The Indian digital economy has been growing steadily for years, driven by the strengthening of the county’s internet infrastructure and a subsequent increase in internet users.
In a country of almost 1.4 billion people, there are more than 600 million active internet users. That is twice the population of the entire United States and almost five times the population of Japan.
According to statista.com, the active Indian eCommerce penetration is currently 76.7% and the online retail market will reach 73 billion in size by the end of 202.
This growth was in part fueled by government policies, including measures to allow foreigners to own 100% of an Indian B2B eCommerce business, thus noticeably increasing the number of eCommerce investments flowing into India from other countries.
Another, more recent reason for this trend is the significant growth in the number of Indian tech startups. This has had a positive impact on digital transformation. This, in turn, has created even more favorable conditions for eCommerce sellers and buyers and fueled the growth of this sector even more.
In this article, we will first give you an overview of the current status (and long-term prospects) of the Indian tech startup ecosystem and later move to a more detailed analysis of how the growth, proliferation, and advancements of tech startups have fueled the growth of the eCommerce sector.
The Current Indian Tech Startup Environment
Based on the NASSCOM report, 2021 saw unprecedented levels of growth in the Indian startup ecosystem, even dwarfing pre-Covid-19 heights.
This report highlights some of the most crucial data and developments in this sector. Here is an overview of these data.
- Between 2011 and 2021, between 25,000 and 26,000 tech startups were founded in India
- More than 2250 Indian tech startups were founded in 2021 alone
- 40% of Indian tech startups follow a business-to-business (B2B) model
- 12% of Indian tech startups leverage deep technology (AI, Blockchain, Robotics, etc.)
- As of 2021, there were more than 750 active institutional investors
- The total equity investments raised by Indian tech startups in 2021 is about 24 billion dollars
- In 2021, India contributed to the third-highest number of unicorns (startup companies with values of about 1 billion dollars), after the USA and China.
The Indian startup ecosystem is increasingly diverse, and it continues to improve its depth and breadth, with investment ranging in sectors as different as retail tech, food tech, logistics, automotive and social platforms.
It also displays increasing corporate participation, with more than 260 unique corporates operating in 2021, as well as a stronger investor commitment.
Another highlight from 2021 is the fact that 11 new Indian tech startups got listed, both in India and overseas. The cumulative market capitalization of Indian tech startups currently equals 48 billion dollars, with 6.2 billion dollars being raised through the public market listing.
Among these companies, we find travel technology business RateGain, interactive gaming business Nazara and insurance policy comparison website Policybazaar.com.
Other companies are expected to go public in 2022, including expert local service business Urban Company, online pharmacy PharmEasy, merchant platform Pine Labs, and instant delivery service Blinkit.
It’s also crucial to note the significant impact that startups have had on the country’s overall economy and employment figures. Currently, startups, in general, employ more than 6.6 million workers and they are responsible for around 10% of the current growth in Indian jobs.
As for how the equity investments in Indian tech startups were distributed, the lion’s share (25%) went to the Banking, Financial Services & Insurance sectors, followed by the Education Technology sector (11%) and the Retail & Retail Technology sector (9%).
Significant investments were also recorded in the Food Tech, Supply Chain Management & Logistics, Automotive, and Health Technology.
Highly Skilled Personnel is Increasingly Available
Another important factor behind the growth of Indian tech startups is the country’s increasing availability of experienced and knowledgeable workers in this field.
Out of all major economies, India currently has the lowest-tech talent demand-supply gap thanks to an increasing number of tech graduates, a strengthening of the country’s talent ecosystem, the pursuit of reskilling programs, and the increase in cooperation between companies and tech educational providers.
There are currently more than 5 million people that are employed in the country’s technology industry and roughly one-third of them have advanced digital skills.
The digital talent pool is growing at a much faster rate than the overall tech talent pool. This means that more and more Indian students and professionals are developing skills in fields such as Artificial intelligence, big data analytics, digital marketing, Internet of things (IoT), and cloud computing.
In addition to its focus on building its local talent pool, India is also becoming more effective at attracting tech talent from other countries. It’s no longer a country where only people emigrate from but it’s increasingly a place that talents from elsewhere see as a possible destination to migrate to.
eCommerce Businesses Can Leverage Tech to Boost Their Growth
The strengthening of the tech startup ecosystem, and of digital technology as a whole, can have a positive impact on the entire economy and can give a very strong boost to eCommerce entrepreneurs and businesses.
That’s because the technological progress generated by tech companies turns into solutions that simplify the setting up, everyday management, and long-term planning of eCommerce entrepreneurs.
From tools that make it easier for everybody to start an eCommerce store from scratch without any web development skills or knowledge to payment systems that allow your website to manage transactions and accept different payment methods to digital marketing, customer experience, and customer relationships management tools that help you increase the number of visitors to your eCommerce store, maximize the number of conversions, and improve customer loyalty.
Not to mention accounting tools that make it possible for somebody to manage their books and fulfill tax duties without paying a lot of money in tax advice and time-consuming accounting practices.
