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  1. 1. Part Three: Country Presentations II. INDIA: COUNTRY REPORT ON E-COMMERCE INITIATIVES BY M R RAJIV RASTOGI , D IRECTOR DEPARTMENT OF I NFORMATION TECHNOLOGY MINISTRY OF COMMUNICATION AND INFORMATION TECHNOLOGY INDIA A. Introduction E-fulfillment is the physical delivery of those real orders in the virtual world. E-retailing shouldbe understood as a service that delivers different goods, ordered through the Internet (as well as fax orphone), to a place defined by the customer. In this context e-shopping is a form of virtual retailing asopposed to the usual stationary business. E-business presents one of the greatest opportunities and challenges in retail. Changes intechnology, the rise of the Internet and the critical need to attract, train and retain talent, make the jobone of the most challenging in retail today. The nature of retailing is changing. Years of fiercecompetition on the high street mean that to be successful, retailers have to examine every aspect of theirbusiness to ensure a profitable return on investment. The new battleground is electronic retailing. New technology means that unified, online supplychains are becoming the norm, together with home shopping either on the Internet or Digital TV. Tocompete effectively retailers must invest aggressively, and at speed, to exploit the staggering growthpotential of these new channels, yet the routes to profitability remain unclear. To succeed in electronic retail requires an effective strategy for both B2C and B2B operations,seamlessly integrating existing channels to market with new complementary channels, and whatever thefuture holds. The cost effective and well managed integration of existing systems with new systems andnew technologies is one of the major challenges that retailers face today in moving towards the future.Retailers have made e-retailing a strategic priority and are pursuing B2C initiatives like ever before.The retailers currently use their web sites to provide information to their customers and offer onlineretailing. Channel convergence is forcing retailers to implement integrated in store systems. Systemintegration efforts are a priority for retailers in the next two years. Customers – shopping multiplechannels-catalogue, kiosk, store, web site – expect consistent levels of services and a more uniformshopping experience. Retailers that are able to provide the highest level of integration and informationaccess will be able to leverage their investments to enhance the customer shopping experience. Theywill become more valuable to customers in the long-term. B. India The Indus Valley civilization, one of the oldest in the world, goes back at least 5,000 years.Aryan tribes from the northwest invaded about 1500 B.C.; their merger with the earlier inhabitantscreated the classical Indian culture. Arab incursions starting in the 8th century and Turkish in 12 th werefollowed by European traders beginning in the late 15th century. By the 19 th century, Britain hadassumed political control of virtually all Indian lands. Non-violent resistance to British colonialismunder Mohandas Gandhi and Jawaharlal Nehru led to independence in 1947. The subcontinent wasdivided into the secular state of India and the smaller Muslim state of Pakistan. Fundamental concernsin India include the ongoing dispute with Pakistan over Kashmir, massive overpopulation, environmental 133
  2. 2. Initiatives for E-Commerce Capacity-Building of Small and Medium Enterprisesdegradation, extensive poverty, and ethnic and religious strife, all this despite impressive gains ineconomic investment and output. India, a Union of States, is a Sovereign Socialist Secular Democratic Republic with Parliamentsystem of government. The Republic is governed in terms of the Constitution, which was adopted on26 November 1949 and came into force on 26 January 1950. India comprises 28 States and 7 UnionTerritories. It has achieved multifaceted socio-economic progress during the last 54 years of its Independence.India has become self-sufficient in agricultural production and is now the tenth industrialized country inthe world and the sixth nation to have gone into outer space to conquer nature for the benefit of thepeople. Area: It covers an area of 3,287,590 sq km, extending from the snow-covered Himalayanheights to the tropical rain forests of the south. As the seventh largest country in the world, India standsapart from the rest of Asia, marked off as it is by mountains and the sea, which give the countrya distinct geographical entity. Bounded by the Great Himalayas in the north, it stretches southwards andat the Tropic of Cancer, tapers off into the Indian Ocean between the Bay of Bengal on the east and theArabian Sea on the west. It measures about 2,933 km from north to south between the extreme latitudesand about 2,933 km from east to west between the extreme longitudes. Terrain is upland plain (DeccanPlateau) in south, flat to rolling plain along the Ganges, deserts in west, Himalayas in north. Climate: The climate of India may be broadly described as tropical monsoon type. There arefour seasons: (i) winter (January-February), (ii) hot weather summer (March-May); (iii) rainy-westernmonsoon (June-September) and post-monsoon (iv) (October-December). Population: India’s population as on 1 March 2001 stood at 1,027 million (531.3 million malesand 495.7 million females). India accounts for a meager 2.4 per cent of the world surface area of135.79 million sq km yet it supports and sustains a whopping 16.7 per cent of the world population. Literacy: There has been an increase in literacy in the country. The literacy rate in the countryis 65.38 per cent (75.85 for males and 54.16 for females). Natural resources: Coal (fourth-largest reserves in the world), iron ore, manganese, mica,bauxite, titanium ore, chromite, natural gas, diamonds, petroleum, limestone, arable land. Economic overview: India’s economy encompasses traditional village farming, modern agriculture,handicrafts, a wide range of modern industries, and a multitude of support services. About a quarter ofthe population is too poor to be able to afford an adequate diet. India’s international payments positionremained strong in 2001 with adequate foreign exchange reserves, and moderately depreciating nominalexchange rates. Growth in manufacturing output has slowed, and electricity shortages continue in manyregions. India has large numbers of well-educated people skilled in English language; India is a majorexporter of software services and software workers. GDP • purchasing power parity – US$ 2.5 trillion (estimated in 2001) • real growth rate: 5 to 6 per cent • per capita: purchasing power parity – US$ 2,500 (estimated in 2001) • composition by sector: agriculture: 25 per cent, industry: 26 per cent, services: 49 per cent. 134
