Out of the loop

Policy should address India's low e-commerce readiness

Jack Ma of Alibaba has obviously spotted an opportunity in India that Indian policymakers have not. On Monday, he visited the country for the second time in four months and met Prime Minister Narendra Modi, reportedly to discuss the potential of e-commerce. Mr Ma, flush with funds from a $25-billion initial public offering of Alibaba stock and looking for lucrative investments, is focusing on business-to-business (B2B) e-commerce opportunities, so he may or may not have spotted the UN Conference on Trade and Development report that ranked India a lowly 83 in a 130-country business-to-consumer (B2C) e-commerce index. That’s 20 ranks below China, 36 ranks behind Brazil and 38 behind Malaysia.

From Mr Ma’s innately entrepreneurial point of view, this low ranking may be the equivalent of a low price-earning ratio for a stock market investor, indicating a high potential for growth and appreciation. But for a country that prides –  indeed markets – itself globally for its information technology (IT) prowess, this is poor showing. Even accounting for the limitations of global ranking exercises of this nature, the B2C index sends out many signals about the prosperity and the IT-literacy and -readiness of India’s citizens. The principal reason for the low ranking is low credit card and internet usage. Globally, credit cards accounts for the biggest share of e-commerce transactions; in India, cash-on-delivery is the payment mode of choice for 50 to 80 per cent of online transactions. Although this may be celebrated as a uniquely Indian model, cash-on-delivery by its nature also constrains transaction sizes and, therefore, the margins of e-commerce companies and their growth potential. But India has just 20 million credit card users and a vast percentage of Indians remains unbanked or equipped with no-frills “Jan Dhan”-style accounts that keep them outside the purview of online shopping. Then again, only about a fifth of Indians use the internet, a sign of both low net literacy and IT access.

These are problems at one end of the e-commerce spectrum. At the other end are the practical problems that surveys like this may not capture, but e-commerce companies understand well. First, there is poor transport logistics, a critical gap for businesses that derive a competitive advantage from quick delivery. Then, there is considerable uncertainty in laws, rules and regulations. Tax laws have been one pain-point, with e-commerce majors like Flipkart and Amazon having had tax notices slapped on them in Karnataka. The state’s demands may not be unreasonable, but the opaqueness on tax treatment for e-commerce transactions scarcely enhances India’s “doing business” reputation. Sensible local regulations on such services as taxi aggregators would also go a long way in helping providers and consumers.

Yet there is every reason to encourage e-commerce — not least because of its multiplier effect in generating jobs. Just as the back-office revolution created a huge informal eco-system of job-creating small businesses. From catering to transport services, e-commerce has the potential to create livelihoods for millions of Indians — who, in turn, may soon become prosperous enough to start shopping online.