India’s e-retail market is estimated to increase to $150 billion–$170 billion by 2027, indicating a 25 percent to 30 percent annual growth and a doubling of market penetration to nine percent to 10 percent over the next five years, according to a report by consulting firm Bain & Company, in collaboration with Flipkart.

Titled ‘How India Shops Online 2022’ the report says that India is well poised to surpass the US to become the second-largest shopper base (only behind China) in the next one to two years.

Shopper addition will continue to be at the heart of future e-retail growth. Likewise, the report claims that India’s online shopper base is estimated to increase to 400–450 million by 2027, with most of them already in the digital funnel—450–500 million used social media while only 180–190 million shopped online in 2021.

“The Covid-19 pandemic has been a crucible moment for online retail in India. The pandemic has induced hypergrowth and a 12-month acceleration in market penetration,” according to the report. “India currently has the third-largest shopper base globally, with 180–190 million online shoppers in 2021.”

Rising from approximately $ 40 billion last year, India’s e-retail market is slated to reach $50 billion in 2022. India has robust fundamentals supporting a continued boom in e-retail.

Currently, in the e-retail market, India’s substantial online consumer base and retail market (third largest globally) already make it incredibly attractive. Additionally, there is massive space for smartphone penetration (36 per cent in India v 63 per cent in China and 76 per cent in the US) and affluence ($2,000 per capita in India vs. $12,000 in China and $69,000 in the US), in addition to already low data prices, provide the perfect ingredients for sustained growth.

The report says that a “Rising affluence will fuel consumption and increase spending per shopper”.. “Although the current inflationary environment might prove to be a short-term headwind for the market, these structural drivers will ensure healthy growth in the medium to long term.”

On the other hand, the report indicates that the category mix of online purchases will also evolve. Categories such as mobile phones, electronics, and appliances have accounted for the lion’s share of the e-retail market. This will change over the next five years. Fashion, general merchandise categories (including personal care), and grocery have the highest penetration headroom (vs. mature markets) and will therefore fuel growth. These categories will cumulatively account for as much as two-thirds of the e-retail market by 2027.

The report pointed out the government’s significant role in playing a critical role in democratizing e-retail for India through the creation of the Open Network for Digital Commerce (ONDC). ONDC aims to create an interoperable network for digital commerce akin to Unified Payment Interface (UPI) network for payments. Although a nascent initiative, its successful and full-scale execution could provide a fillip to the Indian e-retail ecosystem.