Mumbai: In July, when online retailer tied up with Indian Railway Catering and Tourism Corp. (IRCTC) to offer shopping services on the latter’s website, the largest e-commerce platform in India by traffic, it received its first order not from one of the metros, but from Chakradharpur in West Singhbhum district of Jharkhand.

The order for apparel and accessories gave an inkling of where its next big set of customers would come from.

“The next story for online shopping is going to come from smaller towns in India," said Manmohan Agarwal, chief executive and co-founder of “It is time to go beyond the tier II and III cities and go deeper into the real India where the consumer is waiting for us."

Online retailers like are witnessing increased growth in demand from non-metro cities and smaller towns as the Internet penetrates deeper and appetite for online shopping increases among non-urban consumers.

The number of active Internet users in India is around 120 million, up from 75 million in 2010, according to the Internet and Mobile Association of India.

Since tying up with IRCTC, has seen an increase of 12% in orders from tier IV and tier V cities. The tie-up came from the realization that consumers in the smaller towns need to be serviced, Agarwal said.

The online retail industry in India is estimated to grow from $1 billion, around 0.2% of the total retail market, to $56 billion, or 6.5% of the market, by 2023, according to a September report by Technopak Advisors Pvt. Ltd, a New Delhi-based retail consultancy firm. Around 25% of the $1 billion online sales come from Tier II cities, according to the Technopak report.

“Aspirations of consumers in small cities and towns (beyond the Top 15) are increasingly converging with the aspirations of consumers in metros and mini-metros," the Technopak report said.

Increasing exposure and affordability are driving demand from small towns and limited penetration of branded brick-and-mortar stores has created “a sweet spot for alternate retail channels to grow and thrive".

Binny Bansal, co-founder and chief operating officer of online retailer Flipkart, said e-commerce will become a daily habit in 6-8 years, with people buying almost everything (not just one or two product categories) on the web.

“We are seeing that sales from tier II and III cities are fast catching up with sales from the metros and tier I cities. Growth in business from tier II and III cities is mostly due to the increasing use of Internet on the mobile," Bansal said., another online shopping website, generates 50-60% of its sales from small towns, founder Arun Chandra Mohan said in a recent interview. “These are not the top 45 cities, but the next rung after that," he said.

Meanwhile, even brick-and-mortar stores are tapping the online market to address this growing demand. Kishore Biyani’s Big Bazaar chain of retail outlets has launched a new model for e-commerce called Big Bazaar Direct. The venture has been launched in parts of the Vidarbha district of Maharashtra, and will expand to the Northeast and Gujarat soon.

Big Bazaar Direct is a franchisee-based model in which the franchisees will personally visit consumers and take orders for products. Although it is not entirely online, the franchisees will use tablet computers for placing orders online. The products will be delivered in 3-7 days.

Some human intervention is necessary to reach out to consumers even without Internet or credit cards, Biyani told reporters at the India Retail Forum held in the last week of September in Mumbai. If the model works, it could be bigger than Big Bazaar, Biyani said.

Luxury designer-wear retailer Kimaya Fashions started its online platform in the beta phase three—a software development phase—months ago. The online portal generates around 1 crore of revenue every month, Pradeep Hirani, founder and chief executive officer of Kimaya Fashions Pvt. Ltd, said.

He expects to generate 100 crore of revenue through the e-commerce platform alone in next 3-4 years.

However, many believe that catering to small towns and remote parts of rural India brings its own challenges, and language is one of them.

“Language is a big problem. Just because you are selling something at a 20% discount, the customer is not suddenly going to start learning English," said Rajiv Prakash, founder of NextiN advisory partners, an e-commerce advisory firm.

Sapna Agarwal contributed to this story.