India?s e-commerce market will grow at 30% annually for gross merchandise value to be worth $200 billion by 2026, according to a Morgan Stanley report
Mumbai: India’s e-commerce market will grow at a 30% compound annual growth rate for gross merchandise value to be worth $200 billion by 2026, according to investment bank Morgan Stanley.
In a report titled India’s Digital Leap–The Multi Trillion Dollar Opportunity, Morgan Stanley said this growth in e-commerce will help grow market penetration to 12% in the next nine years, versus 2% today. An increasing number of internet users, all new to e-commerce, will help lead this growth, the report said.
“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.
India had 60 million online shoppers in 2016, which is 14% of the internet user base of the country. This will rise to over 50% by 2026, the report said.
“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. “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," he said.
However, once a consumer has been online for over five years, they are more likely to buy online. Right now, that’s only 30% of India’s 432 million internet users.
“The reason for that is very simple, because a bulk of the addition in the internet base has happened in the last three years," Gupta said.
“That’s when smartphone penetration started ballooning. So a large base of the internet population has been on the internet for not as many years as required to get comfortable with the medium. When does that maturity come through? Most likely 2019," he said, adding that the year can be an inflection point for India’s e-commerce market.
With this comfort, e-commerce customers are also moving to digital payments.
“On the extent of cash on delivery in e-commerce, there is little data available publicly to figure out the exact number, so a lot of this is based on our discussions," Gupta said. “I think a couple of years back, cash on delivery was over 60% of e-commerce sales which has now come down to maybe 55-60%. Secondly, if you look at UPI and digital wallets, their share has increased to 4-7%. A couple of years back, that number used to be just about a percent or two."
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."
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