An e-commerce behemoth in making
Mini Tejaswi

An e-commerce behemoth in making
An e-commerce behemoth in making

India has been enthusiastically embracing digital commerce with open arms and as a result the country is expected to witness a huge surge in on-line buying in the next five years.

By 2022, the Indian middle class will emerge as the largest online consumer segment. The country’s contribution to the global middle class consumption would be approximately on par with China’s (around 15 per cent) by 2015. Two years after that, the Indian middle class is likely to consume as much as their Chinese counterparts, and will eventually supersede both the US and China. And then, India is expected to continue its dominance in digital commerce, as per a recent study.

Interestingly, the emerging middle class is already being targeted by leading e-commerce companies. The consuming class is likely to grow from 45 million (m) in 2010 to 135 million by 2030, said a joint report released by Nasscom and PwC.

The study broadly categorised the Indian digital consumers under four brackets. In the next five years, it said, the country will have a Digital Beginners base of over 500 million, a quantum jump from 200m currently. The country will have 50m to 60m Digital Champions by then from 10m to 20m now, the number of Digitally Live population will rise from 50m-60m to 100m-130m while some 150m Digital Explorers (80m) are expected emerge by 2022.

Those with a very high frequency of online transactions, the report categorised them as Digital Champions, will number 50m. A massive surge in the numbers of the consuming class (affluent and middle class) is foreseen. In particular, the middle class’s changing consumption pattern is striking. Unsurprisingly, the new entrants often skip levels and take the plunge to become Digital Champions very quickly, said the report.

Indian consumers have already experienced a shift in purchasing behaviour as their focus has moved from ‘buying necessities’ to ‘improving their quality of life’, and this trend is only expected to continue further as customers spend more on discretionary products and services. The study also found that the youth of India will spend more on discretionary commodities than ever before. Additionally, owing to a young population, India is expected to reap a rich demographic dividend, with the labour force growing at a CAGR of around 2 per cent (2017–22E), against a population growth of approximately 1 per cent over the same period, stated the study.

According to a World Bank-PwC analysis, the trend has been clearly visible in 2017 among consumers in the age group of 1 to 15 (372m), 16 to 34 (457), 35 to 59 (374) and 60 plus 236m.

The report titled `Propelling India towards global leadership in e-commerce’ said the Indian e-commerce market is expected to cross $100 billion (b) mark in the next five years, growing annually at 25 per cent, from $36b currently. By 2022, the country will have 850 million (m) Internet users, of which 150m are expected to start transacting online. E-tail and e-travel will continue to hold over 90 per cent share of e-commerce, while online financial services too will witness fastest growth, said the report.

E-commerce, added the study, has the potential to create over a million new jobs in allied industries like logistics and warehousing by 2023. Three out of four online customers are expected to come from tier II markets and beyond. A vast majority of them will be relatively less tech-savvy, seek greater transparency from brand and prefer consuming content in local languages.

Debjani Ghosh, president NASSCOM, said, “The e-commerce sector has been contributing towards various macroeconomic growth parameters, evangelising local businesses and customers. In the next five years, the sector has the potential to create a million jobs in allied industries such as logistics, warehousing, etc. In addition, the FDI attracted enhances the country’s positioning significantly on the global stage. E-commerce companies have to focus on building loyalty which will translate into repeat sales.”

With Internet penetration expected to almost double to 60 per cent by 2022, India is arguably the world’s most promising Internet economy, with a rapidly increasing ‘netizen’ population. With improving data affordability, consumption growth and newer financial products, the e-commerce market is set to grow, be it across e-tail, travel, consumer services or online financial services, observed the study.

The report further said future e-com growth is expected from the next 100m users with starkly different demographical backgrounds and preferences vis-à-vis existing users. To cater to their needs, e-commerce players need to innovate across the value chain through initiatives such as custom assortments, targeted marketing, local language content and online-over-offline (OOO) infrastructure. It also highlighted the growing potential of e-commerce in India and its increasing contribution to future economic growth.

Sandeep Ladda, partner, Global TMT Tax and India Technology Sector Leader, PwC India said, “There is a gradual shift in the focus of companies and investors alike towards adopting a sustainable economic model centred on the customer. As a result, the industry is seeing a growing focus on customer experience, thereby taking e-commerce beyond just selling things online. The next phase of growth in the sector would come from ensuring a seamless shopping experience, building digital trust, voice-based or conversational commerce and creating an inventory of localised content. Growing adoption of technology in e-commerce is enhancing the entire buy-sell experience for both buyers and sellers.”

India is rapidly marching towards becoming a digitally empowered society. The push for e-governance, the proliferation of smartphones, increasing Internet access and booming digital payments are fuelling the country’s journey towards a trillion-dollar digital economy by 2025. The widespread acceptance of digitalisation is being seen as a catalyst for overall economic growth, and with the combination of favourable demographics and policy reforms. India presents a unique and powerful growth story. From the next set of online shoppers, three out of every four customers are expected to come from tier II cities or beyond, and a vast majority of them would be less tech-savvy, seek greater transparency from brands and prefer consuming content in local languages. There is a gradual shift in the focus of both companies and investors towards adopting a sustainable economic model centred on the customer. As a result, the industry is seeing a growing focus on customer experience, thereby taking e-commerce beyond just selling things online. The next frontier for the battle in the Indian e-commerce industry is set to be fought around a seamless shopping experience, building digital trust, voice-based or ‘conversational’ commerce and creating a catalogue of localised content. This will result in the growing use of disruptive technologies such as machine learning (ML), artificial intelligence (AI) and augmented reality/virtual reality (AR/VR) as a means to improve customer engagement, said Ladda.