A big boost to eCommerce growth was given by the development of automation tools that allow eCommerce businesses to avoid performing repetitive tasks or hiring new workers as the operational and transactional volume of the business increase.
eCommerce automation tools allow the conversion of such repetitive, manual tasks into automated ones. You can see why the introduction of such tools meant a great deal for small eCommerce entrepreneurs who want to grow their business without raising their costs to unsustainable levels while at the same time avoiding losing efficiency and flexibility.
Artificial intelligence (AI) tools are also fueling the growth and improvement of eCommerce businesses. They do so by collecting business and customer data and by using them to predict the future more accurately and suggest the best course of action to eCommerce managers.
Some of the major benefits that artificial intelligence tools create for eCommerce businesses include increasing levels of customer retention, seamless automation, more targeted advertising campaigns, and a more efficient sales process.
Other tech startups that are pushing the growth of online stores included companies that specialize in fields like mobile commerce, electronic data interchange (EDI), supply chain management, inventory management systems, and financial services for the management of accounts and ledgers.
The more tech startups contribute to the development of such tools and solutions, the easier things become for eCommerce entrepreneurs, the more eCommerce businesses are created and the stronger the Indian eCommerce environment becomes.
It’s a virtuous circle that has been set in motion and is foreseen to generate very positive results for at least a decade.
For these reasons, it’s not wrong to expect even stronger growth in the eCommerce sector as India consolidates its new position as an accumulator of tech startups.
The Booming Indian eCommerce Environment
Several factors, including an ever-stronger digital infrastructure, are expected to drive the Indian eCommerce sector to a staggering 400 billion dollars by 2030, according to Inc42’s State of Indian eCommerce report published by issuu.com.
Such boom was accelerated even more by the Covid-19 pandemic which generated a worldwide shift from traditional retail to online commerce.
There are currently more than 5,000 eCommerce startups in India. As of 2022, there are more than 82 billion UPI transactions in the country. More than 830 million people have an internet subscription, more than 600 million people are using the internet activity and more than 305 million people are using the Internet to buy and sell goods and services. This makes India one of the largest eCommerce markets on the planet in terms of total customers.
The fastest-growing eCommerce subsector is D2C (direct-to-customer), whose expected compound annual growth rate is 23.8% and whose market size is forecast to be 302 billion dollars in 2030, compared to 84 million dollars for the social commerce subsector and 60 billion dollars for the B2B (business-to-business) subsector.
As for funding, the average investment in Indian eCommerce startups in 2021 was 49 million, with Sequoia, Sixth Sense, DSG, and TigerGlobal listed among the most active investors.
The highest percentage of funding (43.5%) was received by the marketplace subsector, which includes businesses like Droom and Flipkart. The B2B subsector received 16.5% of the funding, a figure similar to the funding received by the D2C subsector (16.2%). The remaining funding was distributed between the other subsectors: reCommerce, eCommerce enablers, and social commerce.
Dehli-NCR was the main destination for funding, followed by Bengaluru and Mumbai. These cities have now become major eCommerce Startup accumulators.
Among the most recent trends in Indian eCommerce, it’s worth noting the rise in popularity of content commerce (consumption of content formats), subscription commerce, and immersive shopping experience.
eCommerce Growth Accelerated During the Covid-19 Pandemic
The Coronavirus pandemic has had many negative effects on our lives and societies. It has also negatively impacted national economies around the world, with many countries recording huge falls in GDP during the first year of the Pandemic, as the world struggled to find its way back to normality.
It has restricted our social interactions and it has weakened many businesses, especially those that rely heavily on traditional retail and personal contact.
Yet certain sectors ended up not only not suffering from the spread of the virus and the adoption of lockdown measures. Their nature allowed them to thrive and see a significant increase in revenues and profits.
eCommerce was one of these sectors. As shopping traditionally became more difficult (or in certain cases forbidden by lockdown measures), more and more customers looked at internet shopping as an alternative way of buying goods and having them delivered directly to their homes.
At the same time, many entrepreneurs have seen these circumstances as an opportunity, with many of them setting up small eCommerce stores to meet the increasing customer demand.
Simultaneously, there has also been a significant speeding up of processes like tech adoption and digital transformation which has made managing eCommerce businesses much more intuitive, affordable, and, ultimately, profitable.
These new technologies also impact how consumers and brands interact with each other, creating the foundations for better customer experiences for the buyers and more effective marketing strategies and operations for the sellers.
Many of the changes that happened during the Covid-19 pandemic are probably destined to remain. While eCommerce was initially a “survival strategy” for many people because of the lockdowns, many customers now see its benefits regardless of whether there are lockdowns or not.
At the same time, those businesses who made efforts to convert their retail shops into online stores because of the pandemic, are not going back to the years when they relied exclusively on physical stores and will continue to reinforce and expand their online presence.
It can be said that the pandemic and the lockdowns that it caused have acted as an accelerator of a shift towards digitalization and eCommerce that would have happened anyway
Those who had already hopped on the eCommerce train before the pandemic reaped the biggest benefits and there may be other global or national crises in the future that will make reliance on eCommerce very strong again.
As India fortifies its status as an eCommerce powerhouse, we will probably see more and more Indian companies expanding their operations in other countries and setting up headquarters and operations around the globe.