  3. 3. Part Three: Country Presentations C. E-commerce in India The cutting edge for business today is e-commerce. Most people think e-commerce meansonline shopping. But web shopping is only a small part of the picture. The term also refers to onlinestock, bond transactions, buying and downloading software without ever going to a store. In addition,e-commerce includes business to business connections that make purchasing easier for big corporations. E-commerce is generally described as a method of buying and selling products and serviceselectronically. The main vehicle of e-commerce remains the Internet and the World Wide Web, but useof e-mail, fax and telephone orders are also prevalent. Electronic commerce is the application communication and information sharing technology amongtrading partners to the pursuit of business objectives. E-commerce can be defined as modern businessmethodology that address the needs of the organization, merchants and consumers to cut costs whileimproving the quality of goods and services and speed of service delivery. E-commerce is associatedwith the buying and selling of information, products, services via computer networks. A key element ofe-commerce is information processing. The effects of e-commerce are already appearing in all areas of business, from customer serviceto new product design. It facilitates new types of information based business processes for reaching andinteracting with customers-online advertising and marketing, online, order taking and online customerservice etc. It can also reduce costs in managing orders and interacting with a wide range of suppliersand trading and trading partners, areas that typically add significant overheads to the cost of productsand services. Gartner Group predicted in April 2001 that the B2B e-commerce in the Asian and Pacific regionwill reach US$ 220 billion this year, which will be 24 per cent of the worldwide total. In the year 2000,this figure was US$ 96.8 billion or 22 per cent of the worldwide total. In the year 2005, the Asian andPacific region will account for 28 per cent of the worldwide B2B e-commerce transactions, which itselfwill grow to US$ 2.4 trillion (People’s Daily Online, 7 April 2001). A recent report of eMarketer released in May, 2001 says that the number of Internet users in theAsian and Pacific region will increase dramatically from 48.7 million in the year 2000 to 173 million inthe year 2004. It will then comprise more than 27 per cent of the global Internet user communitycompared with 21 per cent in the year 2000. The same report estimates the number of Internet users inIndia will be about 5.8 per cent of the total number in the Asia-Pacific region (eMarketer, 10 May 2001). It is against this backdrop of the world at large and Asia-Pacific in particular that we have toexamine the developments in India. The Government of India has long recognized the need for developmentof IT industry and information infrastructure as these are twin engines for growth of the economy.Deeper penetration of IT applications in the economy, and in the society as a whole can help boost theeconomy. E-commerce applications can make it easier for the country to better integrate with the globalmarkets, the e-marketplace. This has led the government, over the last few years to formulate liberalpolicies for the development and growth of the IT industry. The IT sector as a whole has grown at a compounded annual growth rate of about 30 per centevery year for the last few years. The total production during the current year, i.e. 2001-2002 wasRs 809 billion (US$ 17.3 billion), out of which software exports account for Rs 3,655 billion (US$7.8 billion). NASSCOM (National Association of Software and Service Companies) had recently releasedfindings of its survey to evaluate the e-commerce scenario in India. As per preliminary findings of thesurvey, the total volume of e-commerce transactions in India was about Rs 450 Crores in the year 135
  4. 4. Initiatives for E-Commerce Capacity-Building of Small and Medium Enterprises1999-2000. Out of this volume, about Rs 50 Crores were contributed by retail Internet or business-to-consumer transactions, and about Rs 400 Crores was contributed by business-to-business transactions. With the regulatory framework (IT Act and Digital Signature) in place and improvement intelecom infrastructure, increase in PC penetration could lead to a sizeable e-commerce transactions inIndia in the next two years. In keeping with global norms, it is expected that business-to-businesstransactions would continue to constitute a manor chunk of e-business transactions in India. Thus,e-commerce is not just a western version. The most talked about and well-endorsed feature of e-commerce is its global flavour. Evidently,e-commerce has also started to show its true potential in India. While on one hand, India’s e-commercesolutions are becoming a sought after commodity around the world, even e-commerce based businessesare leaving their distinct marks of technology competitiveness, viable business model and entrepreneurship.E-business can indeed emerge as a major opportunity for India. This acquires twin connotations ofe-commerce and e-business transactions from local businesses and a huge opportunity for softwareexports to other countries by quickly joining the e-business bandwagon. India’s twin assets (the softwareindustry and rapidly restructuring industry