The Ambivalent Factors Impacting India's eCommerce Growth

India is the third largest economy in the world and its eCommerce market is currently the 8th largest. A surge in online shopping at the beginning of the pandemic was followed by a slower development from 2021 to 2022. However, government reforms, widespread urbanization, and demographic trends are important factors expected to drive the course of eCommerce in India in the coming years. 

On the flip side, not all factors bode well for the future of Indian eCommerce. Large socio-economic disparities and rampant inflation pose serious limits to growth. This article examines these ambivalent factors and provides an outlook for India’s eCommerce development.

A Boost for India's eCommerce

India consists of 28 states within 8 union territories, where socio-economic conditions, including life expectancy, economic prosperity, and population density, vary widely. This year, according to UN projections, India became the world’s most populous country with a population of 1.4 billion, surpassing long-time number one, China. With these structural facts in mind, let us look at the promising aspects of India’s continued rise in eCommerce.

India's Online Consumer Base Is Skewed Towards Younger Users

India’s demographics give rise to positive expectations for the country’s eCommerce growth. With more than half of India’s population under the age of 30¹, the number of online shoppers is expected to be correspondingly high. As younger consumers face fewer barriers to online shopping due to their high level of digital literacy and confidence in the security of online purchases and payments, a young population is a positive asset when assessing a country’s eCommerce potential.

Government Reforms Help Grow India's Digital Landscape

Government legislation encouraged the expansion of India’s digital infrastructure and overall online connectivity. As a result, a more diverse group of customers began to shop online. This includes rural dwellers, female users and fringe age cohorts. Reforms are also driving businesses to innovate digitally and provide workers with vocational training that includes internet literacy.

The Covid-19 Pandemic Contributed to a Change in Consumer Attitudes

Regulations to prevent the spread of the Covid-19 pathogen have introduced a wider variety of shoppers to the eCommerce market, and as a result, Indian shoppers are adopting attitudes that emphasize convenience, including home and express delivery. These, along with omnichannel solutions, continue to satisfy online shoppers in India due to their flexibility, wider product assortment and availability. Below are some of the key reasons why users in India choose online shopping channels.

Decentralized Challenges to Centralized Growth Initiatives

Just as public policy can drive eCommerce growth in India, the decentralized nature of India’s state administration and the wide socio-economic disparities between administrative regions can pose barriers to eCommerce growth.

Deepening Socio-Economic Disparaties Hinder Development

Covid-19 provided an incentive to bring India’s remote areas into the online infrastructure. But it also deepened existing socio-economic disparities. Economic losses during the pandemic were a major setback to India’s recovery from poverty and food insecurity. Restrictions led to the widespread displacement of millions of India’s urban population, widening the gap between the affluent and the vulnerable.

Post-Pandemic Inflationary Impacts

High inflation has eroded the purchasing power of the average Indian online shopper, particularly affecting middle-class and low-income households. As prices rise, real wages shrink, lowering living standards. Households in India that were already struggling to meet their daily expenses continued to experience financial hardship. A population that cannot afford to meet its basic needs will consequently buy fewer products, further damaging the national economy. However, recent reports show that inflation in India is on a downward slope again, paving the way for recovery and economic progress.

Systemic Limitations to Progress

Although India is an attractive country for outsourcing due to its large and cost-competitive labor force, there are systemic barriers to widespread innovation, efficient education, and subsequent technological development. Although the government is addressing these issues through development initiatives, some structural inequalities and biases continue to hinder India's development. While low-cost labor is attractive to investors who bring manufacturing to the country, educated Indians are moving elsewhere to apply their skills in an environment that rewards their efforts more generously. Along with this segment of the population, India is also losing its potential for innovation. In addition, gender stereotypes are making it more difficult for Indian women to gain a foothold as entrepreneurs in the country. Although traditional attitudes are increasingly being challenged by younger generations, a substantial portion of India's workforce and potential leadership is being held back by prevailing gender stereotypes.

Despite the Current Obstacles, India's Potential Offers Opportunities to Help the Country Join the Ranks of Most Industrial Nations

Although online growth rates have slowed in the recent years, India’s online market is expected to grow steadily in the coming years, reflecting demographic trends. 

India’s young population supports the growth of the online market, as digital literacy and trust are the basis for consumers to participate in online shopping activities. In addition, the government’s modernization reforms have brought India’s rural population into the digital infrastructure and provided citizens with vocational training combined with digital literacy. Ensuring the prosperity of the population is paramount to create a reliable workforce and consumer base. As such, these efforts can be seen as critical to India’s eCommerce development. 

The pandemic contributed to consumer openness to online shopping for daily necessities, but it also hindered growth by widening the gap between India’s richest and poorest. High inflation was a recent challenge that limited the purchasing power of the average consumer in India, particularly affecting lower income groups. However, structural impediments to India's growth potential are more difficult to address because they are embedded in the local culture and competitive landscape. By providing educated Indians with the initiative to put their skills to work in India instead of going abroad, by making education more efficient and accessible, and by addressing divisive gender norms and inequalities, India can overcome some of the more challenging aspects of its national development.

Overall, India’s digital evolution is a case study in the rise of eCommerce for a country that previously struggled to provide basic utilities and infrastructure to its citizens. Despite its current challenges, we expect its growth to continue well into the future, as its unmatched size and young population give it undeniable growth potential. This is supported by India’s growing importance to international investors, who are flocking to the country to collaborate in manufacturing, trade, and the knowledge economy.

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Sources: AEA - DII  -  OXFAM  -  Telegraph of India  -  Times of India - Trading Economics -  UN  -  UNIDO  -  United Nations India