Emerging E-commerce in Tier 2 and Tier 3 Cities

The E-commerce sector is witnessing growth in tier 2 & 3 Indian cities due to increased internet usage, smartphone adoption, and digital payment innovations. With a market share of 61.3% in FY22, tier 2 &3 cities have surpassed tier 1, with order volumes multiplying. The Government e-Marketplace (GeM) has witnessed significant growth, with a substantial annual order volume of ₹1 lakh crore originating from tier 2 & 3 cities. The Open Network for Digital Commerce (ONDC) has democratized digital payments, reducing transaction costs. The Economic Survey 2022-23 projected annual growth of 18% for the sector.

MSMEs have benefited from digital solutions in e-commerce, outperforming offline MSMEs by accessing a larger marketplace at lower costs. Tier 2 and 3 cities hold a larger market share, with nearly 63% of total orders originating from them. E-commerce has also empowered women sellers and entrepreneurs, facilitated by Digital India, Skill India, and Make in India initiatives. E-commerce has become more inclusive, affordable, and accessible, driving social development, economic growth, and entrepreneurship in tier 2 and 3 cities.

However, e-commerce companies in these cities are challenged with limited logistics infrastructure & a need for more traditional payment methods, hindering online shopping. Improvements in transportation networks, warehousing facilities, and last-mile delivery services are crucial to enhancing the e-commerce experience for sellers and customers in these cities. Additionally, consumers also face trust issues in e-commerce transactions due to factors such as a lack of familiarity with online shopping, concerns about the authenticity of products, and the security of online transactions.

While the e-commerce sector in India's tier 2 and 3 cities are experiencing remarkable growth and holds immense potential, it must address these challenges, including the impact on the local brick-and-mortar stores serving local consumers for decades. Cities need a balance that supports the growth of e-commerce while preserving local businesses that may not have a technology-based competitive advantage.