sector) sector have been taken into consideration. • As of September 2002, there was a PC base of 7.5 million PCs. • More than 80 per cent of stand alone PCs sold during last two years were driven by the need to access the Internet. • Ninety one per cent of India’s corporate web sites are located overseas. • Internet access continues to be most widespread amongst the 18-24 year age group. However, all age groups have seen vast increases in access over the last 18 months. A significant development is that almost 11 per cent of people over the age of 40 now access the Internet. • Males continue to outnumber females in accessing the Internet at 77 per cent compared to 23 per cent. This has however increased from the ratio of 82:18 in June 1999. • The Internet and e-commerce industry employs approximately 82,000 people. These include web developers, web designers, system analysts, ISP infrastructure providers, marketing staff, e-software professionals, etc. It is projected that by March 2003, the Internet and e-commerce industry would employ over 300,000 people. • India has about 1.6 million households connected to the Internet. • Internet users on an average are estimated to be accessing the Internet for 6 hours a week. The profile of Internet users in India is dominated by: • The professional/corporate segment, which accounts for around 43 per cent of Internet usage. • Inching close behind is the student community represented by school and college goers. This segment contributes close to 38 per cent of Internet surfers. • Over half (59.2 per cent) use the Internet as an information resource, 11.3 per cent use it as an educational tool and just under 8.2 per cent use it for entertainment. • When asked what are the most frequently used services online, 73.4 per cent answered e-mail, 77 per cent answered search engines and 23 per cent said they use it for downloading/ uploading software. 136
  5. 5. Part Three: Country Presentations • Of the total Internet users, around 20 per cent own credit cards and around 14 per cent own mobile phones. According to the NASSCOM survey, considering the interest the Government is taking in thegrowth of the market, e-commerce in India will witness a significant jump over the next three years. • Based on these preliminary findings, experts have concluded that penetration of Internet and e-commerce transactions in India will increase by leaps and bounds. It is being stated that in the case of business-to-business transactions, the Indian industry will reach online penetration of 5 per cent by 2003. Total e-commerce transactions B2C B2B Year (Rs Crores) (Rs Crores) (Rs Crores) 1998-1999 131 12 119 1999-2000 450 50 400 2000-2001 1 200 100 1 100 • Revenue streams would increasingly be aligned with the emerging global model, it is being anticipated. This would mean that the majority of the revenues would come from transactions, while a smaller amount would be realized from advertising revenues would come from transactions, while a smaller amount would be realized from advertising revenues. It is expected that by 2003, more than 75 per cent of revenues of Internet business-to-consumer business would come from transactions. The advertisement revenues would amount to about 8 per cent of total add spend by the companies. • Analysts also believe that one of every four non-resident Indians (NRIs) would make some form of purchase from India-based web sites by 2003. IT companies: Some of the preliminary findings on e-commerce/e-business software exportspotential are as follows: • In the year 1999-2000, Internet and e-commerce related software and services export from India brought in US$ 500 million out of an estimated US$ 4 billion software and services exports. • Supply Chain Management optimization is one of the strongest drivers of the global e-commerce solutions market, as it spurs business-to-business transactions. More than 68 per cent of Indian software houses have informed of strong expertise in supply chain and distribution management solutions. • Almost 32 per cent of IT company respondents have identified web based consumer business as a major opportunity area, with expected paybacks beginning in three to four years. • Some of the emerging hot areas of e-commerce services are: legacy application integration; Internet application integration; Customer Relationship Management (CRM), Customer Service Management (CSM), Enterprise Resource Planning (ERP) and Electronic Data Interchange (EDI) migration to web based models; new IT frameworks and integration with business strategy (strategic IT consulting); e-commerce training services, business web site development and maintenance. The user side, e-commerce means business. Some of the highlights of the domestic e-commerce scenario based on the findings ofNASSCOM’s survey include the following: 137
  6. 6. Initiatives for E-Commerce Capacity-Building of Small and Medium Enterprises • Among user organizations, more than 90 per cent expressed keen awareness about the increasing adoption of e-commerce and its potential benefits. • More than 55 per cent of corporate respondents said that e-commerce transitions were integral of their corporate plans. Of these nearly 85 per cent were industries which did not have direct or frequent contact with end consumption. • About 23 per cent of top 500 companies in India already have started some form of e-commerce. These have been facilitated through the upgradation of existing IT systems or fresh installations configured or e-commerce transactions. 