The Rise of Ecommerce in India: Favourable Macro Trends | EMQQ
India is approaching a unique inflection point in the countries growth that we
believe will be driven by the Internet and ecommerce sectors as a confluence of
secular trends begin to converge.
demographic factors, as well as accommodative government policies, have the
potential to drive the next leg of growth in the sector and country at large.
Conditions in India
In our Four-Part Series, we discuss the factors we
believe will propel growth in Indian ecommerce as well as ways investors may
gain exposure to the sector.
- Macro conditions
- Internet/smartphone landscape
- Government support
- Companies best positioned
In this article, we discuss
the current Macro-Economic Conditions in India and
how the economy is becoming increasingly digitised.
Strong Relative Economic Growth
India’s current state of economic growth, a little historical perspective is
needed. Only 20 short years ago in 1990 when the world wide web was invented,
the average American was almost 20 times wealthier than the average Indian,
today that number stands at 8 times and continues to shrink rapidly. The speed
and scale of this massive rise in income have lifted hundreds of millions out
of poverty adding to the global middle class .
India has averaged
over 5.8% GDP growth for the past 10 years vs 1.3% for the World and is
currently standing as the third-largest contributor to global GDP by purchasing
power parity (PPP) .
According to the
World Bank, India experienced GDP growth of nearly 7% during 2018 versus the
2.9% and 2.2% growth experienced in the United States and in Organisation for
Economic Cooperation and Development (OECD) countries over the same time
period. At the same time, growth in GDP per capita increased by nearly 5.9%
during 2018 versus 2.2% and 1.6% for the U.S. and OECD .
Although GDP fell to
4.5% in the quarter ending 9/30/19,
this was still better than the 2.1% experienced in the U.S. over the same time
with a median population age of just under 28, is a younger country than most
developed countries, such as the U.S. with a median age of 38, according to
worldpopulationreview.com. Additionally, in the year 2020, India is
predicted to have the youngest workforce, with 65% of its population below the
age of 35 .
is in its early stages of urbanisation. As of the end of 2018,
nearly 65% of its population still lived in rural areas. That is well
above the 18% of the U.S. and 19% of OECD countries, according to the World
Bank. Urbanisation tends to lift economic growth as citizens living
in cities may earn more money and, consequently, demand more goods and services
as compared to their rural counterparts.
Growth in Middle Class
to a study by Brookings Research, India only accounted for 5% of the global
middle class as of 2015. However, that percentage is estimated to
grow to 9% in 2020 and 17% in 2030 .
India’s strong economic growth, favourable demographics, and expected growth in
its middle-class point to the potential for greater consumerism in general, and
strong growth in ecommerce specifically. Just as our consumption patterns have
changed via the internet and smartphone, so to are the developing economies of
the world, just on an order of magnitude larger and faster than ours.
economic and demographic trends have the potential to lead to growth in the middle
class in India, which may increase consumer spending.
risk of grossly oversimplifying this incredibly pluralistic and complex
country, we believe India is and will continue to be a catch-up story as it has
lived through centuries of economic stagnation and is only just now beginning
to realise it’s true economic potential. Risks are numerous and as complex as
the country’s history, yet we believe the young entrepreneurial private sector
will continue to be the bright spot that leads the country into the digital
next article in the series will discuss the increased penetration of the
internet and smartphones and how it may drive the next leg of growth in Indian ecommerce.