Rise of E-commerce in India: 7 Trends Influencing Growth

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2020 – the year of the pandemic was a game changer for the e-commerce industry, which witnessed hyper-growth, both in volume as well as in value terms.


The rise of e-commerce in India was accentuated by evolving spending patterns and shopping preferences with an estimated 30-40% growth in consumers that shifted from in-store shopping to online purchases. They prioritized convenience, no-contact home delivery and a seamless, touchless shopping experience.

The promising prospects of the e-commerce space is confirmed by IBEF, which opines that India’s e-commerce industry is expected to leapfrog to #2 globally by 2034. Further, the sector would be worth US$99 billion by 2024, a jump from US$30 billion in 2019, growing at a CAGR of 27%.


Additionally, segments like grocery and fashion/apparel would be key growth drivers. It is estimated that the size of the grocery market in India is valued at $380Bn (2019), comprising 60% of the retail market.


Rise of e-commerce in India between 2019 and 2024

Sector Composition: Rise of e-commerce in India

Source: IBEF


Key Trends in the Rise of E-commerce in India


Goldman Sachs report indicates that online retail penetration levels are expected to jump to 11% by 2024 from 4.7% in 2019. Further the size in value terms of online grocery would swell 20X times to $29Bn in the next 5 years, from the current $2Bn in 2020.


The e-commerce growth rate in India till 2024 would exceed that of other countries like the US, UK, other European countries, Brazil and China.  We shall look at some of the key trends that triggered the rise of e-commerce in India.


Increased participation and funding


Recognizing the huge business opportunity, the e-commerce sector is attracting increased investments as well as intense competition with several players foraying into the segment. In 2019 alone, e-commerce and consumer internet companies received inflows worth over $4.32 Bn by way of investments from PE and VC players.


Grant Thornton report highlights the increased investments in 2020 namely PhonePe (USD 28 million), BigBasket (USD 50 million) and Nykaa (USD 13 million). Further, the cumulative investments of over USD 13 billion (INR 100,000 crore) by multiple business entities in the Jio platform will shake up the e-commerce market dynamics in the coming days.

e-commerce segments growth in 2021 with reasons

      Source: ET


Statistics indicate that BigBasket and Grofers commanded over 80% market share in 2019. However, the entry of RIL into the e-commerce space is expected to be a major disruption. A Goldman Sachs study reveals that while online grocery clocked a 50% y-o-y growth, the online buying trend and RIL’s foray would boost the CAGR (2019-24) to 81%. With intense competition, one can expect the end-consumer to benefit with price discounts, bulk offers and consumer loyalty points.


Favourable Policy reforms


Another factor contributing to the success of e-commerce is the policy support offered by the Central Government, summarized below:


  1. 100% FDI is permitted in B2B e-commerce
  2. In the case of the marketplace model of e-commerce, 100% FDI under the automatic route is allowed


The Indian Govt: Leading by example


In August 2016 itself, the Indian Government took the digital plunge and launched a landmark portal under the common umbrella name Government e-marketplace (GeM), an online, digital B2B market place with the aim to bring in transparency and cost efficiency to the Government procurement process. Since then, the efforts have yielded positive results.


As per estimates (Sept 2020), India has saved to the tune of $1 billion as of date, since the transition of $400 billion public procurement to GeM. According to a BCG report, the platform has contributed up to 25% savings in Government expenditure.


Enhanced adoption of Digital payments


A complementary sector closely associated with the e-commerce space is the digital payments segment within the larger fintech landscape. A Grant Thornton report emphasizes that India would register the highest growth in the digital payments domain with an estimated 20.2% CAGR.


This is due to rapid digitalisation, huge user base, and proactive policy support from the Government and RBI. It spells good news for the e-commerce domain as the use of digital payment modes would find higher acceptance amongst e-commerce buyers.


Transactions surge during the festive season


The exponential hike in transactions during the festive seasons like Diwali is another trend seen during the rise of e-commerce in India. This year, owing to the pandemic and the preference to stay indoors, there was a huge jump in the transactions recorded during the festive months, as is confirmed from the below chart. It is estimated that the gross e-commerce sales touched a whopping $33Bn in the calendar year 2020 alone.


Rise of e-commerce in India - Festive trends
2020 Indian E-commerce Festive Bonanza

Source: ET


The emergence of the digital-savvy buyer and netizens


Higher internet penetration and mobile connectivity are also instrumental in driving the e-commerce user base in India. Another key factor is the Government’s favourable policies like Digital India, thrust on cashless payment options and the upcoming 5G telecom revolution in 2021.


By 2021, India’s internet users’ pool would include over 846 Mn, with 80% of this segment also having access to mobile. A report by Invest India states that by 2025, internet penetration would cover more than 55% of the entire population with a corresponding jump in online shoppers from the 15% in 2020 to 50% by 2026.


Internet users have indicated a preference for online e-commerce transactions. A study revealed that at the start of 2020, 74% stated they had made at least a single online purchase in the past month.


Higher purchasing power finds its way to e-commerce


The Indian middle class, defined as being aspirational and experimental in their purchases are fuelling the exponential growth of e-commerce. A PwC report highlights that by 2022, the Indian middle class, with an estimated annual income between $7.5k-37k will comprise the lion’s share of the population.


This segment with its new-found spending power is expected to channelise consumption-driven demand towards e-commerce platforms as a form of experimentation and exploring of new products and services. While the per capita consumption of rural Indians would grow 4.3x, the urban counterparts would witness a 3.5x increase.


Concluding thoughts on the Rise of E-commerce in India: 

The rise of e-commerce in India shows no signs of stopping. The Government is drafting a comprehensive e-commerce policy law with proposed monetary incentives for stores and retailers that transition to e-commerce.


Additionally, with the mandatory requirement to display the country of origin and the thrust on ‘vocal for local’, one can expect that ‘Made in India’ products would enhance their market share. There is also a growing preference for specialisation with niche e-commerce players offering only apparel, furniture, jewelry or electronic goods.


The e-commerce industry too needs to reinvent itself to match the changing customer expectations. Removal of supply chain bottlenecks, on-time last-mile delivery along with switching from the point-to-point model to the hub and spoke model would enhance the global competitiveness of domestic e-commerce players.


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