The COVID-19 pandemic will accelerate digital adoption in India as increasing number of people shop online and small businesses digitise, Morgan Stanley said crediting Reliance Jio's 4G telecom services for spurring the digital economy by propelling internet usage in the country.

In a 53-page report on 'India's Digital Economy in a Post-COVID-19 World', Morgan Stanley said 2020 will likely see increasing online penetration in grocery and will put a few Super Apps into motion.

India's total online shopper base at 30 percent of its internet population is low when compared with 78 percent in China and 70-plus percent in the US.

Morgan Stanley projected India's 670 million internet users to rise to 914 million by 2027 and online shoppers to jump to 590 million from 190 million in 2020. The average spend per online shoppers is also projected to nearly double to USD 318.

While in the past few years digital adoption in India has been evolving with increasing 4G adoption and rising internet penetration, the overall transactional base was still small.

"The launch of Reliance Jio's 4G telecom services in September 2016 helped spur the digital economy in India as it propelled internet usage in the country, with fast, reliable, and cheap 4G services leading to significant growth in data usage (especially on music and video content)," it said.

Morgan Stanley said COVID-19 has relieved some apprehension relating to digital transactions. "We believe COVID-19 could accelerate the shift to online transactions (such as e-commerce and payments) and provide a tailwind to growth in India's digital economy."

Stating that a larger increase in its online shopping base is needed to drive growth in its digital economy, it said COVID-19 has the potential to do just that.

The power of online has been seen in the past few months as start-ups helped consumers shop, pay for bills, converse, entertain, and collaborate without much physical contact.

"We believe that this digital adoption has the power to pull growth forward by a few years in India's internet industry," it said.

The analyst said in a post-COVID-19 world, "India's online shopping population could see a sharp increase, online penetration in grocery could finally inflect as e-commerce and new entrants make a bigger push in this category, digitization of small and medium business (SMB) enterprises could take centre-stage (and) investments in segments such as gaming, edtech, healthtech, and cloud could increase."

Also, the country could see the emergence of a few large tech companies (Super Apps or category leaders) in the next 5-10 years.

"These developments are notably important for some of the global tech companies that are invested in India," it said.

Stating that India could see the emergence of some large tech companies in the next 5-10 years, Morgan Stanley said Amazon and Flipkart, amongst the e-commerce companies, and Paytm and PhonePe, amongst the digital payment companies, have been trying to build several offerings on their platforms.

However, their penetration in their core categories (retail/payments) is still small and hence, the ability to make huge investments in other segments/categories is limited by both capital and management/execution bandwidth, it said.

"Another company that is talking about creating a digital ecosystem is Reliance Industries/Reliance Jio. With 388 million 4G users on its platform, it has touched more than 50 percent of the total internet base in India," it said adding the company has talked about plans of foraying into the digital economy with Jiomart (its new commerce offering), payments, health tech, edtech, cloud services, agri tech, etc.

Morgan Stanley said the war is heating up on grocery, with potential digitization of small business, an initiative similar to Alibaba's LST in China.

"Online grocery is characterized by its large potential market size (USD 400 billion), low penetration (0.2 percent), customer stickiness, and high repeat rate, and hence ticks most boxes for large companies to have a significant presence in the segment, more importantly, if one were to think about emerging as a Super App," it said.

Reliance Retail and WhatsApp have entered into a commercial agreement to accelerate Reliance Retail's new commerce business on the Jiomart platform using WhatsApp. Jiomart is a platform that helps RIL support small merchants and Kirana stores in serving end-consumers.

Reliance aims to focus on 60 million micro, small and medium-sized businesses along with the 30 million small merchants and millions of SMEs with the digital platform, it added.

Amazon India has also announced a USD 1 billion investment over the next five years to digitize 10 million SMBs, enabling USD 10 billion in cumulative exports by Indian businesses selling on Amazon worldwide by 2025, it added.

Disclosure

: Rel Jio Disclosure: RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.

First Published:May 27, 2020 1:58 PM IST