Leading eco-system players, Amazon India, Flipkart and Paytm Mall are expected to invest around $2.5b on artificial intelligence and machine learning this year. AI Driven chatbots are going to replace 85 per cent of customer interactions by 2020, said Gartner, recently.

However, along with opportunities, these technologies are also posing significant technical challenges for businesses when it comes to ensuring the integrity of IT systems and protection of customer data. A harmonised e-commerce policy framework, encompassing robust physical, digital and payment infrastructure and safeguarding consumer interests, along with a clear and progressive tax regime will play a pivotal role in brokering trust and spurring the adoption of digital by enterprises, public authorities and citizens. Developments like the recent acquisitions in this space will help in building confidence in e-commerce while alleviating scepticism about the sustenance of the sector. The increase in competition that will ensue is likely to improve the supply chain, create a large number of jobs and ensure that prices remain competitive, added PwC.

Clear growth drivers seen between 2017 and 2022

There is a clear rise in online domestic travel. With cheaper air tickets and a growing middle class looking for varied travel experiences, the number of travellers will increase across all modes of travel, especially with word-of-mouth referrals and reviews. Domestic air travel and train bookings have already seen high online penetration with around 50 per cent of these bookings have moved to e-commerce. International travel and hotels booking are increasingly happening online. Online booking penetration across both these segments is around 20 per cent now and is expected to cross 50 per cent over the next five years. There are signs of maturity visible in the online cab and bus booking segment as well. Cab and bus travel bookings are in nascent phases and are expected to contribute to a lower share in value terms, but will exhibit high growth rates as volume expands in metros and business moves to tier II cities, observed the report.

What are the key drivers?

The Union government has been pushing for e-banking and digital money. Under Pradhan Mantri Jan Dhan Yojana (PMJDY), the government has been able to get a significant population of unbanked customers onto banking platforms. With steps such as Aadhaar Enabled Payment System (AEPS) and Bharat Interface for Money (BHIM), the government is actively pushing digital payments for increased transparency. As the brand strength of m-wallets increases, customers are expected to start transacting more often and have higher value transactions. Also, increased mobile penetration and better networks are the key contributors. Digital natives now have constant access to their device and network, which enables them to make payments at any time they desire. As the merchant network develops, the convenience of transacting over the phone is expected to push the penetration of electronic financial services (e-FS).

With digitisation, enterprises have been able to organise varied service segments (such as plumbers, electricians and domestic help) in order to provide customers with better choices and convenience, to simplify finding the right service provider at the right time. All these brought in an increased customer demand for variety of services online. Digital Native customers now look for multiple options on line in terms of products, services, jobs, healthcare, entertainment and education. Under a traditional delivery channel, services could reach a customer only five to 10 times across his or her lifespan, but the frequency has gone up dramatically with services (be it household services or food delivery) now going digital.


To experience exponential growth in the next phase, existing barriers pertaining to language, tech usability, logistics and regulatory compliances will have to be removed, the report said.

The sector has been contributing towards various macroeconomic parameters, so it has not escaped the ambit of the regulatory framework. The ecosystem comprises varied elements so it needs to be harmonised and be adaptive to change as well, particularly in technology and consumer preferences. More than anything else, e-commerce companies have to focus on building loyalty which will translate into repeat sales. In India, the marketplace model which is similar to successful American models is prevalent. In this, e-travel and e-tail are the two dominant areas. To experience exponential growth in the next phase, the existing barriers pertaining to language and tech usability, logistics and regulatory compliances will have to be removed. With a surge of counterfeit products coupled with inadequate product information, consumers continue to face a tough time. Since loyalty comes at a premium, it cannot be seen in isolation from consumer protection laws, said Nasscom.

 A Google, Bain & Company and Omidyar Network report said 54m Indian stopped shopping online after their first transaction. Most of those who dropped out were first-time internet users from lower income groups and also language barrier reportedly discouraged those consumers as most e-retail platforms are in English and also in Hindi.


A recent Forrester report said, India is the fastest-growing online retail market in the world that will reach $64b by 2021, growing at a CAGR of 31.2 per cent. It is expected to emerge as the second largest e-com market, displacing the US by 2034, as per another estimate by Worldpay, a payment gateway.

On the global e-commerce readiness index, India at 10 per cent ranks behind countries such as Brazil (20 per cent), China (30 per cent) and Russia. India’s e-commerce industry is expected to contribute 4 per cent of GDP by 2022.

Recently, Google has announced its foray into e-com space in India, a $20 billion plus market that is currently dominated by giants like Amazon and Walmart (Flipkart) and Alibaba and through Paytm. The space is already getting cluttered and likely to witness more consolidations and shakeouts in the near future.