1. SMEs segment in India In India, there are about 3.4 million small and medium enterprises which accounts for 42 percent of Manufacturing sector turnover and 35 per cent country’s exports. These SMEs employ over17 million persons. The SMEs segment in India is fast getting tacked by the larger companies, who are allays on thelookout for new market avenues. Computer Associates – which has a healthy clientele among largecorporates – has huge plans to enter the security market comprising the Rs 10-Crore SME sector inIndia, offering end-to-end security solutions to smaller players. There is a huge unexplored market in India and the existing security offerings are scarce andfragmented. Since the SME market is the largest spender on IT, it is the right time for an entry and alsobecause SMEs in India are under a great deal of pressure form the bigger customers to create a securee-biz infrastructure. SMEs are increasingly seeing the benefits arising from e-commerce as expanded geographicalcoverage giving them a larger potential market into which they can sell their products and services.Some of the key industries that have high potential for early adoption of e-commerce are financial (stockexchanges and banks), automobiles, retail, travel, IT and manufacturing. For the SME sector, some of the concerns with e-commerce revolve around fear or eroding theirexisting customer base and technical issues arising out of lack of computer expertise and the cost ofnecessary hardware and software. These are some of the preview highlights of a survey conducted byNASSCOM to determine the status of Internet and electronic commerce proliferation in India. 2. E-commerce growth During the year 2000-2001, two major Industry Associations produced separate reports one-commerce in India. Both the reports came out around the same time, namely June-July 2001. Onewas prepared by the National Committee on E-Commerce set up the Confederation of Indian Industry(CII), while the other was commissioned by the NASSCOM and prepared by the Boston ConsultingGroup. Both the reports are optimistic about the growth of e-commerce in India. The Confederation ofIndian Industry (CII) report estimates the volume of e-commerce to grow to Rs 500 billion (US$ 10.6billion) in the year 2003, out of which B2B will be Rs 420 billion (US$ 9 billion) and B2C will be Rs 80billion (US$ 1.7 billion) (CII, 2001). The NASSCOM-BCG Report, on the other hand, estimates for thesame year that the total volume of e-commerce will be Rs 1,950 billion (US$ 41.5 billion), out of whichRs 1,920 billion (US$ 41 billion) will be on account of B2B and Rs 3 billion (US$ 64 million) will be onaccount of B2C (NASSCON and BCG, 2001). E-commerce volume for the year is estimated to beRs 150-200 billion (US$ 3.2-4.2 billion) (NASSCON and BCG, 2001). 138
  7. 7. Part Three: Country Presentations The earlier expectations of value creation through pure-play dot-coms, large online market sizes,businesses reducing their procurement and inventory costs through B2B have been belied. The euphoriaof Internet revolution is over. But there is a deeper realization that the opportunities and threats of theInternet are very real. Organizations that have understood the power of the Internet and have implementedwell thought out business strategies have leveraged B2B and B2C e-commerce to create significant gainsin their business. LG Electronics India Ltd. is a case in point. It expects to realize margins up to1.5-2 per cent through B2B supply chain initiatives on information sharing and procurement efficiencies.Amul, a milk cooperative, is successfully using e-commerce to deepen its brand loyalty. Likewise,corporates in the automotive sector are improving their customer relations through this medium. Some of the new names that are rediscovering e-commerce through new portals at relatively lowcapital cost, without venture capital funding include: KEY2CROREPATI, MUSICABSOLUTE, GATE2BIZ,GRIHRACHNA, SHAADIONLINE. Business strategy on the Net is the key to these new portals. Thenew entrepreneurs are very clear in what they offer. Since they are not setting web sites with a view tosell them later, unlike the first wave of dot-coms, they put in their best efforts to check offerings andtheir processes before inviting customers in (Business Today [India], September 2001). It has been seen that while the web sites and e-commerce portals are setup by technically-oriented entrepreneurs, they have no experience of the logistics involved in delivering products todistant areas. B2C e-commerce is likely to remain small because of these constraints. In fact, when thee-tailing market grows in size, high delivery costs, logistical bottlenecks as well as regulatory requirementswill act as major barriers. Coupled with this are the cultural barriers where most shoppers are uncomfortablebuying items they are unable to see or touch. Consumer protection is also not very effective. If goodsare not delivered after electronic placement of orders, the consumers may have to follow long processfor redressal of their grievances. These are some of the limiting factors for B2C e-commerce. Domain names can now be registered in Indian languages too. offers domainnames using the alphabet in Indian languages. These will be valid like other domain names and areexpected to help non-English speaking people take advantage of the benefits of Internet. Currently, onecan register in Hindi or Kannada scripts. Most of India’s banks and financial institutions have set up web sites. Online stock trading hasalso taken off in India with the Securities and Exchange Board of India (SEBI) making efforts tostandardize message formats and address issues pertaining to technology, connectivity, security, surveillanceand monitoring. Companies such as <> and <> actively promote online tradingon their web sites. A number of web sites cater exclusively to the expatriate Indians and offer valuableinformation on investment decisions, real estate, etc. Online portals have been set up for B2Be-commerce exchanges in the areas of automobiles, steel industry, construction, insurance, shipping andpharmaceuticals. A number of sites also deal in auctions. Most of the sites are in B2B segment, whilethere are some in the B2C segment as well. Vortals which cater to specific information needs andprovide services across areas as diverse as cooking, women, online worship, specific sports (e.g. cricket),matrimonial, jobs, travel and tourism in India have also appeared in large numbers. Entertainment andgames too have moved online and a number of portals catering to these areas are already in business. A number of e-payment gateways have sprung up for B2B and B2C e-commerce financialtransactions. There are four payment gateways operated by ICICI Bank, Citibank, HDFC Bank, andGlobal Trust Bank. But all these are closed user groups. There are no real time settlement systemsavailable to let the users of one gateway settle their accounts with users of another group. No inter-banksettlement is possible as of now. This delays e-commerce transactions. The B2C transactions can,however, be enabled by the credit cards which are growing in number. The credit cards today number5.1 million with total spending of Rs 81 billion (Business India, 14-27 May 2001). 139
