Digital divide may affect possibility of improvements for Indian companies

Smaller businesses in India are least likely to have a key marker of digitisation, such as a website, according to the recent "State of India's Digital Economy 2024" report from ICRIER

A study of handmade carpet-makers in Egypt noted that exports helped improve quality. This was because they were able to improve their product based on information they began to get from international buyers. Online competition and access to additional customers and information may spur similar improvements, noted a study of businesses on the Bangladesh e-commerce platform Chaldal. It helped improve product quality and the adoption of better inventory and logistics management systems. A digital divide may affect the possibility of such improvements for Indian companies, especially those at the bottom of the pyramid.

Smaller businesses in India were least likely to have a key marker of digitisation, such as a website, according to the recent "State of India's Digital Economy 2024" report from the ICRIER Prosus Centre for Internet and Digital Economy. Around 92 per cent of Germany's small businesses had a website. It was 47 per cent in India (chart 1).

Nearly a tenth of firms had no internet connection. This applied across small, medium and large businesses. The data may not be surprising considering that a government survey noted a significant proportion of the population had not been online. Around 43 per cent of men and 67 per cent of women had never used the internet, according to the 2019-21 survey. Around 12-16 per cent of firms, depending on size, did not have an internet connection (chart 2).

Many may rely on e-commerce platforms or other routes to reach out to potential customers. Indeed, around two-thirds of manufacturing and services firms are now selling online, according to the "State of India's Digital Economy 2024" report. 

Both manufacturing and services segments have seen a significant improvement in recent years. Only a third of services firms and a fifth of manufacturing firms had an internet connection in 2016. This has since been rising though services still do better (chart 3).

Increased access to information can have a concrete effect on the money that businesses make. The carpet-makers of Egypt who benefitted from the information flow of buyers outside their immediate vicinity reported a 16-26 per cent improvement in profits.