Describes how widely ecommerce is used, the primary sectors that sell through ecommerce, and how much product/service in each sector is sold through e-commerce versus brick-and-mortar retail. Includes what a company needs to know to take advantage of ecommerce in the local market with a list of reputable, prominent B2B websites.
Last Published: 10/10/2018


With increasing internet penetration, eCommerce is India’s fastest growing and most dynamic channel for commercial transactions.  The Indian eCommerce is expected to surpass the United States to become the second largest eCommerce market in the world,  market is expected to reach $64 billion by 2020 and $200 billion by 2026 from $38.5 billion as of 2017.

The retail sector (which is one of the largest item in eCommerce) is expected to increase by 60 percent to reach $1 trillion by 2020, with the overall retail market to grow 12 percent annually.

Current Market Trends

eCommerce has made it easier for U.S.  American brands to reach Indian customers and has emerged as one of the fast-growing trade channels available for the cross-border trade of goods and services.

There is a growing appetite for international brands and better quality foreign products amongst digitally connected Indian shoppers due to rising income levels and increased awareness.  Several categories including lifestyle products, consumer electronics, clothing, footwear, jewelry and accessories, health and beauty, household goods, art and collectibles, event tickets and online music are doing well for online sales.

eCommerce in India can be broadly categorized as: domestic and cross-border, B2B and B2C, marketplace and inventory based, and lastly single brand and multi brand.

Technology-enabled innovations such as digital payments, hyper-local logistics, analytics-driven customer engagement and digital advertisements, have enabled the eCommerce industry in India to grow at a much faster rate.  Government initiatives such as Digital India, Skill India, Startup India and Make in India are also contributing to the growth of the eCommerce industry.

Some of the major developments in the India eCommerce sector are:

  • Walmart’s acquisition of Flipkart, an Indian e-Commerce platform, for $16 billion;
  •  Launch of the Paytm Payment Bank, India's first bank with zero charges on online transactions, no minimum balance requirement and free virtual debit card
  • 21 private equity and venture capital deals worth $2.1 billion in 2017 and six deals worth $226 million in January-April 2018 in the Indian eCommerce sector.

Government Initiatives:
  • The Reserve Bank of India (RBI) now allows "inter-operability" among Prepaid Payment Instruments (PPIs) such as digital wallets, prepaid cash coupons and prepaid telephone top-up cards.  The RBI has also instructed banks and companies to make all know-your-customer (KYC)-compliant prepaid payment instruments (PPIs), like mobile wallets, interoperable amongst themselves via Unified Payments Interface (UPI).   
  • The Government of India has distributed rewards and incentives worth around $23.8 million to over one million customers for embracing digital payments.  
  • The Government of India launched an e-Commerce portal called TRIFED and a portal called ‘Tribes India’, which will enable 55,000 tribal artisans get access to international markets. 
  • To increase the participation of foreign players in the e-Commerce field, the Govt of India (GOI) hiked the limit of foreign direct investment (FDI) in the E-commerce marketplace model up to 100 per cent (in B2B models). 
  • The e-Commerce industry been directly impacting the micro, small & medium enterprises (MSME) sector in India by providing means of financing, technology and training and has a favorable cascading effect on other industries as well.
Regulatory Landscape for eCommerce Foreign Direct Investment (FDI):

B2B: 100 percent FDI is allowed in companies engaged in B2B eCommerce, e.g. Walmart and Alibaba can operate a cash & carry (B2B) business.

B2C Marketplace: 100 percent FDI is allowed in  the online retail of multi-brand goods and services B2C under the marketplace model, e.g. Amazon, Flipkart, Snapdeal.  Any eCommerce entity providing a marketplace cannot exercise ownership over the inventory and is not permitted to sell more than 25 percent of total sales through its marketplace from one vendor to their group companies.  There are also conditions restricting to offer discounts by marketplace.

B2C Inventory-Based: FDI is not allowed in inventory-based model of eCommerce.

