Growth at a crossroads

Over the past decade, India’s e-commerce market has expanded rapidly from roughly $14 billion in 2014 to about $120-130 billion by 2024, with most estimates pointing to sustained double-digit annual growth of 20-25%. Depending on definitions and coverage, projections suggest the market could reach $300-350 billion by 2030. Thus, even allowing for measurement challenges, the direction is unambiguous—e-commerce is no longer a peripheral activity, but it is becoming an increasingly central component of India’s ecosystem.

At a time when the broader economy is undergoing structural change, e-commerce has emerged as one of its most adaptive and innovative components. Growth in internet access, digital payments, and shifts in consumption behaviour have together created the foundation for digital commerce to scale. This transformation is visible not only in scale, but also in the diversity of models: marketplace platforms and inventory-led systems. Their co-existence reflects the complexity of the Indian market, where consumer preferences, firm capabilities, and regional conditions vary widely.

Beneath these developments, however, lies a constant struggle between the interests of the three key stakeholders — customers, e-commerce platforms, and the government, mainly because their interests are still not aligned.

From the customer’s standpoint, the growth of e-commerce has enabled easy access, wide choice, convenience, and price discovery. Platforms have expanded access to products across geographies, often at lower prices than offline retail, with the added benefits of doorstep delivery and easy returns. At the same time, concerns persist around inconsistent product quality, counterfeit products, and opaque pricing, especially during flash sales. Cash-on-delivery remains a preferred option for many due to delays in delivery, difficulties in customer service redress, and complex return processes. Thus, while customers have benefitted from greater access and competition, issues of trust, reliability, and after-sales service continue to adversely affect their interest in the e-commerce ecosystem.

From the e-commerce platform’s standpoint, it is significant that despite gross margins of around 40-43% at the platform level, the sector remains largely unprofitable. In contrast, China’s Alibaba reports gross margins of 40-41% alongside net margins of about 9% every year. This underscores some deeper concerns that are both operational and regulatory.

Unprofitability Paradox

At the operational level, India’s average revenue per user remains low at roughly $107, compared to $1,330 in China. Average order values are also lower, at Rs 500 to 700 in tier-II and -III cities versus Rs 900 and above in tier-I cities. These patterns are reinforced by almost 50% reliance on cash-on-delivery. Cost structures further compress margins. Logistics and fulfilment, including warehousing, represent the largest cost burden, with last-mile delivery constituting roughly 60% of total logistics cost per parcel. Additionally, return rates range between 25 and 40% in India, relative to 17-25% globally. Reverse logistics, restocking, and product devaluation add significantly to cost pressures. These challenges are structural. They arise from India’s geographic dispersion, heterogeneous demand patterns, and relatively low purchasing power.

From a regulatory standpoint, treating this ecosystem through a single regulatory lens risks distorting its evolution. As in other countries such as China and Mexico, an oligopolistic structure is evolving in this segment in India, with two major players (Amazon and Flipkart) dominating the market. However, some degree of concentration appears to be a fundamental outcome of platform economics. At the same time, the continued emergence of smaller and niche players across segments suggests that the market remains contestable. New entrants are able to grow by differentiating their business models or targeting specific consumer groups. This ongoing churn is an important feature of the sector’s dynamism and should not be undermined by premature or excessive intervention.

Alongside, some important gaps in the policy and regulatory conversation remain. First, the most critical gap lies in measurement. Without consistent definitions and robust, standardised data, it is nearly impossible to accurately assess market shares, competitive dynamics, or even the true size of the sector.

Enforcement Gap

Second, a clear gap persists between regulations on paper and their actual implementation. In India, 100% FDI is permitted in the marketplace model where platforms act as facilitators without owning inventory. In contrast, the inventory-led model is completely prohibited for foreign investment. In practice, however, this distinction is frequently blurred. Platforms have exploited loopholes through indirect control over inventory and pricing. Operational realities often override formal boundaries, raising serious doubts about effective enforcement. Thus, blanket restrictions on FDI, limits on platform ownership, or capping scale are blunt structural tools. Instead, specific anti-competitive behaviours, such as predatory pricing, exclusive seller deals, self-preferencing, and abuse of dominance, should be directly scrutinised and penalised where proven.

Third, despite their central role, issues concerning gig workers, who form the backbone of e-commerce logistics and last-mile delivery, have received limited attention in policy discussions. Worker safety remains a serious and unresolved concern. Without targeted regulatory frameworks, the growth of e-commerce risks exacerbating precarious employment, widening inequalities, and undermining the very workforce that sustains its efficiency and scale.

India has made significant progress in building the foundations of digital commerce through investments in public digital infrastructure, payments systems, and connectivity. The need is to maintain a policy environment that is predictable, supportive of innovation, and responsive to emerging challenges. Excessive intervention risks stifling innovation, while insufficient oversight risks compromising fairness and consumer protection.

In sum, the interests of all the three need to be reconciled without allowing the interests of any one to override the others. Customers want low prices, fast delivery, and easy returns. Platforms need profits that justify continued investment in logistics and technology. The government seeks fair competition and consumer protection. The need is to work towards a framework that aligns the interests of all three structurally.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.