Stores today are not just points of sale, but also function as fulfilment hubs, return points, product demonstration zones, and community engagement spaces. Services such as buy-online-pick-up-in-store and same-day delivery from local outlets are now routine.
Kumar Rajagopalan, CEO, RAI
India’s retail sector is in a phase where economic capacity and consumer demand are advancing together. A joint projection by BCG and the Retailers Association of India places the market at around ₹190 trillion (approximately $2.4 trillion) by 2034, with growth supported by higher household incomes, urban expansion, and improved access to credit.
This trajectory is visible in current market activity. In the first quarter of 2025, retail space leasing rose by 169 per cent year-on-year across the top seven cities. Luxury formats are also expanding, with leasing in that segment up by 90 per cent this year. E-commerce has become embedded in consumer behaviour, with the market valued at about $147 billion in 2025 and expected to grow at roughly 19 per cent annually through to 2028. India is buying more, across more categories, and through multiple channels.
The pace of change is being set by a young, connected, and assertive consumer base. Gen Z and millennial shoppers prioritise speed, personalisation, and convenience, and many are prepared to pay more for faster service and tailored experiences. This has driven the growth of quick commerce in groceries, apparel, and other categories, while prompting investment in AI-powered recommendations and personalised marketing.
Private labels have built a strong position, with more than half of Indian consumers choosing them for their perceived balance of value and quality. Premium and luxury demand continues to grow in metro and Tier 1 cities, seen in the expansion of high-end malls and flagship stores. Yet some of the most notable growth is outside the largest cities. Tier II and III cities now account for about 60 per cent of all e-commerce transactions, reflecting both the spread of internet access and the widening availability of choice. Consumers in smaller towns are increasingly part of the same brand ecosystems as their metropolitan counterparts.
Retailers are responding to these shifts by integrating their physical and digital channels. Stores today are not just points of sale, but also function as fulfilment hubs, return points, product demonstration zones, and community engagement spaces. Services such as buy-online-pick-up-in-store and same-day delivery from local outlets are now routine.
Technology is central to this transformation. AI is being deployed to improve demand forecasting, stock management, and marketing precision. On the customer side, augmented and virtual reality are enabling interactive product trials, voice commerce is streamlining ordering, and digital payments are reducing friction at checkout. An EY study estimates that generative AI could increase productivity in India’s retail sector by up to 37 per cent over the next five years, shaping both operational efficiency and customer experience.
India is also seeing innovations that are unique to its market conditions. Hyper-local quick commerce in categories beyond groceries is expanding, with examples such as Ajio Rush’s four-hour delivery for fashion. The Open Network for Digital Commerce (ONDC) is helping small merchants access online markets without being tied to a single platform. By 2025, more than two-thirds of online grocery orders are being placed on instant delivery platforms. Yet while these services are popular, their long-term financial viability remains in question, given their reliance on subsidised logistics and thin margins.
Rapid digitisation and the ability for consumers to transact across borders have significantly raised the need for consumer protection. This current environment is demanding stronger, more agile regulation. Cross-border trade, multiple online marketplaces, and near-instant transactions make it essential that protections such as product authenticity, transparent pricing, secure handling of personal data, and timely redressal are upheld in real time. The challenge is not intent, but pace — ensuring that laws and enforcement mechanisms evolve quickly enough to match the speed and complexity of modern commerce. This requires constant review, responsive policymaking, and coordinated action between regulators, industry bodies, and consumer groups.
Small retailers, many of them family-run, remain central to Indian commerce but face the risk of being marginalised if they cannot adapt to digital models. Affordable technology, training, and market access will be essential for them to compete alongside larger, tech-enabled businesses.
Physical retail in key metros faces a different challenge: high occupancy costs in prime locations. To bring these costs down, India needs to expand beyond the handful of metros that currently dominate organised retail. Building 600 well-tuned cities would spread demand and reduce pressure on a small number of expensive markets. Without such expansion, the high rental burden in major metros will continue to deter newer and smaller brands from scaling up.
The economics of last-mile delivery remain under scrutiny. Quick commerce has established expectations for rapid fulfilment at little or no additional cost, but operational realities are expensive. Unless models incorporate measures such as optimised delivery routes, batching of orders, or tiered delivery speeds, sustaining these services at scale will be difficult.
Regulatory complexity adds another layer of strain. Differences in labour laws, zoning regulations, and foreign direct investment rules across states create a fragmented operating environment. A harmonised national retail policy, focused on the interests of consumers rather than the distinctions between channels or ownership structures, could simplify compliance and support investment.
Labour market dynamics are also shifting. Inflation is pushing wages higher, while AI and automation are beginning to change the nature of retail work. Some roles will inevitably be replaced, while new ones emerge. Reskilling and redeployment will be critical to ensure that human capital develops alongside technology, allowing the sector to maintain both efficiency and employment.
The trajectory of Indian retail will depend on its ability to combine growth with inclusion and financial sustainability. Technology should be integrated in a way that strengthens, rather than replaces, the human interactions that have long defined retail in this country. Small retailers must be part of the growth story, supported with access to tools, skills, and policies that allow them to compete on fair terms.
New models such as quick commerce and experiential retail need to be grounded in sound unit economics rather than subsidised growth alone. AI and automation should be introduced with foresight, aiming to complement the workforce and create higher-value roles rather than reduce employment.
India’s retail sector has both the scale and diversity to chart its own course. The demographic dividend of millions of young, aspirational consumers, coupled with an open and varied marketplace, offers a rare opportunity to build a retail ecosystem that is connected, inclusive, and resilient. Success will be measured not only by overall growth but by whether that growth reaches the consumer in a small town as effectively as the shopper in a metropolitan mall, benefits the shop-floor assistant as much as the entrepreneur, and ensures that Bharat and India move forward together.
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