Low e-com penetration in South Asia holds back growth, says World Bank

Restrictions on trade responsible for firms not opting for e-commerce, says report

E-commerce penetration in South Asia remains disproportionately low as lack of intra-regional trade holds back growth potential, a World Bank report surveying 2,200 firms across the region has said.

Restrictions on the current trade like tariffs, port restrictions, and other non-tariff barriers are responsible for only 40 per cent of surveyed firms opting for e-commerce. Consequently, removing regulatory and logistical challenges to e-commerce would increase their exports, employment, and productivity by as much as 20–30 per cent.

The survey reaffirmed that lack of trade between countries in the region meant that the vast majority of cross-border e-commerce was conducted with extra regional partners such as China, the UK, and the US. It also pointed out that India continued to lag well behind China when it came to penetration of online sales in the overall retail pie. Citing latest available data from earlier surveys, it clarified that while as of 2015, online sales as a percentage of total retail sales were more than 15 per cent in China and in the UK, it was a paltry 1.6 per cent in India as of 2017.

“You can leverage the power of big firms already present in each nation to kick off e-commerce integration. They will be very happy if there’s some basic rules of engagement so that the current informal part of trade can be formalised as part of a broader arrangement,” Sanjay Kathuria, World Bank lead economist and co-author of the report, said during the launch of the report, which was co-organised by CUTS International.

Moreover, intraregional variation in information and communications technology (ICT) uptake is substantial. Figure I.1 illustrates that while Indians and Pakistanis make significant use of online connectivity, countries such as Bangladesh and Nepal fare worse than many African countries along most e-commerce indicators.

The report was based on a survey of 1,688 merchants and 539 e-commerce firms in seven South Asian countries, as well as a qualitative analysis of meetings with firms operating in this space in three countries - India, Nepal, and Sri Lanka. 

Way ahead

The World Bank has suggested that India along with other nations apply a clear ‘de-minimis tariff system’. This would imply zero duties for imports that are valued below a certain threshold, allowing for simpler customs clearances. "For example, all goods valued between $100 and $500 could be assessed a simple duty of 10 per cent with fast-track customs clearance, on the basis of ex ante information exchanged between customs officials and e-commerce firms,” the report said. These simplified regulations would help reduce the congestion at customs arising from growing cross-border parcel shipments.

Allowing trucks to cross land borders, instead of transloading their cargo, would improve the delivery of parcels while making the Bangladesh, Bhutan, India, Nepal Motor Vehicles Agreement operational would cut down on travel time, it said. Creation of a pan regional online domain with the suffix “.sa.” has also been suggested.

Deeper regional trade and connectivity could help India treble its trade volume with the South Asian nations from the present levels of $23 billion to $67 billion, the World Bank had said last year in a report on the subject.

Kathuria, who had authored the ‘A Glass Half Full – The Promise of Regional Trade in South Asia’ report, had pointed out that India's current trade of $2 billion with neighbouring Pakistan could shoot up to as high as $37 billion without trade barriers.

The report had pointed out that India’s current trade in goods with South Asian nations was a mere 30.65 per cent of the potential trade of $62 billion. Although intra-regional trade accounts for 50 per cent of regional total trade in East Asia and Pacific and 22 per cent in Sub-Saharan Africa, in South Asia, the figure amounts to only 5 per cent.

Snapshot of E-commerce in South Asia 
 

• 31 % of firms reported both selling and buying online 
• 27 % only selling online 
• 10 % only buying online 
• 31 % don't engage in e-commerce

Major complaints among firms

• Regulatory hurdles
• Online payments
• Lack of trade finance
• Poor connectivity & IT support
• High logistic costs