Single Brand: A single brand retail trading entity operating through brick and mortar stores is permitted to undertake retail trading through eCommerce subject to local sourcing requirements.  Food retail: 100 percent FDI is allowed for trading (including eCommerce) of food products manufactured or procured in India.

Multi-Brand Retail: No FDI is allowed in companies which engage in multi-brand retail trading by means of eCommerce.
Other Government Actions: The National Institute for Transforming India (NITI Aayog) has set up a high-level committee to consider issues related to eCommerce including FDI.  The Food safety and Standards Authority of India (FSSAI) has also issued draft norms for licensing online food operators.  The Consumer Affairs Ministry is also planning to regulate eCommerce through the proposed new consumer protection law.

Domestic eCommerce (B2C)

The presence of international players in India like Amazon, eBay (now being sold to homegrown FlipKart, which was recently acquired by Walmart), Alibaba and others competing alongside the domestic marketplace operators such as Flipkart, Snapdeal, TataCliq as well as with inventory led e-tailers (electronic retailers), have made India’s domestic eCommerce sector highly competitive. 

With no major entry barriers and with few e-tailers, the Indian market for eCommerce has grown at a fast pace for the past three years.  Omni-Channel retailers such as Shoppers-stop, Reliance, Croma etc. have also embraced eCommerce as another sales channel to increase digital footprints.

In some cases, e-tailers are tying up with exclusive American brands to sell U.S. products on their platforms.  Additionally, Omni-channel retailers are also importing leading American brands and selling them via eCommerce.

Cross-Border eCommerce

The United States is one of the top ten countries for cross-border shopping for Indian buyers.  Automotive, baby supplies, toys, clothing, footwear, wearables and accessories, jewelry, watches, cosmetics, health products and digital entertainment and educational services are some of the leading categories for cross-border B2C eCommerce.  Some of the challenges restricting the growth of cross-border eCommerce are high shipping costs, import duties and complexities in returns and exchanges.

B2B eCommerce

To tap the huge potential in the B2B eCommerce market in India, leading B2B companies have started to build their own platforms for small business owners and traders.  More and more companies and SMEs are buying and selling online and plan to shift procurement transactions through the internet. Understanding this untapped potential of the B2B eCommerce industry, the government has allowed 100 percent FDI in B2B eCommerce, which has enabled global companies such as Walmart and Alibaba to show interest in the Indian B2B eCommerce industry.

The Indian B2B eCommerce market is expected to reach $700 billion by 2020.  India has 14 million retailers fueling a $525 billion market.  The higher profitability in the B2B segment can be the result of the lack of heavy discounts, greater emphasis on quality rather than on price, and higher volumes of purchases, etc.  Software as a service (SaaS) platforms can provide a stable platform to small and medium businesses in India that shy away from making huge investments to enter the online retail space, establishing their authority and payment infrastructure.  With these platforms, a startup can launch its own eCommerce portal in a much-reduced cost over a monthly rental or a revenue sharing basis on pay-as-you-go model.

eCommerce Services

There is a new trend of emerging eCommerce aggregators aiming to digitize several offline services to create a convenient ecosystem for consumers.

Tourism: MakeMyTrip; Goibibo; Yatra; IRCTC
Education: EduKart; Meritnation
Healthcare: Portea; Healthkart
Entertainment/ Ticket booking: Netflix; bookmyshow
Real Estate: MagicBricks; Housing, 99 acres
Fin-tech: PayTM, Freecharge, PayUmoney, Mobikwik, PhonePe

E-commerce Sector Composition

Currently there are approximately 1.2 million transactions per day in eCommerce retailing.  Given below is the split of sectors according to popularity:
  • Electronics: 47%
  • Apparel: 31%
  • Home and Furnishing:8%
  • Book:7%
  • Baby Products: 2%
  • Beauty: 2%
  • Other: 7%
Online Beauty & Cosmetics Market in India