  8. 8. Initiatives for E-Commerce Capacity-Building of Small and Medium Enterprises The industry is alive to the need of being active players in the Internet world. It has aggressivelyparticipated in the recent round of appointment of the Internet Corporation for Assigned Names andNumbers (ICANN) of new registrars in this region. Two companies have been accredited as registrars inthe .com domain. While registration of web sites for .com, .org and .net could earlier only be donethrough Network Solutions Inc., a number of new web sites such as <> and<> are now offering this service in India. It may be added here that the software industry which is the greatest strength of India grew ata compound aggregated growth rate of nearly 50 per cent during the last decade. The Indian softwareand services industry has attained a reasonably robust growth of 30 per cent even during the last yearwhich was a year of turbulence, tragedy, terrorism and slowdown in world economy. The softwareexports rose to US$ 7.8 billion in the year 2001-2002 form US$ 6.3 billion in 2000-2001. Majority ofthe Fortune, 500 companies have outsourced their software requirements to India. The software solutionsfrom India have been moving up the value chain and are engaging more and more electronic commerceand web based technologies. Internet and e-commerce related software and services export from Indiaaccounted for nearly US$ 1200 million in the year 2000-2001. This figure is expected to rise to US$ 3billion by 2003-2004 (NASSCOM, 2001). Many of the software companies are specializing in supplychain and distribution management solutions which are the key drivers of the global e-commerce solutionsmarket. The NASSCOM-BCG Report estimates that the e-solutions market, which worldwide is currentlyof the order of US$ 180 billion, will grow to US$ 640 billion in 2005. India should be able to tap up toUS$ 4 to 13 billion in the year 2005. This segment includes SCM, CRM, knowledge management(KM), Internet services and Application Services Provider (ASP). 3. Players, procedures and problems Private sector participation should be explored in e-developmental initiatives to ensure theirsustainability over the long run. There are several B2B players. Satyam has developed an engine that can be used to developplatforms for any industry. The biggest currently in operation is the steel industry TheSteelExchange,auto companies, are coming together to form (auto exchange). Probably the biggest ‘internalB2B’ player is Maruti, which already does a large part of their supply-chain side purchasing anddealer-networking online. Some other successful cases are: Hindustan Lever Ltd., General Motors and Godrej. The mostwell known B2B e-commerce technology, such as i2 technology and CommerceOne, are yet to beadopted by Indian corporates. These technologies are presently too expensive and may not result in anyreturn on investment due to lack of other infrastructure and services such as third party and fourth partylogistics in the country. There is still a lot that the government can do, starting with resolving the inter-bank settlementstandards to enable online payments. Next could be to strengthen the telecom infrastructure (especiallyin the last mile). Another important thing would be to recognize online contracts, which has now beendone in India. Some of the barriers to e-commerce adoption in India include the following: • Limited Internet access among customers and SMEs (current level of internet usage is low among businesses and users) • Poor telecom and infrastructure for reliable connectivity (Internet connectivity slow, access costs are high and connections are unreliable) 140
  9. 9. Part Three: Country Presentations • Multiple gaps in the current legal and regulatory framework • Multiple issues of trust and lack of payment gateways (privacy of personal and business data connected over the Internet not assured; security and confidentiality of data not in place) 4. Telecom developments During the last five years, the telecom sector has seen continued liberalization. Telecom services,which were the sole monopoly of the Government till 1994, were opened to the private sector. TheNational Telecom Policy announced in 1994 separated the policy making functions of the governmentfrom those of providing services, and allowed the private sector to provide telecom services. It alsorecognized the need for the establishment of an independent Telecom Regulator. As a result, a numberof private companies were given licences for providing mobile telephone services, and more recently forfixed-line telephone services. International gateways were permitted to be set up by private operators.The policy was further liberalized in 1999. The Department of Telecommunications which was providingtelecom services as a sole monopoly, was corporatized in the year 2000 and was made to compete withthe private sector on a level playing field. The National Long Distance Services on the domestic routes,that were the sole monopoly of the government, were also opened to the private sector. Existing backbone networks of public and private companies like power grid, railways and gasauthorities have been allowed to set up national long distance carriers for data transmission. A large datacommunication backbone with extremely high bandwidth is in the process of making. In January 2001, the government paved the way for unrestricted competition in basic phoneservices. The move will help consolidate the position for those telecom companies that can offera basket of services – basic, cellular, Internet, national long distance