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: 7/27/2017


eCommerce is India’s fastest growing and most exciting channel for commercial transactions.  Indian eCommerce is growing at an annual rate of 51%, the highest in the world, and is expected to jump from $30 billion in 2016 to $120 billion in 2020.  (Source: ASSOCHAM-Forrester study paper.)  The retail sector (which is one of the largest item in eCommerce) is also showing a promising trend of 11% CAGR and is expected to reach $1 trillion by 2020.

Current Market Trends

eCommerce has made it easier for top 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, Start up India and Make in India are also contributing to the growth of the
eCommerce industry.

On November 8, 2016, the Government of India launched a major ‘demonetization’ effort to address counterfeiting and the black market cash supply.  Effective overnight, 86% of India’s currency was nullified, which completely disrupted the social, political, and economic spheres of India’s economy.   Demonetization saw varied reactions across verticals.  Gross merchandise value fell by 40-50% and may remain bleak until 2017.  However, online sellers of food and grocery reported increased sales and the boost to the digital payment mechanism are expected to help the sector in long run.

Regulatory Landscape for eCommerce Foreign Direct Investment (FDI):

  • B2B: 100% FDI is allowed in companies engaged in B2B eCommerce, e.g. Walmart, Alibaba can operate cash and carry business.
  •  B2C Marketplace: 100% FDI is allowed in 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% 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% FDI is allowed for trading (including eCommerce) food products manufactured or procured in India.
  •  Multi Brand: No FDI is allowed in companies which engage in multi brand retail trading by means of eCommerce.
  • Other Government Actions: National Institute for Transforming India (NITI Aayog) has set up a high level committee to look into issues related to eCommerce including FDI.  Food safety and Standards Authority of India (FSSAI) has also issued draft norms for licensing online food operators.  Consumer Affairs Ministry is also planning to regulate eCommerce through the proposed new consumer protection law.

Domestic eCommerce (B2C)
The presence of international marketplace players in India like Amazon, eBay (now being sold to home grown FlipKart), Alibaba and others competing alongside the domestic marketplace operators such as Flipkart, Snapdeal, TataCliq as well as with inventory led etailers, have made India’s domestic eCommerce sector highly competitive.  With no major entry barriers and with few etailers the Indian market for eCommerce has grown at a faster 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, etailers 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 U.S. 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 growth of cross-border eCommerce are high shipping costs, import duties and complexities in returns and exchanges.

B2B eCommerce
In order 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% 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.  However, B2B at present has many irritants for the rapid growth of B2B eCommerce.  The taxation policy, specifically VAT rules, makes interstate transactions very complex.  The projected implementation of a Goods and Services Tax (GST), proposed to be in effect from July 2017, is expected to resolve this to some extent.

SaaS platforms can provide a stable platform to millions of small and medium businesses in India that shy away from making huge investments to make their entry in the online retail space, establishing their authority and payment infrastructure.  With these platforms, a startup can launch its own eCommerce portals 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
Fin-tech: PayTM, Freecharge, PayUmoney, Mobikwik, PhonePe

eCommerce Intellectual Property Rights

  • The Internet is borderless with minimum regulation, and therefore protecting intellectual property rights (IPR) on 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 (COD) payments accounted for 45% of online payments and remained a popular mode of payment for Indian eCommerce transactions until the announcement of demonetization in November 2016.  Cash on Delivery quickly changed into Card on Delivery.  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. Shift away from the cash is evident by increase in payments by credit cards and mobile wallets.

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 U.S. to become the second largest market for smartphones after China.  The number of smartphone users is expected to reach 650 million by 2019. 
With annual additions of 25 million new internet users, India had an Internet user base of over 450 million in 2016.

Digital Marketing
Digital advertising spends were about 12% of total advertisement spends in the country.  eCommerce leads digital spending followed by Telecom and 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 Government of India recently introduced a 6% 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 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 sites.

“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

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