India's ecommerce market has experienced remarkable expansion, growing from approximately ₹14 billion in 2014 to ₹120-130 billion in 2024, according to the Centre for Social and Economic Progress report. Despite this growth, platforms continue to struggle with profitability despite earning gross margins of 40-45%, comparable to global peers. The sector's financial challenges stem from high customer service costs, with low average revenue per user and relatively small order values limiting revenue generation while logistics costs remain disproportionately high for low-ticket purchases. As reported by the Centre for Social and Economic Progress, these challenges point to broader consumer trust issues, with many consumers remaining uncertain about product quality and seller reliability.
Two key market features significantly impact Indian ecommerce profitability. Cash-on-delivery accounts for 55-60% of orders in Tier-II and Tier-III cities, compared to less than 10% in China, increasing working capital requirements and return-to-origin costs. Additionally, return rates of 25-40% exceed the global average of 17-25%, substantially increasing reverse logistics expenses. According to the Centre for Social and Economic Progress, these challenges point to a broader issue of consumer trust, with many consumers remaining uncertain about product quality and seller reliability. Building trust through stronger quality assurance, seller verification, grievance redress, and action against counterfeit products may be as important as improving delivery speeds.
India's ecommerce market has evolved into an oligopoly with Amazon and Flipkart accounting for 55-60% of sales, according to the report. While this concentration appears fundamental to platform economics, the continued emergence of smaller and niche players across segments suggests the market remains contestable. The regulatory focus should shift from market structure to making the market more contestable through strengthening public digital infrastructure, reducing logistics frictions, and supporting MSME participation. The government's recent decision to allow FDI in inventory-based ecommerce models for export of domestically manufactured goods represents a welcome policy shift, as reported by the Centre for Social and Economic Progress.
The government's recent decision to allow FDI in inventory-based ecommerce models for export of domestically manufactured goods represents a welcome policy shift, as reported by the Centre for Social and Economic Progress. This move recognizes that inventory-led models can improve logistics and expand market access for Indian manufacturers. The report emphasizes that policy should focus on preserving fair competition, preventing anti-competitive conduct, and ensuring a level playing field for all market participants rather than regulating business models. The Centre for Social and Economic Progress also highlights an important gap in the policy discussion — the lack of reliable, comparable and publicly available data on market size, platform activity, employment, value added, and regional penetration.
Gig workers have become essential to ecommerce operations, with delivery partners and warehouse associates making reliable delivery possible despite challenging conditions. The sector has potential for rapid growth in Tier-II and Tier-III cities while generating substantial employment across logistics, warehousing, and MSME supply chains. According to the report, balancing the interests of platforms, sellers, gig workers, and the state requires focusing on trust, standardized measurement, open infrastructure, and worker welfare to ensure inclusive ecommerce growth. Platforms that retain workers have lower churn costs and better customer experience, making worker retention a critical factor for long-term sector viability.
