Impact of Demonetization: The projected growth of Indian e-commerce declined to 55.5% for 2016

New Delhi: Four months after forecasting 75 percent growth in Indian e-commerce in calendar year 2016, eMarketer, a US market research firm, on Tuesday lowered its forecast to 55.5%, or about $16 billion, citing the impact of demonetization on order volumes .

While orders will increase in the long run due to increased adoption of cashless payment methods, online retailers including Amazon India, Flipkart and Snapdeal are expected to miss their targets for the current fiscal year, eMarketer said in a report on Tuesday.

“This new system will mean more people use traditional banking services such as credit cards, which is a key enabler for consumers to make purchases online, but it will take time for these kinds of social changes to take effect, so our forecasts for the coming years are still lower than previous estimates,” said eMarketer director Monica Peart in the report.

Like many other sectors, the ongoing cash crisis has impacted online shopping. To cope with the rising number of canceled orders, leading e-commerce companies have had to limit or suspend payments via cash on delivery, the most preferred form of payment, Mint reported on November 10.

Typically, about 70% of all e-commerce orders are paid for in cash, according to research and consulting firm Redseer Management. This has changed drastically after demonetization and will impact the e-commerce business in India, where a large section of the population still does not have access to banking services, eMarketer said.

The researcher also lowered its forecast for 2020 from $79.41 billion estimated in August to $47.45 billion.

E-commerce companies are already facing declining growth and fierce competition in key markets and segments.

The expected decline in volumes may also worry Flipkart, which, as Mint reported in October, is planning to raise funds.

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According to eMarketer, Amazon India is likely to take the lead, mainly due to the sector’s greater purchasing power.

“Amazon India appears to be able to extract share from other players, in part because it has the deep pockets to support the heavy discounting and returns costs that are a common feature of emerging e-commerce markets,” Peart said.

Mint had reported on November 29 and December 2 that Flipkart faced two valuation cuts: first from a Morgan Stanley-led investment fund and later from US investment firm Vanguard Group.