India’s e-commerce market has grown just 50 per cent over the last five years – but it is about to take off according to new research.

Although e-commerce has been around in India for 15 years, market conditions are now more conducive to consumer adoption. The considerable rise in the number of internet users, growing acceptability of online payments, the proliferation of internet-enabled devices and favorable demographics are the key factors driving the growth.

In a new report, Ernst & Young said the number of users making online transactions is expected to grow from 11 million in 2011 to 38 million in 2015.

Venture capitalists and private equity players have demonstrated their faith in the growth of e-commerce in the country, demonstrated by a significant increase in total investments – from US$55 million in 2010 to US$305 million in 2011.

Online travel has traditionally been the largest e-commerce sub-sector (by revenue) in India. Nevertheless, online retail is catching up fast and is expected to match online travel revenues by 2015.

To improve margins, online travel players are diversifying their offerings to include hotel reservations, along with the regular ticketing services. Players will need to develop skill sets that are different to the ones required in the ticketing segment. They will have to manage challenges associated with a diverse supplier base, technological constraints, customer experience, authenticity of information and grievance re-dressal.

The online retail segment has evolved and grown significantly over the past few years. Cash-on-delivery has been one of the key growth drivers and accounts for 50 per cent to 80 per cent of online retail sales. Players have adopted new business models including stock-and-sell, consignment and group buying; however, concerns surrounding inventory management, location of warehouses and in-house logistics capabilities are posing teething issues.

Classifieds, the earliest entrant in the e-commerce space in India, is undergoing a shift in operational model from vertical to horizontal offering. Players now offer a gamut of services ranging from buying/selling cars to finding domestic help/babysitter.

To ensure that e-commerce maintains the steam that it has gained in recent years, the government needs to focus on the regulatory front. Unlike many other countries, India still does not have dedicated e-commerce laws.

The sales tax laws need to be revised, as they are posing issues for online retailers when they decide warehouse location.