and broadband – to their customerswith flexible tariff packages and single billing as the country moves towards convergence. The basictelecom players will also be allowed to offer mobile wireless in local loop (WLL) services. The Telecom Policy also recognizes the convergence of different media, and has permitted directinter-connectivity among service providers. Two-way communication through cable has been permittedfor voice, data and information services. A cable service provider can also obtain a licence as a fixedservice provider. In fact, the country is moving towards full convergence with the Convergence Billhaving been introduced in Parliament. This takes care of increasing convergence between telecom, ITand broadcasting services. The Communications Convergence Bill, 2001 envisages the setting up of theCommunications Commission of India (CCI) to promote the plurality of different media, forms andstructure and provide access to a range of competing viewpoints and information resources, in additionto ensuring consistent approach to regulation of new activities in the era of convergence. These telecom policies have had a positive effect in the last few years. The teledensity rose to5 per cent in September 2002 and is projected to grow to 7 per cent by the year 2005 and to 15 per centby 2010. The rural density is expected to grow from the current level of 0.8 per cent to 4 per cent by2010. (The urban teledensity is around 10 per cent). The number of mobile phones is multiplying ata very fast rate and are at present 8.5 million. The telecom sector saw an investment in the range ofUS$ 4.5 to 5 billion by the government and its agencies alone during the last two years. By 2005, a totalinvestment of US$ 37 billion will be required, and this figure will rise to US$ 69 billion in the year 2010(Department of Telecommunication, India, 2001; and Indian Express [Bombay], 7 June 2001). Many of the private companies have set up national long distance backbone as also fiber opticnetworks to wire the major cities and the trunk routes for providing all kinds of services. A number ofthem have also set up international gateways for providing bandwidth to the ISPs. Private sector 141
  10. 10. Initiatives for E-Commerce Capacity-Building of Small and Medium Enterprisescompanies like Reliance Telecom, Powergrid Corporation, Railways, Bharti Telecom, BPL and GAIL arecreating cross-country optical fiber networks for broadband services. Even non-telecom players likeEnron, Zee TV, and Spectranet are making huge investments in the broadband sector. It is estimated thatinvestments of the order of Rs 318 billion (US$ 6.8 billion) have been made by the year 2001 (Varma,Yograj, 2001 and Das, Sanchita, 2001). International connectivity too is attracting huge investment. Videsh Sanchar Nigam Ltd. (VSNL),which was owned by Government till recently, had a monopoly till recently. It invested Rs 109 billionfor a bandwidth of 59 gigabits per second (Gbps). VSNL as well as Hindustan Teleprinters has sincebeen privatized in March-April, 2002. The private investment of about US$ 1.4 billion by BhartiTelecom, Dishnet DSL has created a bandwidth of 16.08 tera-bits per second (Tbps) connecting Indiawith the world through Singapore, Jakarta, Guam, Portland, Los Angels, Hawaii and Japan. RelianceTelecom and Tata Access are also likely to provide international connectivity in near future (Varma,Yograj, 2001 and Das, Sanchita, 2001). A number of companies are providing broadband access over the cable. Set top boxes and cablemodems can enable existing TVs to act as Internet devices. All major cities are being wired with opticalfibers to provide cable TV services, and broadband Internet. The existing 98 million TV sets have thepotential of accessing Internet. As a result of these policies a number of ISPs have come into being which have spearheaded thegrowth of Internet connectivity in a big way. Over 170 ISPs are fully operational in the country whichhave taken the number of Internet connections from a mere half a million three years ago, to 3.5 millionby September 2002. Each Internet connection is used by multiple users. The estimated number ofInternet users is 17 million. By 2005, Internet connections are expected to go up to 25 million while theInternet users will rise to over 100 million. The NASSCOM survey finds that there are over 400 cities that have at least 2000 Internetconnections. This number will double in the next one year. This shows that Internet has penetrated wellbeyond the metros to smaller cities and towns across the country. The current level of Internet bandwidth available in India stands at 10 Gbps. By 2004, thebandwidth demand will be at the level of 100 Gbps. By the year 2005, data traffic which is 5 per centtoday, will account for 50 per cent to 65 per cent. Wireless, broadband and convergence of media areemerging in response to the demands of the growing number of Internet users in the country. 5. Legal and regulatory framework for e-commerce Besides developing the e-infrastructure in the country through effective Telecom Policy measures,the Indian government is taking appropriate steps as confidence building measures for the growth ofe-commerce. It has created the necessary legal and administrative framework through the enactment ofthe Information Technology IT Act which combines e-commerce transactions and computer misuse andfrauds rolled into an Omnibus Act. While on the one hand it seeks to create the Public Key Infrastructure(PKI) for electronic authentication through digital signatures, on the other hand, it seeks to build confidenceamong the public that the frauds in the cyber space will not go unpunished. The Controller of CertifyingAuthorities (CCA) has been put in place for effective implementation of the IT Act. The Act alsoenables e-governance applications for electronic delivery of services to citizens. The CCA acts as a regulator for the growth of e-commerce and e-governance. It is responsiblefor the establishment of PKI the country through licensing of certifying authorities (CAs). For thispurpose, it has notified standards which are based on international standards as adopted by the InternationalTelecom Union, the Internet Engineering Task Force (IETF), Institute of Electrical and Electronics 142
