Tier 2 and Tier 3 cities are poised to generate huge business, thanks to deeper internet and tech penetration, coupled with the emergence of 220 million online consumers by 2025.
The Covid-19 pandemic has turned the way we live our lives on its head. Communications and business have now entered into a new era where tech makes the rules. The online superhighway now dictates our interests and inspires our consumption patterns. This is more evident in India where the growth of e-commerce has now reached unprecedented proportions where anything from groceries to automobiles can be purchased online.
Small wonder that the e-commerce sector has been earmarked for gigantic growth – at a 27% CAGR over 2019-24 and touching $99 billion by 2024, according to a report released by EY-IVCA Trend Book 2021. These observations are not very far from the predictions of an analysis put out by GlobalData, a leading London-based data analytics firm. The sector is projected to grow at a compounded annual growth rate (CAGR) of 19.6 per cent between 2019 and 2023 to $100 billion, it stated. A PwC report titled 'Propelling India towards global leadership in e-commerce' also weighed in by forecasting that the Indian e-commerce market will touch the $100-billion mark earlier, ie, by 2022.
The items that have fuelled this spike are actually day-to- necessities – groceries and apparel - which confirms that the direct-to-consumer (D2C) model is the preferred option besides the Omni-channel approach which is being implemented by large retailers to ensure that application of deep tech is increasing.
Consumer spending had picked up even during the national lockdown because undeterred by their inability to venture out the population moved online to purchase goods giving companies like Paytm, Amazon Pay and PayPal, that push out online payment solutions, the opportunity to benefit.
E-commerce in India has been well and truly embraced thanks to the changing preferences of an estimated 687 million internet users, which makes it the second-largest global internet market and the potential attraction to this could be the penetration rate which, if improved from its current capacity of 50%, leaves wiggle room for even more growth.
But the fact that there is a pot of gold at the end a proverbial rainbow in these trying times gives cause for optimism. As a report released by Ernst & Young and Indian Venture Capital Association (IVCA) stated that Indian e-commerce and consumer internet companies raised over USD 8 billion in private equity and venture capital across 400 plus deals in 2020. Although, given the funding blip in the second quarter of 2020, these companies attracted 20% lesser than the USD 10.3 billion they raised in 2019.
India is setting the stage for 220 million online consumers in India by 2025. The penetration of retail is expected to be 10.7% by 2024, compared to 4.7% in 2019. The government is aiming to build a trillion-dollar online economy by 2025, through its Digital India programme.
Tier 2 and Tier 3 are leading the online recovery thus providing start-ups and MSMEs the platform to find their place in the sun by adopting technology. Online payment platforms are making a beeline to smaller businesses, specially those who evangelise technology, to ensure that they can collaborate more effectively on payment options.
The government of prime minister Narendra Modi has recognised this trend and increasing appetite by boosting the digital space via schemes like Start-up India, Digital India, Skill India, Innovation Fund and BharatNet. Rules to conduct the business activities in an appropriate manner as well as protect the customer and business entities have also been formulated a the outlining of an e-commerce testament, the national retail policy and consumer protection rules 2020 which endorses the government’s statement of intent of widening this eco-system even further.
India will require e-commerce firms to treat sellers equally on their platforms and ensure transparency, according to a draft policy seen by Reuters last Saturday that follows criticism against business practices of big online companies. The timeline of publication and whether it will be subject to further changes were not immediately clear.
India has been deliberating a new e-commerce policy for months amid complaints from brick-and-mortar retailers who allege online giants like Amazon and Walmart's Flipkart flout federal regulations. The companies have denied the allegations.
A Reuters special report last month revealed that Amazon has for years given preferential treatment to a small group of sellers on its India platform and used them to circumvent the country's foreign investment rules.
To read the special report click http://reut.rs/2OCOT2W
The latest draft of the policy document says operators should be impartial in their dealings with sellers."E-commerce operators must ensure equal treatment of all sellers/vendors registered on their platforms and not adopt algorithms which result in prioritizing select vendors/sellers," it says.
The competition is principally to attract the consumer who has multiple choices at his disposal given the vast options in terms of brands, quick delivery methods, discounts, digital payment, cash payment and even exchange and return options on goods.
The sweet spot for companies lies in Tier 2 and Tier 3 cities and towns where increased customer engagement is waiting to take place. A new customer wave is forming and this will force businesses to look at investment options in the B2B and B2C category. It’s not just about consumers – a brand new gig economy is poised to open up across several sub-sectors thanks to innovation, local commerce, e-commerce, infrastructure and payments.
The report observed that the growing B2C e-commerce scenario is attracting a lot of attention and this, in turn, would bring in key investments from international companies. A $90 million investments in interior designer marketplace LiveSpace and $52 million investment in online grocery platform BigBasket last year are cases in point. The key investors included Venturi Partners, Bessemer Venture Partners LP, Goldman Sachs, TPG Capital Inc., CDC Group Plc and Alibaba.com India.
The obsession with e-commerce is not going to peter out. This is bolstered by the study that India will have close to 90 million households headed by millennials by 2030. The country will then have a median age of 31, making it one of the youngest nations in the world. With rising levels of prosperity and education and much higher levels of smartphone and internet penetration, this demographic group will fuel the boom in e-commerce sector.
The nation has a huge debt to pay to Modi’s Digital India scheme that has kickstarted these set of actions during the times of the pandemic. It has gained acceptance not just in the major cities across the country but, more importantly, in towns and villages which will be the new centres of business as penetration grows.