India's ecommerce growth hinges on trust and fair competition

Despite its rapid expansion, the sector struggles to balance the interests of platforms, sellers, gig workers, and the state

India’s ecommerce market has expanded rapidly over the past decade, moving beyond metros to reach consumers in Tier-I and Tier-II cities. The sector, which was valued at around $14 billion in 2014, has grown to nearly $120-130 billion in 2024 and is expected to continue its growth trajectory.

 

However, several concerns have also been raised. First, despite this remarkable expansion, platforms have not been able to turn profitable, even though their gross margins are comparable to those in other countries. Second, there have been controversies surrounding the conduct of platforms, including violations of foreign investment rules, preferential treatment of sellers, deep discounting practices, and inadequate competition safeguards. Third, concerns have emerged over the working conditions and social protection of gig workers who form the backbone of the sector. 

The recently released “India E-Commerce Report 2026: Innovation in the Merchandise Space” by the Centre for Social and Economic Progress examines the evolution of India’s merchandise ecommerce sector, its market structure, policy challenges, and the conditions needed for sustainable growth. The report also highlights an important gap in the policy discussion — the lack of reliable, comparable and publicly available data. Without consistent information on market size, platform activity, employment, value added, and regional penetration, it is difficult to accurately assess the sector’s economic contribution or design appropriate policy interventions. 

While Indian ecommerce platforms earn gross margins of 40-45 per cent, comparable to their global peers, they continue to report negative net margins. The problem lies in the high cost of servicing customers. Low average revenue per user and relatively small order values limit revenue generation, while logistics costs remain disproportionately high for low-ticket purchases. Two features of the Indian market further raise operating costs. Cash-on-delivery, which still accounts for 55-60 per cent of orders in Tier-II and Tier-III cities, compared with less than 10 per cent in China, increases working capital requirements and return-to-origin costs. At the same time, return rates of 25-40 per cent, well above the global average of 17-25 per cent, substantially increase reverse logistics expenses. 

These challenges point to a broader issue of consumer trust. A continued reliance on cash-on-delivery and high product returns suggest that many consumers remain uncertain about product quality and seller reliability. Building trust through stronger quality assurance, seller verification, grievance redress, and action against counterfeit products may, therefore, be as important as improving delivery speeds. Reducing logistics costs — particularly in last-mile delivery, which accounts for nearly 60 per cent of logistics expenditure — will also be critical to improving the long-term viability of the sector. 

A profitable ecommerce ecosystem also matters for India’s micro, small, and medium enterprises (MSMEs). Digital platforms have expanded market access for MSMEs, and cross-border ecommerce will only strengthen these opportunities. Platforms in China, Brazil and Mexico became profitable alongside rising household incomes, better logistics, deeper digital ecosystems and expanding cross-border commerce. 

Lack of sufficient competition in ecommerce in India has often been cited as one of the key pitfalls. As in most countries, India’s ecommerce market has evolved into an oligopoly, with Amazon and Flipkart accounting for 55-60 per cent of sales. Some degree of concentration appears to be a fundamental outcome of platform economics. In fact, India’s market is more competitive than most. The continued emergence of smaller and niche players across segments suggests that the market remains contestable. New entrants are able to grow by differentiating their business models or targeting specific consumer groups. 

The regulatory focus, therefore, should be less on market structure per se and more on making the market more contestable by strengthening public digital infrastructure, reducing logistics frictions and cross-border compliance costs, and supporting MSME participation. India’s foreign direct investment (FDI) policy, which permitted foreign investment in marketplace models but not inventory-based models, had also become increasingly difficult to enforce, as private labels, preferred sellers and control over pricing often blur the distinction. The government’s recent decision to allow FDI in inventory-based ecommerce models for the export of domestically manufactured goods is therefore a welcome step. 

The move recognises that inventory-led models can improve logistics and expand market access for Indian manufacturers. If these benefits are acknowledged for exports, then it is legitimate to ask whether distinguishing between marketplace and inventory models remains the right basis for regulating domestic ecommerce. Rather than regulating business models, policy should focus on preserving fair competition, preventing anti-competitive conduct and ensuring a level-playing field for all market participants. 

Gig workers have become the backbone of ecommerce. Delivery partners and warehouse associates make reliable delivery possible, often in difficult conditions. Their interests must be at the centre of both platform strategy and government regulation. Platforms that retain workers have lower churn costs and better customer experience. 

Ecommerce has the potential to grow rapidly, especially in Tier II and Tier III cities, and generate substantial employment across logistics, warehousing and MSME supply chains. The challenge is to balance the interests of platforms, sellers, gig workers and the state. If we get the fundamentals right — trust, standardised measurement, open infrastructure, and worker welfare — India’s ecommerce will also be inclusive.

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The writers are, respectively, senior fellow and former associate fellow at the Centre for Social and Economic Progress, New Delhi