The Indian e-commerce industry has grown to $55 billion as of 2021. This is further expected to grow by 84% to reach a valuation of $111 billion by 2024 and $350 billion by 2030. The surge in digital adoption can partly be attributed to the disruption caused by the pandemic, which has led to unprecedented adoption in Tier 2 and Tier 3 cities on the back of increasing internet penetration and adoption of e-commerce. A recent study by TISS found that tier 2 cities have been outpacing tier 1 cities in terms of value creation, with smaller cities contributing to 46% of e-commerce sales volume and 43% of the total sales value.
Another critical aspect in promoting digital adoption is the push by the Government of India, which is resolved to create a Digital India. Over the past few years, the Government has actively worked towards creating better infrastructure for internet connectivity and also for better public service delivery using digital mediums. Enacting various policies and programs to encourage businesses to go digital by adopting digital transactions, inventory management, and using tech to enable product discovery.
The study found that the difference in revenue generation between digitalized and non-digitalized businesses is statistically significant. Digital technologies can connect sellers with new clients irrespective of location. This allows sellers to grow and expand into markets that they traditionally might not be able to because of constraints of reach and resources. Further, business units can ensure more efficient last-mile delivery by adopting digital systems. Since the concept of space and transactions has become more flexible, it lets the enterprise build a network of employees and affiliates. This also provides for better visibility and makes the enterprises more discoverable.
Digitalized firms enjoy higher median revenue than non-digitalized enterprises in both tier 1 and tier 2 settings. In tier 1 cities, the median revenue of digitalized enterprises is 228% more than non-digitized enterprises. In tier 2 cities, the median revenue of digitized enterprise is ₹ 25,00,000 and for the non-digitized enterprise is ₹ 9,00,000. Further, the overall trade cost of non-digitalized firms is 37 per cent higher than that of digitized. There are clear benefits of digitalization, yet digital constitutes a minuscule proportion of the total retail market in India. Low digital literacy, age of the person running the enterprise, convenience with the traditional business model, financial constraints, fear of the unknown, lack of institutional support, and risk of fraud act as hurdles to digital adoption.
The onus to resolve these hurdles lies on both the private sector and the Government. Private players like Amazon and Flipkart have initiated various programs to handhold and onboard sellers onto their platforms. Amazon has digitized businesses through programmes like Karigar and Saheli. Amazon has also partnered with NSDC and participated in the National Apprenticeship Promotion Scheme (NAPS). Flipkart runs initiatives like Samarth and the EDGE initiative to onboard MSMEs. The Government has a crucial role to play in this process. It must convey to the people a sense of trust and safety in the digital ecosystem created in India. Some of the critical areas of action would be promoting the usage of digital commerce and building customer trust. The Government can provide incentives to businesses which go digital, increase awareness of various digital frauds, and provide a streamlined mechanism for quick and effective resolution of grievances. It can also consider strengthening the supply chain by creating storage centres to enable better last-mile delivery, thereby expanding the scope of the market for online sellers. These ideas must be catered to the needs and preferences of businesses in Tier 2 and 3 cities, as the most growth is observable in these areas.
There is tremendous potential for growth in e-commerce in tier 2 and tier 3 cities. Whether it is the expansion of traditional e-commerce entities or the emergence of new communication e-commerce platforms, the small businesses in the semi-urban and rural parts of India can gain a voice only if they continue to grow their digital capabilities and upskill themselves to be on par with their counterparts in the tier 1 cities. To this end, there is a need to focus on digital literacy, institutional support and cyber security awareness to help these businesses flourish and prosper.
