India's E-commerce Market: A Year of Transition and Future Prospects

India's e-commerce market experienced a notable slowdown in 2024, growing at a rate of 10% to 12% year-over-year, reaching a gross merchandise value (GMV) of approximately $60 billion. 

 

This marks a significant decline from the historical growth rates of over 20% seen in previous years. Despite this slowdown, India has solidified its position as the world's second-largest e-retail market in terms of online shoppers, with over 270 million people shopping online, surpassing the United States.

 

The slowdown in growth is largely attributed to macroeconomic challenges, including higher inflation and stagnant real wages, which have impacted consumer spending across the board. 

 

This trend is not unique to e-commerce; it reflects broader consumption patterns in India, where private consumption growth has decreased from around 11% pre-COVID to approximately 8% post-COVID.

 

Despite these near-term challenges, the long-term outlook for India's e-commerce market remains robust. The sector is projected to accelerate, with growth expected to exceed 18% annually by 2030, reaching a GMV of $170 to $190 billion. This growth will be driven by several key factors:

- Increased Discretionary Spending: As India's per capita GDP crosses the $3,500 to $4,000 threshold, a critical point for increased discretionary spending globally, e-retail is expected to benefit significantly.

- Expansion into New Markets: E-commerce penetration is spreading rapidly from Tier-2 to Tier-3 cities, with three in five new shoppers coming from these smaller cities since 2020. This expansion unlocks access for consumers in remote areas, enhancing market reach.

- Diversification of Sellers: The seller base is also diversifying, with over 60% of new sellers since 2021 hailing from Tier-2 or smaller cities, further democratizing the e-commerce landscape.

Several categories and trends are expected to drive future growth in India's e-commerce market:

- Grocery, Lifestyle, and General Merchandise: These high-frequency categories are projected to contribute around 70% of the incremental e-retail growth by 2030, with penetration levels expected to rise two to four times.

- Quick Commerce (Q-commerce): This model, which has already grown to around 10% of overall e-retail GMV, is forecast to expand at over 40% annually until 2030. Q-commerce is expanding beyond grocery into new categories and cities, leveraging larger basket sizes and lower logistics costs for profitability.

- Hyper-Value Commerce: Platforms focusing on ultra-low price assortments have gained traction, particularly among lower-middle-income consumers in Tier-2 and smaller cities, contributing significantly to e-retail growth.

 

The Indian government has been actively supporting the growth of e-commerce through initiatives like Digital India, Make in India, and the Open Network for Digital Commerce (ONDC), which aim to enhance digital infrastructure and expand e-commerce access to rural areas. These efforts are expected to further accelerate the adoption of digital commerce in India.

 

While India's e-commerce market faced a slowdown in 2024, its long-term prospects are promising. With an expanding shopper base, diversifying seller landscape, and supportive government policies, India is poised to continue its ascent as a global e-commerce powerhouse.