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Indian Ecommerce Industry Analysis

September, 2019

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. India's e-commerce market has the potential to grow more than four folds to Rs 10,48,350 crore (US$ 150 billion) by 2022 supported by rising incomes and surge in internet users. Online shoppers in India are expected to reach 120 million in 2018 and eventually 220 million by 2025. Average online retail spending in India was US$ 224 per user in 2017.

E-Commerce and consumer internet companies in India received more than Rs 48,923 crore (US$ 7 billion) in private equity and venture capital in 2018. Online retail sales in India are expected to grow by 31 per cent to touch Rs 2,28,540.3 crore (US$ 32.70 billion) in 2018, led by Flipkart, Amazon India and Paytm Mall. Online retail is expected to contribute 2.9 per cent of retail market in 2018.

Much growth of the industry has been triggered by increasing internet and smartphone penetration and by 2022, smartphone users are expected to reach 859 million and e-commerce sector expected to grow 1,200 per cent by 2026. Internet penetration in India grew from just 4 per cent in 2007 to 34.42 per cent in 2017, registering a CAGR of 24 per cent between 2007 and 2017. In FY19, internet penetration in India was 48.48 per cent. The number of internet users in India is expected to increase from 636 million as of March 2019 to 829 million by 2021. Internet penetration in rural India is expected to grow as high as 45 per cent by 2021 compared to the current rate of 25.36 per cent. The e-commerce retail logistics market in India is estimated at Rs 9,435.15 crore (US$ 1.35 billion) in 2018 and is expected to grow at a 36 per cent CAGR over the next five years. It also received and investment of Rs 43,681.25 core (US$ 6.25 billion) from January–May 2019. Reliance to invest Rs 2,00,000 crore (US$ 2.86 billion) in its telecom business to expand its broadband and e-commerce presence and to offer 5G services.

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 sectors. As per the new Foreign Direct Investment (FDI) policy, online entities through foreign investments cannot offer the products which are sold by retailers in which they hold equity stake.

As of August 2018, the government is working on the second draft of e-commerce policy, incorporating inputs from various industry stakeholders. In February 2019, the Government of India 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 the e-commerce sites and apps to operate in India.Government also proposed the National E-commerce Policy, set up the lawful agenda on cross-border data flow, no data will be shared with foreign government without any prior authorisation of Indian government.

Through its Digital India campaign, the Government of India is aiming to create a trillion-dollar online economy by 2025.

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