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India has emerged as the fastest-growing major economy in the world, slated to be the third largest economy by 2027 (1), surpassing Japan and Germany. This surge is propelled by its strong fundamentals of domestic consumption, manufacturing, controlled inflation, growing exports, investment attractiveness, and innovation. The International Monetary Fund (IMF) has just raised India’s FY25 Gross Domestic Product (GDP) growth projections to 7%, from an earlier 6.8% forecast in April. Financial Times’ top commentator Martin Wolf has asserted that India will become a superpower by 2047. He said that India could be what the IMF calls a ‘connector country’ in the world economy. He added that India can and should lead in the liberalisation of trade, domestically and globally.
There are 63.4 million micro, small, and medium enterprises (MSMEs) in India which generate 3.6 crore jobs out of 11 crore jobs. Apart from generating a substantial chunk of employment, MSMEs in India contribute 6.11% of manufacturing GDP, 24.63% of GDP from service activities, and 45.56% of total exports. The overall e-commerce market is expected to reach $350 billion by 2030 (2). According to the Economic Survey 2024, and a briefing by Chief Economic Advisor (CEA) Nageswaran, India needs to create nearly 8 million jobs per annum. He also mentioned that the government can assist the MSMEs through deregulation. He emphasised the need for threshold-based incentives and highlighted the necessity for substantial actions at sub-national and local levels to support these enterprises.
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The biggest support these enterprises need is in their marketing, access to domestic and international markets, and handholding, wherein e-commerce steps in a big way. India has witnessed a historic boom in internet and smartphone penetration. As of June 2023, the number of internet connections in India significantly increased to 895 million, driven by the ‘Digital India’ programme. Out of the total internet connections, 55% were in urban areas, of which 97% were wireless. The smartphone base has also increased significantly and, buoyed by cheap data, is expected to reach 1.1 billion by 2025. This has helped India’s digital sector, expected to reach $1 trillion by 2030.
This rapid rise in internet users and smartphone penetration coupled with rising incomes and newer applications has boosted the growth of India’s e-commerce sector. India’s e-commerce sector has transformed the way business is done in India and has opened various segments of commerce ranging from business-to-business (B2B), direct-to-consumer (D2C), consumer-to-consumer (C2C), and consumer-to-business (C2B). Major segments such as D2C and B2B have experienced immense growth in recent years. India’s D2C market is expected to reach $60 billion by FY27. In the Economic Survey, the CEA has emphasised the significant potential of the Open Network for Digital Commerce (ONDC), stating that the growing realisation of digital infrastructure’s potential positions ONDC to elevate small enterprises into major market players. While it was mentioned in the context of ONDC, it is equally applicable for other major e-commerce players.
India's consumer digital economy is expected to become a $1 trillion market by 2030, growing from $537.5 billion in 2020. E-commerce exports in India are estimated between $4 billion and $5 billion, accounting for over 1% of the country's total merchandise exports, in 2023, but expected to surge to over $10 billion soon.
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The recent EY-Assocham Report highlights the need for growing e-commerce exports by rationalising payment reconciliation costs, streamlining customs procedures, facilitating express export movement, and setting up e-commerce export hubs, which figures under the government’s commitment in the Foreign Trade Policy. These export hubs are slated to be set up near airports and seaports as part of the government's 100-day agenda.
India has set a target of $1 trillion of merchandise exports by 2030 aiming for a compounded annual growth rate of 12.2%. To achieve these targets, export growth is expected from new and emerging sources. One such source is cross-border e-commerce trade (3). Global cross-border e-commerce is estimated to grow to $800 billion by 2025 and up to $2 trillion by 2030. This would result in reduced time and cost for the seller, allowing more time and focus on their product, packaging, and marketing. E-commerce would account for around 6.6% of overall global merchandise trade.
As asserted by the CEA, no economic approach will be excluded, we need manufacturing and exports, all combined. In fact, as evidenced by the impact of growing e-commerce in several advanced economies, e-commerce benefits the economy in multiple ways, including the expansion and diversification of consumer spending, like mobiles, air conditioners, refrigerators, and other appliances, further benefiting both manufacturers and retailers. With its wide penetration across the country supported by the digital stack, e-commerce helps in multiple ways, giving greater choices to consumers with easy access, inflation control, and stabilisation of prices. It also helps in employment generation, improving the quality of life, and better planning on their expenditure for lifestyle and durable goods. It also helps in other sectors like agriculture, in promoting inputs and better marketing in India and abroad. With push and pull factors and increased demand for computers, mobile phones, smartwatches, and infrastructural tools, it also supports other consumer durables and service industries, including education and healthcare.
E-commerce has come to occupy an integral place in day-to-day life at present, and needs government support in various ways, including in regulations, logistics, infrastructure, digital laws, prevention of cybercrime, cross-border e-commerce trade provisions in bilateral agreements, etc. As India races to become a developed nation by 2047, it is important that we gear up to meet the newer challenges.
(Dhanendra Kumar has served as the first Chairman of the Competition Commission of India, Executive Director at the World Bank for India, Sri Lanka, Bangladesh, and Bhutan. He is currently Chairman of Competition Advisory Services India LLP (COMPAD). With inputs from Varun Singh, Associate, COMPAD)
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper.
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