A continued shift in consumer behavior and evolution of the business ecosystem will underpin the growth of India’s internet economy, from approximately $175 billion of consumption in 2022 to about $1 trillion by 2030, according to a report revealed on Tuesday.

The report titled “The e-Conomy of a Billion Connected Indians” released by Google, Temasek and Bain & Company showed that the confluence of three crucial forces – digital-seeking behaviors amongst internet users in Tier 2+ locations, the digitization of large, traditional businesses along with a growing startup ecosystem, and the success of India’s homegrown digital public goods or the ‘India Stack’ – has positioned the internet economy for acceleration.

Consequently, the contribution of the internet economy to India’s technology sector is set to expand, from the present 48 percent to 62 percent in 2030, while its share in India’s gross domestic product (GDP) will increase from 4 percent to 5 percent to nearly 12 percent to 13 percent.

With India’s about 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 report opined that 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, said the report.

It is also noted that tier 2+ consumers indicated a greater openness to experimentation with new brands and products, and to directing their increased spending towards personalization and premiumization, especially for healthtech and edtech.

Against a national average of 70 percent, the report noted that presently 82 percent of tier 2+ consumers are willing to pay higher prices for personalized and customized products and services, while 84 percent of consumers in tier 2+ would prefer an e-consultation with a reputed doctor to a live appointment with a friend- or family-recommended doctor, compared to 75 percent nationwide.

Presenting a 2030 outlook across ten key consumer sectors, the report projects that business to consumer (B2C) e-commerce will continue to maintain a leading share of digital services, growing five times to six times to about $350 billion to $380 billion by 2030.

India’s online shoppers are expected to double by 2030, with currently over 60 percent of new shoppers located in smaller towns, and increasingly attracted to the direct-to-customers (D2C) offerings and accessibility features of digital platforms.

HealthTech and insurTech, both currently sized at or less than $2 billion today, will demonstrate the largest expansion, to the tune of 9 times to 15 times.

Meanwhile, software as a service (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 micro, small and medium enterprises (MSMEs).

With approximately 80 percent of surveyed consumers preferring digital-first experiences for the convenience and value they deliver, the report also noted that responsiveness to consumer behaviors and preferences will be key to the growth of the digital economy.

It said the industry will need to deliver to the priorities of consumers by innovating for their differentiated needs, being responsive to user preference for language, building safety and security into the consumer journey, and integrating sustainability throughout their operations.

It noted that inclusive content and experiences, such as gamification, will help businesses capture mind share and market share, while personalization will help businesses differentiate and identify new revenue streams from the premium services and products consumers desire.

It said consumers will also choose brands that align with their values, even willing to forego some convenience for more sustainable options.

Along with omnichannel models, it said consumers have indicated an appetite for novel, India-first experiences, especially in online games and media.

These preferences will factor significantly in the demand for digital goods and services, strongly influencing business’ success in attracting and retaining customers.

Demonstrating an overall investor optimism on India as a favorable 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 percent of their funds’ allocation will be towards digital investments in the next five to seven years.

Given the growing emphasis on profitability, the report highlighted that growth and late-stage startups will receive more investor attention than earlier stage ones.

SaaS is likely to hold the most appeal over the medium term, with about 77 percent of surveyed investors ranking it in the top three sectors for investment interest, due to the global reputation of India’s large talent pool and software products, and potential for growth in newer verticals with startups identifying profitable niches.

Fintech followed in investors’ ranking at about 59 percent, and B2C e-commerce and business to business (B2B) e-commerce at approximately 36 percent each, encouraged by a growing consumer base, rising number of micro-pay transactions, especially UPI, and expansion of opportunities for businesses to access credit, get organized and digitized.

“Three foundational forces – deepening consumer digital adoption, technology investments by businesses, and digital democratization with the India Stack – has placed India at a turning point in its digital transformation,” said Sanjay Gupta, Country Head and Vice President, Google India.

According to him, 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 6 times, reaching a trillion dollars by 2030.

Bain and Company (India) Managing Partner Parijat Ghosh said that India’s internet economy has remarkable potential and is expected to grow at 6 times over the next decade, with B2C e-commerce driving 40 percent of the digital gross merchandise value (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,” he added.

Temasek Managing Director in Investment (India) Vishesh Shrivastav said that widespread digital adoption among consumers, as well as businesses, is accelerating the growth of India’s internet economy at an unprecedented rate.

“Temasek has been a major participant in India’s internet economy, and is optimistic about India’s growth trajectory due to the country’s sound fundamentals,” he said.

He expects trends in the consumer and digital space to provide a long runway for growth.

He said the firm, as a long term investor, is committed to providing catalytic capital to spur the development of innovative solutions to create a more efficient, more sustainable and more inclusive society.

Green investment in SEA falls 7 percent year-on-year to $5.2B in 2022, a report shows