In 2 years, India may be home to second biggest user base for online shopping

India’s e-retail market is estimated to increase to $150–170 billion by 2027 owing to the stellar onboarding of online shoppers and robust structural drivers in the country, according to a report by consulting firm Bain & Company. India’s e-retail market is currently estimated to be $50 billion in 2022, growing at 25% over 2021.

The report titled, How India Shops Online 2022, added that India's shopper population is well poised to surpass the United States to have the second-largest shopper base globally in the next one to two years.

The nation currently has the third-largest shopper base globally, with 180–190 million online shoppers in 2021 which is estimated to increase to 400–450 million by 2027.

The report, prepared in partnership with Flipkart, highlighted that India has all the robust fundamentals supporting a continued boom in e-retail.

"Massive headroom in terms of smartphone penetration (36% in India vs. 63% in China and 76% in the US) and affluence ($2K per capita in India vs $12K in China and $69K in the US) in addition to already low data prices, provide the perfect ingredients for sustained growth," it said.

The authors - Arpan Sheth, Shyam Unnikrishnan, Manan Bhasin, and Abhishek Raj - warn that the current inflationary environment might prove to be a short-term headwind for the market but the long-term outlook is robust thanks to structural drivers.

The report also threw light on the country's e-retail landscape and emerging trends.

Category mix of online purchases to evolve

The authors said the category mix of online purchases will also evolve and general merchandise categories and grocery will have the highest penetration in the next five years.

"Historically, categories such as mobile phones, electronics, and appliances have accounted for the lion’s share of the e-retail market. This will change over the next five years," the authors noted.

Already in the digital funnel

The report noted that out of 450–500 million social media users, only 180–190 million shopped online in 2021. India's shoppers' base increased by 40 and 50 million, which is approximately 30–35% growth in 2020.

Gen Z from tier-3 cities

The report underscores the fact that the new shoppers largely belong to tier three or smaller cities and include Gen Z. They primarily purchase fashion as the first category online, and typically start buying at entry price points.

"A new generation of digital natives—Gen Z (18–25 years of age)—has started transacting online and will become a critical cohort in the future," it said.

Democratising e-retail

The authors noted that the Indian government is also playing a critical role in democratising e-retail for India through the creation of the Open Network for Digital Commerce.

ONDC enables an interoperable network for digital commerce akin to the Unified Payment Interface network for payments.

"Although a nascent initiative, its successful and full-scale execution could provide a fillip to the Indian e-retail ecosystem," they said.