India’s internet economy is expected to reach $1 trillion by 2030 in terms of transactions owing to a continued shift in consumer behaviour and evolution of the business ecosystem in the Tier-2 cities, according to a joint report by Google, Temasek and Bain & Company. The report says that this shift will be buoyed by B2C ecommerce, B2B ecommerce, SaaS and online media segments.

According to the report, the confluence of digital-seeking behaviours amongst internet users in Tier+2 cities, the digitization of large businesses along with a growing startup ecosystem and the success of India’s homegrown digital public goods or the 'India Stack,' will be the key drivers of acceleration in the country’s internet economy. Consequently, the contribution of the internet economy to India’s technology sector is set to expand, from the present 48% to 62% in 2030, while its share in India’s GDP will increase from 4-5% to nearly 12-13%.

"Three foundational forces - deepening consumer digital adoption, technology investments by businesses, and digital democratization with the India Stack - have placed India at a turning point in its digital transformation. Structural shifts in consumption potential are opening up a vast opportunity for startups, large businesses and MSMEs to power India’s internet economy towards a projected growth of 6x, reaching a trillion dollars by 2030," says Sanjay Gupta, Country Head and Vice President, Google India.

In Tier-2+ cities, with ~700 million internet users transacting more via real-time digital payments and spending more time on online video streaming services and social media than global averages, the internet economy is set to expand beyond its current base. This growth will be founded on consumers seeing their household incomes double by 2030 from approximately $2500 to $5500 by 2030, says the report.

The report projects that B2C e-commerce will continue to maintain a leading share of digital services, growing 5-6x to ~$350-380 billion by 2030. India’s online shoppers are expected to double by 2030, with currently over 60% of new shoppers located in smaller towns, and increasingly attracted to the Direct-to-Customers (D2C) offerings and accessibility features of digital platforms.

"India's internet economy has remarkable potential and is expected to grow at 6x over the next decade, with B2C e-commerce driving 40% of the digital GMV, followed by B2B sectors and SaaS. The pace of digital disruption is expected to accelerate as traditional businesses and MSMEs increase investments in digitization, in addition to startups continuing to play a strong role in driving the internet economy. We expect to see players go beyond their core to cater to the consumer of the future and adopt new business models to capitalize on the growing opportunity," says Parijat Ghosh, Managing Partner, Bain and Company (India).

HealthTech and InsurTech, both currently sized at or less than $2 billion, will demonstrate the largest expansion, to the tune of 9-15 times. SaaS will continue to drive momentum for India’s digital exports, with edtech and e-commerce offerings getting a global footprint. Bolstered by the solid foundation of both adoption and innovation in digital financial services, online payments, lending and investments will continue to be a cornerstone of the internet economy, servicing the credit and capital needs of both the Tier 2+ consumers as well as MSMEs.

"Widespread digital adoption among consumers, as well as businesses, is accelerating the growth of India’s internet economy at an unprecedented rate. We expect trends in the consumer and digital space to provide a long runway for growth, and as a long-term investor, we are committed to providing catalytic capital to spur the development of innovative solutions to create a more efficient, more sustainable and more inclusive society," says Vishesh Shrivastav, Managing Director, Investment (India), Temasek.

Demonstrating an overall investor optimism on India as a favourable investment destination, three in five investors expect deal activities to rise in the next two to three years, with most investors stating that over 75% of their funds’ allocation will be towards digital investments in the next five to seven years, despite a prolonged funding winter. Given the growing emphasis on profitability, growth and late-stage startups will receive more investor attention than earlier-stage ones.

Indian Internet Economy

India's Internet economy to grow six-fold to $1 trillion by 2030