Offering a pulse check on the consumption and growth story of India, Mrigank Gutgutia, Partner, Redseer Strategy Consultants, explains that the fundamentals are in the right place. The Indian macros are best positioned with a GDP of US$ 6.5 trillion and a retail goods market size of US$ 2 trillion, with the PFCE at US$ 4 trillion. India’s digital ecosystem is already at the gold standard with over 350 Mn active digital payment users, 50 Mn+ digital-using merchants, and over 50 percent digital ad share.
While the macro picture has been bleak for the last two quarters, India’s private consumption, which had dipped to US$ 2.2 Tn in Q3-Q4 FY23, is on its way up and expected to touch US$ 2.4 Tn+ in Q4 FY24. Indicators across emerging sectors, such as credit card spends, air travel, and sales of vehicles, show signs of recovery in Q1 FY24. Mrigank further highlights that travel, financial services, recreation, and insurance, among others, are ‘prosperity-driven categories’ and have experienced an acceleration. He adds, “India’s long-term consumption trends are gradually reflecting increased prosperity as the consumer behavior evolves towards higher categories.”
As per the report, other categories expected to accelerate with long-term growth, include education, personal vehicles, personal care, food, and clothing. Premiumization, brand proliferation, and digitizations being the core consumption themes across sectors. While the journey so far has been turbulent, India’s Internet is poised to be in cruise control momentum until the end of the decade at a 25 percent CAGR.
Delving further into the challenges across sectors in the coming quarters, he adds, “Product oriented consumer internet sectors have faced recent growth headwinds, but growth is likely to revive steadily with most services except travel to have normalized growth expectations ahead.”
Transacting user growth remains the prominent challenge for most categories such as fashion, BPC, eGrocery, eTailing, mobility, etc. Although the total number of internet transactors is ~350 Mn, the mature internet transactors who are frequent online buyers have plateaued around 40-45 Mn. Commenting on the low numbers of attractive or high-frequency users, Mrigank adds, “While user base at the top of the funnel is robust, high-value transactors growth has been plateauing. This is because the potential of users across smaller cities is yet to be fully unlocked”.
Solving key concerns among non-mature online transactors, such as complex ordering processes, lack of trust, and better offline offerings, is also needed to improve the total user base and high- frequency users.
To drive the internet growth engine for the decade, Mrigank elaborates on business model improvements for various sectors. For instance, hyper-localized selection, simplified user journeys, and trust building can significantly impact categories such as eTailing, eGrocery, fashion, and pharma, while loyalty programs and affordability can improve travel, FoodTech, pharma, and mobility. Taking a fresh look at the best practices of global new commerce and deploying those in India on a selective basis is also needed to unlock significant value going forward.
He concludes that India’s unique situation requires an ‘India Model’ to fully unleash the country’s potential. Localization to cater to the heterogeneity of the population and building omnichannel experiences to incorporate the existing consumer habit of offline consumption are needed going forward. “India is digitally mature, our tech stack is world-class, and the infrastructure is already in place to chart our unique journey this decade.”