Building on favourable policies and regulations, improving affordability, expanding urbanization, and growing awareness, e-commerce has recorded rapid growth in the last few years in India. Steady growth in the Indian economy along with the promises of a 1.3-billion-strong consumer market has attracted the largest global e-commerce players to set up shop and expand business in India. E-commerce has offered access to a vast and previously-untapped market, leading to high-margin opportunities. The e-commerce space has attracted special significance amid the challenges of COVID-19 that has led to a rise in related investments and other activities. Before the pandemic, India’s e-commerce market was expected to grow to US$200 billion by 2026 from US$38.5 billion as of 2017. This is now expected to gain further strength.
Much of the growth for the Indian e-commerce sector has been triggered by an increase in internet and smartphone penetration. India currently has the world’s second-largest telecom market, one with the cheapest mobile data costs. Driven by the Government of India’s initiatives to digitise essential services, both governmental and otherwise, India’s total internet user base is expected to increase to 829 million by 2021 from 636.73 million in 2019. India’s internet economy is expected to double from US$125 billion in April 2017 to US$250 billion by 2020, backed primarily by e-commerce. Social distancing regulations for the pandemic will be a driving force in the growth. India’s e-commerce revenue is expected to jump from US$39 billion (2017) to US$120 billion (2020), growing at a rate of 51 per cent, the world’s highest.
As an enabler of Indian businesses of all sizes, e-commerce can help return India to its pre-COVID-19 growth trajectory.
E-commerce Sector Strengths
- India ranked No. 2 in the Global Retail Development Index (GRDI) in 2019. Retail is India’s largest industry, accounting for 10 per cent of the GDP and 8 per cent of total employment.
- India is expected to become the world’s third-largest consumer economy by 2025. Meanwhile, consumption expenditure is expected to increase by a factor of 3 to reach US$4 trillion.
- 100 per cent FDI is allowed under the automatic route in B2B e-commerce activities. FDI equity inflow worth US$2.1 billion reported by the retail sector, besides recent large M&As.
- A middle-class population of 600 million people and growing, India is also expected to have over 650 million smartphone users by 2020 and over 530 million online shoppers by 2025.
- India’s e-commerce market is set to grow at a CAGR of 30 per cent for gross merchandise value to be worth US$200 billion by 2026. Overall Retail market of US$1.75 trillion by 2026.
- Online buyers to be 350 million by 2025 from the existing 90 million, with digital spending projected to increase over 10X to US$550 billion & account for 35 per cent of all retail sales by 2025.
- Rural per capita consumption is expected to grow 4.3 times by 2030, compared with 3.5 times in urban areas. This is a major enabler as rural India offers untapped growth opportunities.
- Online retail sales in India are expected to grow 31 per cent to touch US$32.7 billion in 2018, led by Flipkart, Amazon India, and Paytm Mall among numerous other e-commerce platforms.
- Smartphone shipments in India increased 8 per cent y-o-y to reach 152.5 million units in 2019, thereby making it the fastest among the top 20 smartphone markets in the world.
- On the back of growing smartphone uptake and internet usage, the Indian mobile commerce market will expand at a CAGR of 31.2 per cent to reach a value of US$49.8 billion by 2021.
- Internet penetration in India grew from just 4 per cent in 2007 to more than 52 per cent in 2019, registering a CAGR of 24 per cent. 829 million internet users expected in India by 2021.
- Government e-Marketplace, set up in 2016, has over 731,430 product categories, with 180,860 registered sellers, over 32,110 government buyers, and over US$2.4 billion in processed GVA.
E-commerce Sector Policies
Draft National e-Commerce Policy
In February 2019, the Government of India released the Draft National e-Commerce Policy which aims to boost FDI in the marketplace model of e-commerce. The draft policy made recommendations related to the data protection framework and the protection of privacy in the digital environment.
FDI Guidelines in e-Commerce 2018
To increase the participation of foreign players in e-commerce, the Indian Government hiked the limit of FDI in the e-commerce marketplace model to up to 100 per cent (in B2B models) under the automatic route.
The Consumer Protection Act 2019
The Act protects the interests of consumers and for that purpose, seeks to establish authorities for timely and effective administration and settlement of consumers’ disputes.
The Consumer Protection (e-Commerce) Rules, 2019
Rules guiding e-commerce entities currently carrying out or intending to carry out business in India.
Recent Sector Developments
- In January 2020, Divine Solitaires launched its e-commerce platform.
- In February 2020, Flipkart set up a ‘Furniture Experience Center’ in Kolkata, its first offline presence in eastern India.
- In March 2020, Unified Payments Interface (UPI) recorded 1.25 billion transactions valued at Rs.2.1 trillion (US$29.2 billion).
- In the largest FDI deal in the Indian technology and telecom sector, Facebook invested US$5.7 billion for a 9.99 per cent stake in Jio Platforms, a unit of Reliance Industries.
- In April 2020, Reliance Industries (RIL) started home delivery of essentials in partnership with local Kirana stores in Navi Mumbai, Thane, and Kalyan.
- In April 2020, Swiggy received an additional US$43 million funding as part of its ongoing Series I round.
- In May 2020, PepsiCo India partnered with Dunzo for its snack food brands that include Lay’s, Kurkure, Doritos, and Quaker.
- In May 2020, chocolate maker Hershey India partnered with Swiggy and Dunzo to launch their flagship online store to increase reach.
- In Union Budget 2020-21, the Government allocated Rs.80 billion (US$1.1 billion) to BharatNet Project to provide broadband services to 150,000-gram panchayats.
- In August 2019, Amazon acquired a 49 per cent stake in a unit of Future Group.
- In September 2019, PhonePe launched the super-app platform ‘Switch’ to provide a one-stop solution for customers integrating several other merchants’ apps.
- In November 2019, Nykaa opened its 55th offline store marking success in tier II, tier III cities.
- Amazon plans to invest US$1 billion in India over the next five years to digitally enable micro, small, and medium enterprises (MSMEs) and traders across India.
As an enabler of Indian businesses of all sizes as well as a driving force for foreign investment and trade along with the creation of new employment, e-commerce can help return India to its pre-COVID-19 growth trajectory. Herein, the Government of India’s policies will be a favourable factor in the sector’s growth.