Drivers of e-commerce industry in India

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Boasting a huge market size with a relatively young demography, India adds approximately 10 million daily active internet users each month. Rising population and disposable incomes in Tier 2 and Tier 3 cities along with the underserviced rural market promise immense potential in the sector. The smartphone penetration per 100 people has increased from 5.4 in 2014 to 26.2 in 2018. The number of internet connections in India increased from 560 million in 2018 to 760 million in 2020. The modernization of digital payments infrastructure, backed by BHIM/UPI and NEFT, has thrust India’s e-commerce growth by facilitating ease of pay. Start-up digital wallet players, like Paytm, PhonePe, MobiKwik, etc. also cater to the large unbanked population.

Other factors like postal reliability aiding in smooth delivery of services along with increased bank account penetration with aid of enabling initiatives like JAM trinity (Jan Dhan-Aadhar-Mobile) have also contributed to the impressive rise of the e-commerce industry.

Drivers of e-commerce industry growth in India Government policy support

  • E-commerce draft policy: The Government of India’s Draft National E-Commerce Policy encourages FDI in the marketplace model of e-commerce. According to the draft, a registered entity is needed for the e-commerce sites and applications to operate in India.
  • Bharat Net and Digital India: Under the Digital India movement, the Government has launched various initiatives like Unified Mobile Application for New-age Governance (UMANG), Bharat Interface for Money (BHIM) etc. to boost digitization. The BHIM served as a flagbearer in linking payments directly through banks, doing away with the need to transfer money to the mobile wallets first, as was earlier required by Paytm, PhonePe etc. Most of the private players have also followed suit to adopt the Unified Payment Interface (UPI) to make digital payments. Massive budgetary allocations in FY2021-22 amounting to US$95.33 million have also been made to further the objective of mass digitization in India.
  • National Retail Policy: The government has proposed a National Retail Policy in which it acknowledged five key areas — ease of doing business, rationalization of the license process, digitization of retail, focus on reforms, and an open network for digital commerce. The proposed policy aims to integrate the administration of offline retail and e-commerce.
  • Consumer Protection (E-Commerce) Rules 2020: These Rules direct e-commerce companies to display the country of origin alongside product listings. In addition, they will also have to reveal parameters like product image, product title, product description, product features, product ratings, and product review that will determine product listings on e-commerce platforms. Considering that the Indian market is still adapting to online shopping, these requirements will ensure the credibility of the seller and boost consumer confidence.
  • E-commerce ecosystem: In order to provide easy access to all, including small traders and producers, the Department for Promotion of Industry and Internal Trade (DPIIT) set up a steering committee in November 2020 for formulation, implementation, and policy oversight of Open Network for Digital Commerce (ONDC). It will be a neutral platform that will work to set protocols for cataloguing, vendor discovery, and price discovery. Their aim is to provide equal opportunities to all marketplace players, including the consumers.
  • 5G network: Substantial investments have been made by the Government of India in rolling out fibre network for 5G which will help boost Ecommerce in India.