How Indian e-commerce market will reach $200 bn by 2026

E-commerce market in India is poised to grow at a 30 per cent compound annual growth rate for gross merchandise value and will be worth $200 billion by 2026, according to investment bank Morgan Stanley.

The financing firm published a report titled India’s Digital Leap–The Multi Trillion Dollar Opportunity and said that the growth in e-commerce will help the overall market to grow to 12 per cent in the next nine years. Currently, e-commerce constitutes only 2 per cent of the total retail market share.

“Our analysis of some global e-commerce companies highlights that two-thirds of the growth in their e-commerce sales happened due to new users coming online and shopping, while the balance was driven by existing online shoppers buying more frequently and/or driving up order values,” the report said.

The report emphasized that an increasing number of internet users will help lead the growth in the e-commerce segment. In 2016, around 60 million people shopped online in India, which constitutes 14 per cent of the internet user base of the country. This will rise to over 50 per cent by 2026.

“What we have seen through proprietary consumer surveys in the past is that it takes time for consumers to get comfortable with a channel,” Parag Gupta, executive director, Morgan Stanley, said in an interview.

He added that generally, people who have been on the internet for less than two years, don’t transact on the internet (including mobile banking). So generally, they are engaging in basic activities like messaging, social media, and search, things that don’t involve a monetary transaction.

However, once a consumer has been online for over five years, they are more likely to buy online. Right now, that’s only 30 per cent of India’s 432 million internet users and a the remaining number got active only in last three years.

Besides, as the adoption of digital payments is growing, it will also add to the growth of e-commerce.

Gupta believes that with the rising share of digital wallets and UPI to 4-7 per cent, cash-on-delivery has also come down to 55-60 per cent, around 5 per cent less in two years.

But, this growth will still be led by the so-called “horizontal” e-commerce players, including Amazon India and Flipkart. “If I look at the way e-commerce has evolved globally, it is generally the horizontal e-commerce players who have dominated,” Gupta said. “We have seen this in the US and China.”