Propelling India towards global leadership in e-commerce

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 fueling the country’s journey towards a trillion-dollar digital economy by 2025. The widespread acceptance of Digital is being seen as a catalyst for overall economic growth, and with the combination of favorable demographics and policy reforms, India presents a unique and powerful growth story.

With Internet penetration expected to almost double to 60% by 2022, the country 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. 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.

India is expected to witness a surge in the consuming class

  • By 2022, the Indian middle class will be the largest segment of the population.
  • By 2025, India’s contribution to the global middle class consumption would be approximately on par with China’s (~15%).8
  • By 2027, India’s middle class is expected to overtake that of the US and China, post which India is expected to dominate.11
Population pyramid and disposable income, 2017-22E, population in million

Note: The income groups are classified as below poverty line (<3.3 k USD), aspiring (3.3 k–7.5 k USD), middle (7.5 k–37 k USD) and affluent (>37 k USD).
Source: IMF, PwC analysis

India presents significant headroom for further growth in e-commerce, in terms of the number of users…

Internet penetration and users across select countries

2017 and 2022E, number of users in million; Internet penetration (% in 2017)

Source: TRAI, CIA World Factbook, analyst reports, secondary research

Note: The mobile Internet users are the wireless Internet users as reported by TRAI.

…which, along with an exponential rise in per capita e-commerce spend, will move the Indian e-commerce industry towards an inflection point.

Country profiles – e-commerce spend

2016, e-commerce spend per capita and readiness index* (%)

*E-commerce readiness is defined as the cumulative impact (average) of smartphone penetration and GDP per capita.

Note: Bubble size represents the e-tail market size in 2017.
Source: World Bank, eMarketer, secondary research, PwC analysis

Key highlights

The Indian e-commerce market will exceed 100 billion USD by 2022, with online financial services set to grow the fastest.

E-commerce market – India, FY2012-22E, billion USD

Source: Secondary research, PwC analysis

  • The current market of ~35 billion USD is expected to grow at a 25% CAGR over the next five years
  • E-tail and e-travel, together, will continue to hold >90% share of e-commerce, while online financial services are expected to witness the fastest growth

With increasing awareness, access and acceptance of the Internet, the number of Digitally Live and Digital Champions is expected to grow rapidly…

Number of people that have crossed various digital phases

2012–2022E, million users

Source: Secondary research, PwC analysis

Role played by the Internet in nation building

1. E-commerce can potentially create 1 million+ jobs by 2022…
  • E-commerce is expected to not just create regular corporate jobs but also increase employment in allied industries like logistics and warehousing.
2. ..while actively supporting and contributing to 20 million+ businesses run by SMEs / entrepreneurs…
  • With higher revenues and profits, the Internet helps MSMEs in building efficiencies across their operations and in expanding their boundaries and scale.
3. …and attracting significant FDI inflows, thereby boosting investor confidence.
  • Besides benefiting the economy and consumers, this also helps Indian organizations imbibe best practices from their global competitors.
4. Contribute positively towards multiple softer aspects of nation development.
  • Boosts investor confidence in the Indian consumption story and positively impacts FDI inflows.
  • Enables Indian brands to go global.
  • Encourages IP development within the country.

Catapulting Indian e-commerce towards global leadership

E-commerce is governed by multiple regulatory bodies and several horizontal regulations. There is a need for harmonisation of laws and regulations covering the e-commerce ecosystem, giving them a common definition and intent. A holistic policy framework for e-commerce should be able to, at the same time, adapt to the fast-changing technology and consumer preferences.

The envisaged approach will help in the development of an ecosystem that will support the industry, boost investments as well as protect consumer interest. The framework should also provide for an e-commerce facilitation unit in all relevant government ministries and sectoral departments, which serve as a point of interface for handling issues unique to the e-commerce sector.

A holistic e-commerce framework should encompass the following:

  1. A robust physical and digital infrastructure
    • Enhancing the logistics infrastructure
    • Unlocking the value of digital payments
    • Enabling network infrastructure and access
    • A robust data protection framework
  2. Thrust to ‘Make in India’
  3. A level playing field between offline and online players in indirect taxation
  4. A conducive environment for cross border e-commerce
  5.  Enabling ecosystem for domestic start-ups

The next 100 million customers will be very different from the existing 50 million customers, and hence e-commerce players must ‘Make for India’.

First 50 million

  1. Comfortable with English
  2. Average age around 25 years
  3. 70% male
  4. Predominantly urban
  5. Comfortable with typing
  6. Trust wallets or e-FS
  7. Have access to quick delivery
  8. Global products
  9. High ticket size
  10. Understand financial products

Next 100 million

  1. Comfortable with vernacular languages
  2. Average age more than 28 years
  3. 50% male
  4. Most new customers will be from Tier II /III cities
  5. Prefer voice
  6. New to online financial instruments and prefer CoD
  7. May be alright with long delivery times and high shipment cost
  8. Mix of global and local products
  9. Low to medium ticket size
  10. Need education

Source: Secondary research, PwC analysis

To overcome these obstacles and turbocharge growth, PwC has proposed a three-pronged approach

1. Enable consumers to transact online effectively

2. Encourage online players through an online-offline parity in regulations

3. Ensure that the supporting infrastructure is capable of managing turbocharged growth

  • 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 eCommerce is enhancing the entire buy-sell experience for both buyers and sellers.

    - Sandeep Ladda, Partner, Global TMT Tax and India Technology Sector Leader, PwC India

  • The e-commerce sector is subject to a number of horizontal regulations, which have evolved independently over the years. The government is now beginning to take cognisance of this space by amending various laws to regulate aspects of e-commerce falling under their purview. It is crucial that all such regulations are aligned and harmonised and have a common intent of being growth facilitators.

    - Akash Gupt, Partner and Leader, Regulatory Services, PwC India

  • India has the second-largest internet user base, which exceeds 450 million today. Of these, approximately 70 million people are estimated to have more than three to four years of online experience, which makes them comfortable with engaging in e-commerce. As more people join the internet economy (internet penetration is expected to almost double to 60% by 2022) and continue to get accustomed to their new online lives, the e-commerce industry is expected to grow into a 100 billion USD market by 2022.

    - Sankalpa Bhattacharjya, Partner and Leader, Deals Strategy, PwC India

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Sandeep Ladda

Partner,
Global TMT Tax and India Technology Sector Leader, PwC India

Tel: +91 (22) 6689 1444

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