The e-commerce revolution has transformed the retail landscape, connecting buyers and sellers across geographies. While Tier 1 cities dominated the initial phases of this transformation, Tier 2 and Tier 3 cities are now the epicenters of growth. These cities, often characterized by underserved markets and burgeoning consumer aspirations, are now major contributors to the e-commerce boom.
Tier 2 and Tier 3 cities accounted for 60% of India’s overall e-commerce demand in 2023, with a projected annual growth rate of 30% by 2025. This unprecedented growth is not just reshaping retail but is also creating jobs, fostering entrepreneurship, and driving inclusive economic growth.
This blog delves deep into how e-commerce is unlocking prosperity in Tier 2 and Tier 3 cities with case studies and research-backed insights.
- The Emergence of Tier 2 and Tier 3 Cities in E-commerce
The Growing Digital Ecosystem
The digital infrastructure in smaller cities has improved significantly, fueling e-commerce growth:
- Affordable Internet Access: Reliance Jio’s entry into the Indian market slashed data prices, increasing internet penetration from 20% in 2016 to 50% in 2023 in rural areas. As per the latest Annual Report, its share of data traffic in India rose to about 60% in FY24.
- Smartphone Adoption: According to a Counterpoint Research report, over 70% of smartphone sales in India now occur in Tier 2 and Tier 3 cities.
- Digital Payments Growth: The e-commerce industry in India is growing on levers such as increased smartphone penetration, increased affluence and low data prices, providing impetus for e-retail growth. With over 950 Mn users, India is the 2nd largest internet market in the world with 131.16 Lakh Cr UPI transactions in FY 2023-24. Platforms like Paytm, UPI, and Google Pay have enabled seamless transactions in these regions, with over 40 billion UPI transactions recorded in 2023. As per the PIB Report, Digital payment transactions volume grew to 18,737 crore in FY 2023-24 from 2,071 crore in FY 2017-18 at Compounded Annual Growth Rate (CAGR) of 44%; with value of transactions at ₹3,659 lakh crore in FY23-24 from ₹1,962 lakh crore in FY17-18 at CAGR of 11%.
UPI transactions volume grew to 13,116 crore in FY 2023-24 from 92 crore in FY 2017-18 at CAGR of 129%; with value of UPI transactions reaching ₹200 lakh crore in FY23-24 from ₹1 lakh crore in FY17-18 at CAGR of 138%.
UPI now seamlessly facilitates live transactions in 7 countries, including key markets such as UAE, Singapore, Bhutan, Nepal, Sri Lanka, France, and Mauritius
Case Study I: Flipkart’s Localization Strategy
Flipkart localized its app interface in 11 regional languages, including Hindi and Tamil, to cater to diverse audiences. This initiative contributed to a 2x increase in new users from Tier 2 and Tier 3 cities during their 2022 Big Billion Days sale.
Case Study II: Amazon India’s Expansion
Amazon India has strategically expanded its operations to cater to the burgeoning demand in Tier 2 and Tier 3 cities. The company has established numerous fulfillment centers and delivery stations in these regions, enhancing its logistics network. This expansion has not only improved delivery times but also created employment opportunities for local populations. Amazon’s initiatives have empowered small and medium-sized businesses (SMBs) in these cities to reach a broader customer base, thereby stimulating local economies.
Case Study III: Flipkart’s Kirana Program
Flipkart’s Kirana Program exemplifies the integration of local businesses into the e-commerce ecosystem. By partnering with local kirana (grocery) stores for last-mile deliveries, Flipkart has enhanced its delivery network while providing additional income streams for these small businesses. This initiative has been particularly successful in Tier 2 and Tier 3 cities, where local stores play a crucial role in the community.
- E-commerce as a Catalyst for Job Creation
2.1 Direct Employment in Logistics and Warehousing
The logistics sector has seen exponential growth in smaller cities:
- Amazon India: With over 60 fulfilment centers across the country, Amazon has created thousands of jobs in towns like Ludhiana and Guwahati. Their “I Have Space” initiative partners with over 28,000 small businesses for last-mile delivery. Amazon has announced to invest additional $15 billion in India by 2030.
- Flipkart’s Delivery Network: Flipkart employs over 1 lakh delivery personnel, with a significant portion operating in Tier 2 and Tier 3 towns.
- Social media platforms like Instagram: A major chunk of the ecommerce industry is now dependent on social media platforms like Instagram, facebook marketplace. 60-70% of Instagram users report following or researching brands and products on the app.
- Festival offers: The E-commerce websites flood with discount and various other lucrative offers at the time of various festivals worldwide like Independence Day, Diwali, Christmas, New Year, Black Friday etc.
- Market Access and Expansion: E-commerce provides businesses in smaller cities unprecedented market access. Local enterprises, previously confined to regional markets, can now showcase their products to a national and even global audience. This expanded reach fosters growth opportunities and enables businesses to scale beyond traditional boundaries.
Case Study: Zomato’s Entry into Tier 3 Markets
In 2023, Zomato expanded operations to Tier 3 cities like Udaipur and Ajmer. Their data shows that 45% of their delivery partners in these regions transitioned from agriculture, creating stable income opportunities.
