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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.

Economic growth, 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.

Macro-Economic 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

When considering 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 [1].

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) [2]. 

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 [3].

Although GDP fell to 4.5% in the quarter ending 9/30/19[1], this was still better than the 2.1% experienced in the U.S. over the same time period [4]

Favourable Demographics

India, 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 [5].  

India 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

According 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 [6].

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.

Summary

Favourable economic and demographic trends have the potential to lead to growth in the middle class in India, which may increase consumer spending. 

At 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 age.

The 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.

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