The online cosmetics market, valued at $50 million, is two percent of the total Indian cosmetics market.  This category has attracted a few vertical specialists like Nykaa, Purplle, etc. who are riding on increasing e-tailing growth and vying for a significant share in the online cosmetics space.  Nykaa, a vertical online market place started in 2012, offers more than 600 brands in both offline and online stores.  Nykaa, as part of its future expansion strategy, plans to increase its offline footprint by establishing 35 stores pan-India and targets a yearly sale of over $155 million by 2025.
The mushrooming of beauty service aggregators like My Glamm, Belita, Big Stylist, Vanity Cube and portals in the men’s grooming sector like Beardo and Ustra are also a result of the influence of internet penetration in India.  However, beauty accounts for only two percent of the eCommerce market.


eCommerce Intellectual Property Rights

The Internet is borderless with minimum regulation, and therefore protecting intellectual property rights (IPR) on the Internet is a growing concern.  There are currently several significant IPR issues including misuse of trademark rights. Other Common issues with respect to IP in E-Commerce are:
  • Copyrights
  • Content creation through third party
  • Use of third party content on Website
  • Hyperlinking, Framing and Meta tagging
  • Domain names, business names, logos
Popular eCommerce Sites
  • B2C: Flipkart, Myntra, Jabong, Amazon, Snapdeal, eBay, PayTM, Shopclues,  Pepperfry, Zomato, BigBasket, Alibaba
  • B2B: Tolexo, Industrybuying, moglix, msupply, amazonbusiness

Online Payment

Cash on Delivery quickly changed into Card on Delivery (COD).  Cash transactions resulted in high administration costs for eCommerce companies which reduced their margins; however, digital payment solutions are evolving fast to address these challenges.

India has recorded over 140 million debit cards for online payment.  Debit card usage has now increased by 86 percent.  This clearly reflects that people are getting comfortable with using debit cards for activities other than withdrawals at ATM and many online retails insist on use of debit cards for high value transactions, which will help e-tailers to increase their reach.
According to industry experts, digital payments will act as a game changer for the domestic e-commerce business and the current trend of dominance of cash-on-delivery would be reversed in the next five years.

According to a Google India and BCG report, increases in purchasing by women and new internet users from smaller cities the digital spending is expected to increase to $100 million by 2020.

The launch of a Unified Payments Interface (UPI) by the Reserve Bank of India is expected to be a game changer. The UPI will enable eCommerce delivery staff to collect money electronically for even COD transactions.

Mobile eCommerce

Mobile eCommerce (m-commerce) is growing rapidly as a secure supplement to the eCommerce industry.  Industry leaders believe that m-commerce could contribute up to 70% of their total revenues.  India has topped the United States to become the second largest market for smartphones after China.  The number of smartphone users is expected to reach 650 million by 2019.  With million new internet users, India had an Internet user base of over 478 million in 2018.

Digital Marketing

Digital advertising spending was about 12 percent of total advertisement spending in the country.  eCommerce leads digital spending followed by Telecom and Banking, Financial services and Insurance (BFSI) with focus on social media marketing, search engine optimization, content marketing and emailers for marketing their brand online.  Digital advertising is expected to exceed $3.5 billion by 2020.  The GOI recently introduced a six percent equalization levy, informally known as the “Google Tax,” to indirectly tax international internet companies like Google and Facebook operating in India by adding a levy on payments made to them for the digital advertising space or services for online advertisements.

Major Buying Holidays

  • Diwali festival (October or November of the year)
  • Dussehra (October)
  • Rakhi festival (August)
  • Christmas (The last week of December)
Social Media

Facebook and Twitter are the most popular social media platforms in India.

  • “Digital Advertising India” report jointly published by the Internet and Mobile Association of India (IAMAI) and IMRB International
  • “eCommerce in India – A game changer for the economy’ by Confederation of Indian Industry
  • “E-Commerce in India – Legal, Tax and Regulatory Analysis” by Nishith Desai and Associates IAmWire
  • Online beauty & cosmetic India market - RedSeer Consulting
  • Indian eCommerce Industry -India Brand Equity Foundation (IBEF)

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