  11. 11. Part Three: Country PresentationsEngineers, Inc. (IEEE) and the Federal Information Processing Standards (FIPS) of the Government ofthe United States. These standards range from specifying the high security modules for storing privatekeys of the CAs to the public key certificates, the certificate revocation lists and the directory services.Notable feature of the implementation in India is the creation of a panel of independent auditors whowould be responsible for auditing the technical and physical infrastructure of the CAs to ensure conformancewith the standards as also to ensure that the CAs comply with their certification practice statement.There will be greater emphasis to ensure that the identity of individuals and businesses is verified as perestablished procedures to create the required level of trust in electronic environment. The CCA has established the National Root infrastructure which would be used for digitallysigning the certificates of all the certifying authorities. Beginning February 2002, four CertifyingAuthority licence have been issued to operate under the Root. It is also setting up the National Repositoryto store all the certificates issued by all the CAs in the country as required under the InformationTechnology Act. 6. Actions to be taken at national level The CII and NASSCOM reports and many other businesses have observed that there are somedifficulties associated with the formation of online contracts in the present formulation of the IT Act. Itis argued that legal enforceability of electronic contracts is open to challenge and legal jurisdiction ofcontracts involving international parties is not defined. The Act is also silent on issues regardingtaxation of electronic transactions. Customs duty for cross border taxation, sales tax, etc. (indirecttaxation) for goods and services delivered electronically are not clearly spelled out. The jurisdiction ofe-commerce transactions is also not clarified. They have also pointed out that there is no provision fordual-key pairs for individuals and businesses which can create some difficulties for confidentiality ofe-transactions. Other difficulties associated with the IT Act relate to the cybercrimes which are not fullycovered are an area of concern for the growth of e-commerce. In this context it is also argued that LawEnforcement Agencies are not fully equipped and trained to deal in cybercrimes. Safeguards to protectprivacy of personal and business data collected over the Internet are not covered under the Act. Also theIT Act is silent on the issue of protection of intellectual rights (patents, trademarks, copyrights) includingdomain names. Finally, payment gateways have to evolve to a level that inter-bank settlement should beenabled through Real Time Gross Settlement (RTGS). These are some of the barriers that have been identified and have to be overcome, in addition toachieving higher Internet and PC penetration, for the growth of e-commerce. The e-governance projects initiated by governments at various levels are built around the followingconcepts: government wide information infrastructure, reengineering of government processes, servicedelivery to citizens on commercial basis and best practices. The web sites designed for informationdissemination are in the process of moving from the publish mode to the interact mode and then to thetransact mode. Establishment of Public Key Infrastructure for issuance of certificates to citizens andgovernment agencies, creating electronic payment gateways for accepting service charges, involvingbanks and credit card agencies, and establishing service delivery points are some of the importantelements of e-governance. Finally, there is realization and consequent emphasis that the digital divide inthe country should be minimized; it must not be worse than the existing gaps in other amenities such asthe electric power or supply of drinking water between the rich and poor, between the urban and ruralpeople. Effective policy framework has been outlined by the Indian government to bridge this gap. Ithas launched community information centres that provide broadband Internet access to population in theunderdeveloped and underprivileged areas such as in the northeast and hill-area states. 143
  12. 12. Initiatives for E-Commerce Capacity-Building of Small and Medium Enterprises There is a need to generate much greater awareness about e-commerce and its benefits. Anappropriate communication strategy needs to be formulated to spread e-commerce awareness amongenterprises by underscoring the benefits and dispel any misconceptions. The apex industry bodies likethe CII should coordinate with themselves and the Government to educate people in decision-makingpositions in Indian organizations. IT education would be a major driving force towards the development, adoption and growth ofe-commerce in India. To keep pace with the changing software and hardware scenario it is necessary toemphasize on the current IT trends and develop quality programmes to impart training and education incontemporary topics. Newer, better and more effective methods of imparting education are evolvingwhich will supplement traditional methods of teaching using books, classroom lectures and writtenexams on pen and paper. Using modern technologies like multimedia, online training and testing etc.,the emphasis is shifting to computer-based training which uses text, audio, visuals and animation ininteractive as well as self paced mode. IT education could be encouraged by facilitating the setting up ofinstitutes for imparting such education, by the way of tax incentives, etc. The government could partnerwith business houses to establish centers for IT training and education in a big way. Currently, 40 per cent of India’s population is illiterate and only 20 per cent understand English.Since most of the content in Internet is in English or other foreign languages, a large portion of thecontent and applications is not accessible to a