India's e-commerce industry will break through the $100 billion barrier by 2020

27 June 2018 4 min. read
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The spread of online access in India has outpaced the development of the e-commerce and other internet-dependent sectors, leaving a major gulf in online economic activity. According to new analysis from RedSeer Consulting, covering this gulf could bring about growth of nearly 30% for the e-commerce sector in the next three years. 

The Indian telecom market was already on a growth trajectory at the turn of the decade, but the introduction of the Reliance Jio service and the subsequent nosedive in data prices across the country took the number of people with online access to unprecedented levels. In around seven months, Reliance Jio itself had added 100 million subscribers, not to mention the millions that joined other networks that were consequently forced to drop their prices.

As a result, India has emerged as one of the most substantial online markets in the world, currently comprised of just over 500 million online users, with most analysis pointing towards monumental growth in the near future. The Boston Consulting Group (BCG), for instance, predicts that this number will reach 850 million by as early as 2025.

According to recent analysis from Bangalore-based management consultancy RedSeer, the number will reach around 720 million by 2020, representing a compound annual growth rate of 13%. In global terms, this positions India as the second largest online market in the world, behind only China, which currently has 740 million online users and will have 910 million by 2020.

Online population in major economies

So, the foundation is set for a booming online economy, but this scenario is yet to manifest itself. India’s online market is in a gestation period of sorts, wherein access has been achieved, but the ability, know-how and resources to utilise this access to its full potential are slow to gain momentum.

A previous report released by RedSeer early this year revealed that more than half of the country’s online user base has never used the internet for the most basic of functions such as Google, Wikipedia, or even email. The firm’s analysis appeared to be consistent with BCG yet again, as the latter has published a report in collaboration with Google, detailing that only 20% of online users have ever engaged in online retail activity or e-commerce.

In comparison, China’s online retail penetration stands at 63%, while that of the US stands at 79%, according to BCG’s analysis. RedSeer’s latest analysis paints a similar picture, placing the number of monthly e-commerce customers in India at 20 million, which represents only 10% of the country’s online population.

E-commerce using population

By RedSeer’s analysis, this number stands at 160 million for China and 140 million for the US, at 22% and 48% of their online users respectively. Nevertheless, the low levels in India appear to be a product of limited time more than anything else, as this number is set to leap to 120 monthly users in the next three years up to 2020, having already grown by 33% since 2014.

As this figure grows, so too will the size of India’s ecommerce sector. Big Four accounting and advisory firm PwC released analysis in 2016 detailing how India’s sizeable and relatively young population will bring about the ideal scenario for the e-commerce sector to thrive within.

RedSeer’s analysis predicts the same. Between 2015 and 2017, India’s ecommerce sector grew by 25% from a total value of $35 billion to its current value of $53 billion. Between now and 2020, the firm predicts an identical growth rate of 25%, which is expected to take the market past the $100 billion mark.

E-commerce market in India

A major chunk of this growth, of course, can be attributed to the online retail (e-tailing) sector. Driven by the targeted marketing and expansion strategies of industry giants such as Amazon, Flipkart, and Snapdeal, the e-tailing sector in India has grown substantially since 2016 to a value of nearly $18 billion.

While growth in the e-tailing segment has traditionally derived from the sale of fashion products or mobiles & other electronics, the fast-moving consumer goods (FMCG) segment is the fastest growing one, having registered growth of 66% between 2016 and 2017 alone, which is also a product of Amazon’s gradual expansion into FMCGs.