-11.2%), readymade garments (-0.72%), and petroleum products (-28.3%).

India’s exports have suffered from a prolonged slowdown in global markets and weakening commodity prices. The Indian services sector has additionally faced increased competition from countries like the Philippines. The forecast for services export growth has been downgraded from more than 30 percent to a realistic 12 percent in the new fiscal year (April 2016 – March 2017) by industry group National Association of Software and Service Companies (NASSCOM). The International Monetary Fund (IMF) has recommended that India explore research and development as a new high-value category for services exports, and increase the quality and value of manufactured goods to better combat global market conditions.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

Managing Your Accounting and Bookkeeping in India
In this issue of India Briefing Magazine, we spotlight three issues that financial management teams for India should monitor. Firstly, we examine the new Indian Accounting Standards (Ind-AS) system, which is expected to be a boon for foreign companies in India. We then highlight common filing dates for most companies with operations in India, and lastly examine procedures and regulations for remitting profits from India.

Taking Advantage of India’s FDI Reforms
In this edition of India Briefing Magazine, we explore important amendments to India’s foreign investment policy and outline various options for business establishment, including the creation of wholly owned subsidiaries in sectors that permit 100 percent foreign direct investment. We additionally explore several taxes that apply to wholly owned subsidiary companies, and provide an outlook for what investors can expect to see in India this year.

An Introduction to Doing Business in India 2015 (Second Edition)
Doing Business in India 2015 is designed to introduce the fundamentals of investing in India. As such, this comprehensive guide is ideal not only for businesses looking to enter the Indian market, but also for companies who already have a presence here and want to keep up-to-date with the most recent and relevant policy changes. We discuss a range of pertinent issues for foreign businesses, including India’s most recent FDI caps and restrictions, the key taxes applicable to foreign companies, how to conduct a successful audit, and the procedures for obtaining an employment visa.