At first, Kunal Bahl and his high school buddy Rohit Bansal had modest ambitions for their online shopping site, Snapdeal.

Their previous venture – a physical coupon booklet into which they had sunk their combined savings – flopped in just months. And online retail was still a largely unproven endeavour in 2010, particularly in India, a country where most people don't have bank accounts, let alone credit cards to make purchases on the internet.

When an angel investor offered $200,000 as seed money, they only took half and aimed for just 100 transactions a day.

Snapdeal is now on track to handle more than $1 billion in sales this year for over 30,000 merchants across more than 500 categories of goods and services.

“We sell a sari every 12 seconds,” said Bahl.

The rise of Indian e-commerce – which has only started to gain traction in recent years – has captured the attention of international investors.

This year, Snapdeal has raised $233 million, with about half coming from the US internet company, eBay. Bahl said Snapdeal is eyeing an initial public offering within the next year or two.

At least half a dozen other leading Indian shopping sites have announced major fundraising deals over the past few months. On Tuesday, Flipkart, India's largest e-commerce firm, said it had raised $1 billion from investors, including US firms such as Tiger Global and Accel Partners. The amount represents the largest for an Indian internet company, and globally it matches Facebook's fundraising round in February 2011 and ranks only second to Uber's $1.2 billion bonanza this June, according to Thomson Reuters.

"Ecommerce in India is poised to take advantage of larger shifts in society," said Vani Kola, now the managing director of Kalaari Capital and formerly of NEA-IndoUS Ventures, Indian-based venture capital firms that both have invested in Snapdeal. "The whole industry has begun swiftly growing and evolving."

The investment surge reflects the changing landscape in India. Internet access has rapidly expanded, mostly through mobile devices, and Indians are now increasingly shifting daily activity online, like reading the newspaper, doing bank transactions and buying goods and services, from shoes to refrigerators (with installation included).

Billboards, text messages and emails bombard people every day with news of deep online-only discounts and special offers. E-commerce is currently growing at a compound annual rate of 34 per cent, according to the Internet and Mobile Association of India, an industry trade group.

However, online shopping remains a largely untapped market. While estimates of the total worth of India’s online retail industry vary greatly, most analysts figure that it accounts for less than 1 per cent of the country’s $500 billion retail market, which is still mostly cash-driven.

‘Tremendous headroom

’

Comparatively, China’s e-commerce sales are expected to top $180 billion this year, accounting for roughly 9 per cent of the country’s retail, according to iResearch Consulting, which specialises in China’s internet industry. The country’s largest online retailer,

Alibaba

, is expected to go public in the coming months with an estimated value of more than $200 billion.

“There’s tremendous headroom still,” said Bahl. “I think 20 years from now, 20 per cent of retail will be online.”

Looming large over the industry is last year's entrance in India of Amazon. Huge American online retailers such as Amazon and eBay own marketplace platforms here which, like Snapdeal and Flipkart, connect merchants with consumers. But the country's regulations prevent Amazon and other overseas players from selling directly to consumers from their own inventory as they do elsewhere. Currently, foreign investment in multibrand retail is limited to 51 per cent.

There are hints that the system may be changing, at least in the online space.

The current government, led by the Bharatiya Janata Party, is perceived as backing small business owners who fear that opening retail to foreign behemoths will put them out of business. But Narendra Modi, India's new prime minister, recently urged the industry to embrace change at a widely televised rally during his election campaign. "There is no need to fear global challenges," said Modi, adding, "this is the age of online marketing, so accept modern science and make use of it."

Expansion

Amazon in particular stands to benefit from any change to the rules. “Customer loyalty isn’t so strong yet, so it’s conceivable that Amazon would either look to buy big names here, or their expansion might just kill some of the smaller horizontals altogether,” said

Nikhil Pahwa

, the founder and editor of

Medianama

. com, which analyses India’s digital economy. On Monday, Amazon announced that it would open five new fulfilment centres across India to bring its nationwide total to seven.

In a recent email, a spokeswoman for Amazon in India affirmed that the company is in “continual dialogue” with the government and that it strongly supports “opening up this sector” to foreign direct investment.

Snapdeal’s Bahl seems unfazed. “It wouldn’t affect our marketplace,” he said. – ( Copyright New York Times News Service 2014)