India’s consumer digital economy is expected to be a US$800 billion market in 2030

• PE/VC investments in Indian internet and e-commerce witnessed 370% y-o-y growth in 2021
• E-commerce is expected to capture 11.4% of total Indian retail market by 2026.
• Fintech, online gaming and social commerce will see continued accelerated growth

New Delhi, 4 April: The internet and e-commerce sector in India has emerged as one of the fastest-growing sectors in the country, with growth further accelerated by the shift in consumer behaviour as a result of the COVID-19 pandemic. According to industry estimates, India’s consumer digital economy is expected to be a US$800 billion market in 2030, registering a ~10x growth from 2020. The sector witnessed 370% y-o-y growth in PE/VC investments in the year 2021.

Ankur Pahwa, E-commerce and Consumer Internet Leader, Transactions Diligence Partner, EY India – “Rapid growth in internet penetration and increasing smartphone usage are driving growth in online activities such as e-commerce and digital payments. The pandemic has further accelerated the rise of the new-age digital consumer, positioning India among the fastest growing digital economies globally.”

Indian internet start-ups come of age

2021 was the year of start-ups in India with increased capital deployment in start-ups across different growth stages. Consumer internet and e-commerce companies raised US$38 billion in 2021, increasing from US$8 billion in 2020, driven by large-size investments across fintech, hyperlocal and e-commerce sectors as the Indian start-up ecosystem continues to mature. Rise in late-stage investments also resulted in creating Indian tech unicorns, giving rise to 40+ unicorns across fintech, B2C and B2B e-commerce and payments.

While small ticket investments in Indian ecommerce and Internet sector continue to account for over 60% of total PE/VC investments, there has been a notable increase in large ticket investments, with growth in late-stage funding. The payments and wallets segment saw the largest share of 100m+ deals in 2021, with payment providers aggressively looking to expand in contactless payments. The deployment of capital has broadened in 2021, with 100m+ funding growing its share in total internet and e-commerce investments from 5% in 2020 to 13% in 2021. This has also resulted in an increase in the average ticket size, signalling Segway into the next phase of maturity in the India internet start-up ecosystem.

India has also emerged as the third largest fintech ecosystem in the world, with the country accounting for four out of top 10 fintech deals in the Asia-Pacific region in 2021.  Other sectors which shall witness an accelerated growth include, gaming, which is expected to grow 3x by 2027 and paid gamers are expected to reach ~240 million by 2026, from 96 million in 2021, and social commerce shoppers, which is expected to reach 228 million at the end of 2022, a 45% increase from the current consumer base.

“The e-commerce and internet space continues to witness consolidation as businesses leverage collaboration to drive growth. We shall witness expanding portfolios of D2C brands, more of brand aggregators, and faster creation of unicorns in the near future. The key drivers for increasing M&A activity include acquisition of technology capabilities, expansion into new markets and geographies and diversification of portfolio.”, adds Ankur Pahwa.

The year of unicorns and IPOs - 46 Unicorns | $38bn in Investments | 600+ PE Investments | 90+ deals greater than $100mn | 370% YoY Growth in investments | 150+ M&A deals | 9 IPOs

India is becoming a unicorn hub, led by E-commerce and Internet start-ups. The Indian start-up ecosystem saw 46 unicorns in 2021, more than doubling the total number of unicorns to 90. The e-commerce and consumer Internet sector was a major contributor in the unicorn space, led by the B2C and B2B e-commerce, fintech and edtech segments. Internet-based businesses have seen exponential growth in the past 18-24 months, acquiring many first-time customers as well as witnessing increased activity from existing customers, as consumption models evolved and consumers went digital as a result of the COVID-19 pandemic. And these trends do not seem to be short-lived. Two months into 2022, and we already have nine unicorns in the country, out of which four are E-commerce and Internet companies.

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