2.2 Empowering Entrepreneurs
Platforms like Amazon, Flipkart, and Meesho are empowering small and medium-sized enterprises (SMEs):
- Amazon Karigar: This initiative promotes regional products like Pashmina shawls from Kashmir and Madhubani paintings from Bihar.
- Meesho’s Seller Base: Over 65% of Meesho’s 15 million sellers come from Tier 2 and Tier 3 cities, with many reporting a 30% increase in income.
- Boosting Women Entrepreneurs
E-commerce industry is even providing women with opportunities to achieve financial independence. A homemaker can start reselling sarees earning ₹50,000 per month without any upfront investment. Rural women artisans, such as those making Pattachitra paintings in Odisha, are now reaching international audiences.
- Economic Empowerment Through E-commerce
According to recent industry calculations, Turkey will rank first among 20 countries worldwide in retail e-commerce development between 2024 and 2029, with a compound annual growth rate of 11.6 percent. The Turkish e-commerce market is currently valued at 3.4 trillion Turkish lira. India and Brazil are also among the fastest-growing e-commerce markets globally, with a CAGRs of over 11 percent. The global retail e-commerce CAGR was estimated at 9.5 percent during the same period.
3.1 Revitalizing Local Economies
E-commerce is creating ripple effects that uplift entire communities:
- Increased Disposable Income: A recent study revealed that 70% of rural e-commerce users reported an increase in monthly savings due to access to affordable online goods.
- Boosting Ancillary Services: Growth in logistics has spurred demand for packaging suppliers and local transport services.
3.2 Promoting Regional Crafts
Artisans in Tier 2 and Tier 3 cities are leveraging e-commerce for market access:
- Tribes India: The internet and the subsequent e-commerce boom opened up a whole new world for organisations and people to garner a wider reach. To expand the availability of tribal products across the entire country and the world and to get greater benefits for the tribal people, TRIFED went online with its portal www.tribesindia.com.
This new channel is being utilised in such a way that in just a single click, the handcrafted, tribal products find a larger audience – not just in India but also abroad.
A wide range of thoughtful and handcrafted products that carry an indelible mark of their rich ancient cultural heritage are procured, marketed and made available to buyers.
To ensure a wider reach to genuine art lovers, millennial fashionistas and ethnic folk, TRIBES India is making its presence felt through its TRIBES India Mobile App and its own e-commerce platform
This initiative has empowered tribal artisans from NCR Delhi, South, Madhya Pradesh, Gujarat, Rajasthan, Odisha, Magnificent Leh, Chhattisgarh, West Bengal, Jharkhand, Bihar, UP, Uttarakhand, Andhra Pradesh, North East and Maharashtra to sell directly to global consumers.
- Fostering Innovation
4.1 Tech-Driven Solutions
E-commerce platforms are using innovative technologies to improve services:
- AI and Analytics: AI’s ability to analyze vast amounts of data enables e-commerce platforms to offer highly personalized shopping experiences. The AI tools predict demand patterns in smaller towns, optimizing inventory. The predictive models identify future trends, enabling e-commerce platforms to launch targeted campaigns.
At the beginning of 2024, India recorded 751.5 million internet users, reflecting an internet penetration rate of 52.4%. In January 2024, the country had 462.0 million social media users, representing 32.2% of the total population. Additionally, there were 1.12 billion active cellular mobile connections in early 2024, accounting for 78.0% of the population.
- Drones for Delivery: Startups these days are testing drone-based deliveries in the rural parts of India. As of November 2023, there were around 13 thousand drones registered in India. Along with the growing applications, the market size has also been growing. It was estimated that by the year 2030, the Indian drone market in India would reach 2.5 trillion Indian rupees.
Latest Amendments to boost the Ecommerce Industry |
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Source: Make in India (3rd Edition) – written and compiled by Sunil Kumar Gupta
- Factors Driving the E-commerce Boom
- The Road Ahead
- Investment in Infrastructure
Government initiatives like Digital India and PMGDISHA are improving connectivity in smaller cities. Private players are deploying 5G networks in Tier 2 and Tier 3 towns, ensuring faster internet access.
- Collaborative Ecosystems
Public-private partnerships can address logistical and digital literacy challenges, ensuring sustained growth.
Conclusion
The e-commerce revolution in Tier 2 and Tier 3 cities is unlocking unprecedented opportunities for job creation and economic empowerment. With research-backed data and real-world case studies, it is evident that these cities are no longer secondary markets but key drivers of India’s digital economy.
The government’s active role in promoting entrepreneurship, implementing initiatives like RSETI, and fostering digital infrastructure has played a pivotal role in catalyzing this evolution. Additionally, the recent amendments to boost the e-commerce industry and the emphasis on emerging technologies like 5G underline a commitment to creating a conducive environment for further growth.
AI on the other hand, is not just transforming e-commerce; it’s setting the stage for the future of retail. By enhancing personalization, streamlining operations, and driving innovative customer experiences, AI empowers businesses to thrive in an increasingly competitive market.
By fostering innovation, empowering entrepreneurs, and addressing infrastructure challenges, e-commerce platforms can ensure inclusive growth that benefits every corner of the country.
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