India’s Internet Economy

India’s Internet Economy

India has stepped into its ‘Digital Decade’, primed to become a $1-trillion internet economy by 2030, albeit interspersed with unique challenges.

Set on the trail towards a whopping $1Trillion internet economy by 2030, digital services are becoming indispensable to India’s 700M+ internet users. This digitally-active population encompasses 350M digital payment users and 220M online shoppers. With household consumption expected to double by 2030, digital commerce is increasingly becoming more embedded in the everyday lives of Indians.

Figure 1: Rise of online usage; Source: India e-Conomy Report 2023; Google, Temasek, Bain & Co.

A Surge Across Internet Sectors: The Rise of Digital Exports

All sectors of the internet economy are experiencing positive growth, with B2C e-commerce attributing approximately a third of the internet economy’s value. Primarily propelled by an increasing reach in smaller towns and cities, the B2C e-commerce GMV currently stands at $65B and is predicted to amplify six-fold, reaching $380B by 2030. Other sectors such as online travel and ride-hailing are also predicted to follow similar growth paths, likely scaling at least 4-5x over the decade.

Figure 2: Shift inincome; Source: India e-Conomy Report 2023; Google, Temasek, Bain & Co.

Digital financial services, with the broadening acceptance of digital tools and solutions, are also expected to see promising growth, ranging from 8%-13% CAGR between 2022-2030 across sub-sectors like payments, lending, investments, and insurance.

Buoyed by various successful ventures in SaaS, Edtech, and B2B e-commerce, numerous Indian businesses are eager to mark their presence globally. Three key enablers – a skilled and creative talent pool, insights from India’s sizable domestic market, and more proactive regulatory support – will help unlock the export opportunity.

Boosted by solid policy impetus, digital Infrastructure has especially leaped forward in making public goods and services digitally accessible to all citizens and businesses. Services such as Aadhar, United Payments Interface (UPI), and Digilocker have unlocked the expansion of India’s internet economy, paving the way for disruptive open networks like the Open Network for Digital Commerce (ONDC), Open Credit Enablement Network (OCEN), and Unified Health Interface (UHI). These platforms have opened new opportunities for existing and new sectors on the cusp of a turning point.

Digital-First Habits Gain Traction: The Rising Power of Tier 2+

Indian consumer habits have been evolving significantly over the past few years, with three notable digital behaviours: a widespread preference for digital interactions; the pursuit of convenience and value; and the increasing importance of sustainability. This surge in digital habits is not confined to larger cities – given the population size of India’s Tier-2 cities and beyond, their growing internet user base, and their readiness to embrace digital-first habits, they too will significantly drive this monumental digital shift.

Figure 3: The rise of Tier-2+;Source: India e-Conomy Report 2023; Google, Temasek, Bain & Co.

However, the opportunities in these regions come with sizable challenges that require concerted efforts from both the state and the private sector. Solutions addressing T2-specific needs, such as lack of quality education, limited healthcare services, or poor crop productivity, are gradually emerging across sectors like education, health, and agriculture.

Adapting to Changing Customer Expectations

The expansion of India’s internet economy lies in three independent but parallel evolving paths to digital maturity. Large, traditional firms, recognising digital as a strategic priority, have been enhancing their digital core through digital-first investments and acquisitions with gradual but steady success. Micro, small, and medium enterprises (MSMEs) have also started harnessing digital solutions to expand customer reach, enhance business efficiencies, and drive better outcomes. Over 6 million – nearly 10% – of India’s MSMEs are already actively participating in online buying and selling domestically.

Moreover, the start-up ecosystem has been the primary driver and catalyst behind India’s digital innovation. India is home to over 100 unicorns and five decacorns. With 93,000 recognised start-ups in the country, around 30% of which were registered in 2022 alone, the start-up sector is likely to sustain interest from both potential employees and investors.

The strong growth fundamentals, successful exits, and supportive regulations have attracted an influx of global capital into India since 2016. This abundance of capital has acted as a catalyst for growth, propelling India to the third spot globally in terms of total unicorns. Consequently, the digital sectors have captured an increasingly large share of local and international investments.

While funding activity moderated in 2022 over 2021 due to macroeconomic softness and high pricing expectations, investors anticipate a swift recovery to 2021 peak by 2024. In the long term, investor sentiment towards India remains favourable.

Key Imperatives and Enablers to Unlock the $1 trillion Economy

The flourishing internet economy in India presents a compelling opportunity for businesses to capitalise on. To fully harness this potential, enterprises must gain a deep understanding of evolving consumer needs and strive to build more customer intimacy. Moreover, leveraging digital technologies has become critical for streamlining the operating model and driving growth. This digital shift will also lead to the emergence of unique imperatives across trust, security, and responsibility. Combating these will require collaborative efforts from India’s policymakers and the private sector.

India’s journey towards becoming a $1 trillion internet economy is a compelling narrative of rapid growth, digital maturity, and persistent innovation, albeit interspersed with unique challenges that need to be surmounted.

Read the e-Conomy India 2023 report here.

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