significant majority of the Indian population. Creativesolutions need to be thought of for overcoming this challenge. While, on one hand local languagecontent and applications need to be developed, on the other hand, voice applications on Internet accessiblethrough a normal touch tone telephone need to be developed. The society as a whole needs to guarditself against the emergence of a digital divide, where the section of the population with access toInternet gain significant advantage over the others. D. Regional cooperation Information Technology Changes the global economy, making it a wired economy by changingthe priority of protection factors such as labour and capital, and information technology adaptation anddeployment. This calls for an information order for the Government and industry, increasing consumerawareness by means of better education, calls for continuous lifelong education for better employability,just building a cooperative community relationship within and outside a nation to share the globalmarket by means of free flow of talents, capital and goods and services within and across nations. Taxation of e-commerce transactions is a very controversial issue, as transactions at differentlevels may depend on resources situated in various countries. Similarly, any disputes related toa transaction may span multiple countries. It also calls for a better legal system and institutional reforms and information education forknowledge and information – based society, better asset evaluation system, stringent privacy protectionlaws and good regulatory legal framework for trade and finance to be conducted across the network.Thus anytime, anywhere access, trade and do business and get information, calls for strengtheninginformation infrastructure enabling anyone to access high-speed communication services anywhere, atany time. To make e-commerce successful on regional level, we require mutual trust worthy environment.All the countries are having independent and separate Legal Framework in place. To enable mutualrecognition of various countries Legal Framework, an International Legal Framework is necessary. Electronic commerce security planning and management calls for identification of the users,better risk assessment and evaluation, application specific security identification, better and appropriate 144
  13. 13. Part Three: Country Presentationsnetwork security policies, information resources protection, better security management policies,retransformation and reskilling human resources in terms of identifying roles and responsibilities andimproving physical and environmental security. The trans-border data flow also cause serious concerns about authorization control, better audittrails, the country’s legal laws and secure technology restrictions for developing nations, calls forsupporting e-laws, better consumer education, better network management, cooperative regional andmultilateral agreements between nations. The delivery mechanisms and transportation should be tuned with appropriate modernization ofclearing services of goods and products within and across the nations. E. Conclusion A developing country can become industrialized and modernized if it can extensively apply IT toenhance productivity and international competitiveness, develop e-commerce and e-governance applications.An information-based society or knowledge based society is composed of IT products, IT applications insociety and economy as a whole. Many countries in Asia are taking advantage of e-commerce throughopening of economies, which is essential for promoting competition and diffusion of Internet technologies.The Internet is boosting efficiency and enhancing market integration in developing countries. The developed world has had a long lead over the developing countries in the telecom infrastructure.The world average of teledensity is 15 per cent compared to the developed world average of 55 to 60 percent. Same is true of PCs, Internet connections, and the number of Internet hosts. All these traditionalindicators for India as seen above are still small. But the total number of Internet connections are largein absolute numbers. Large enough to have a critical mass of 10 to 20 million users to be able to makean impact on e-commerce and e-governance. In the next 3 to 5 years, India will have 30 to 70 millionInternet users which will equal, if not surpass, many of the developed countries. Internet economy willthen become more meaningful in India. The number of e-transactions will be large enough to sustain theInternet economy. 145
  14. 14. Initiatives for E-Commerce Capacity-Building of Small and Medium Enterprises REFERENCESBajaj, K.K., Country Report on E-Commerce (India, Ministry of Communications and Information Technology, Department of Information Technology, Office of the Controller of Certifying Authorities).Business India, 14-27 May 2001. “Money on cards”.Business Today (India), September 2001. “The second coming”.CII, 2001. “E-commerce in India: How to make it happen?”, Report of the CII National Committee on E-Commerce 2000-2001 (Confederation of Indian Industry).Das, Sanchita, 2001. “Cables in the deep”, 2-15 April 2001.Department of Telecommunication, India, 2001. DOT Annual Report 2000-2001.e-commerce (India), October 2001. “Redefining business parameters”.e-commerce (India), February 2002. “An e-fulfilment model and its application in the Indian context”.e-commerce (India), April 2002. “Dot-coms are the future”.e-commerce (India), April 2002. “The role of e-commerce in the new economy”.eMarketer, 10 May 2001. “eAsia”. Available at> or <http://www.>.Goldman Sachs, 2000. Report on IT Global Services (September 2000).Indian Express (Bombay), 7 June 2001. Statement of the Minister of Communication.NASSCOM, 2001. NASSCOM Survey (March 2001).NASSCON and BCG, 2001. E-Commerce Opportunities for India Inc. (study report prepared by NASSCOM and The Boston Consulting Group) (July 2001).People’s Daily Online, 7 April 2001. “Asian B2B e-commerce approaches quarter of world’s total”.Varma, Yograj, 2001. “Broadband: the brakes are on”, Dataquest (India), 15 May 2001. 146