The Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second largest E-commerce market in the world by 2034. The E-commerce market is expected to reach Rs 13,97,800 crore (US$ 200 billion) by 2027 from Rs 2,69,076.5 crore (US$ 38.5 billion) in 2017, supported by rising income and surge in internet users. Online shoppers in India reached 120 million in 2018 and are expected to reach 220 million by 2025. Online retailers deliver to 15,000-20,000 pin codes out of nearly 100,000 pin codes in the country. In 2019, it was estimated that one in every three Indian shopped via a smartphone.
Much of the growth in the industry has been triggered by increasing internet and smartphone penetration. By 2022, smartphone users are expected to reach 859 million, whereas, E-commerce sector is expected to grow 1,200 per cent by 2026. Smartphone shipments in India increased 8 per cent y-o-y to reach 152.5 million units in 2019, thereby making it the fastest growing market among the top 20 smartphone markets in the world.
Internet penetration in India grew from just 4 per cent in 2007 to 52.08 per cent in 2019, registering a CAGR of 24 per cent between 2007 and 2019. The number of internet users in India is expected to increase from 687.62 million as of September 2019 to 829 million by 2021.
A young demographic profile, rising internet penetration and relative better economic performance are the key drivers of this sector. The Government of India's policies and regulatory frameworks such as 100 per cent Foreign Direct Investment (FDI) in B2B E-commerce and 100 per cent FDI under automatic route under the marketplace model of B2C E-commerce are expected to further propel growth in the sector. As per the new FDI policy, online entities through foreign investment cannot offer the products which are sold by retailers in which they hold equity stake.
In February 2019, the Government released the Draft National E-Commerce Policy, which encourages FDI in the marketplace model of E-commerce. Further, it states that the FDI policy for E-commerce sector has been developed to ensure a level playing field for all participants. According to the draft, a registered entity is needed for E-commerce sites and apps to operate in India. Government also proposed the National E-commerce Policy to set up the lawful agenda on cross-border data flow – no data will be shared with foreign Governments without any prior authorisation from the Indian Government.
Through its Digital India campaign, the Government of India is aiming to create a trillion-dollar online economy by 2025.