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The Indian rEvolution

Sep 7, 2000

The Internet is expected to change the way a lot of companies do their business. From a corporate perspective the single biggest advantage is a reduction in costs. However infrastructure problems and lack of awareness among potential users is dampening the growth of e-commerce in India. A recent survey of Nasscom reveals that e-business transactions in India are expected to touch Rs 35 bn in FY01. The growth will further accelerate to Rs 150 in FY02 with the requisite regulatory framework in place, improvement in telecom infrastructure and a rise in PC penetration.

E-commerce transactions help corporates in reducing working capital costs by efficient management. Some of the advantages the Internet offers are:

  • It reduces procurement cost for the firms, making it easier to find the cheapest supplier and cutting the cot of processing transactions.
  • It allows better supply chain management.
  • It makes possible tighter inventory control. As a result firms can reduce their stocks or even eliminate them to a certain extent.

But infrastructure problems in the country are restricting growth opportunities. Also the lack of awareness among people is restricting growth of e-commerce. While Internet penetration is about 40% in US, it is far less than 2% in India. Further the downtime of services is high, usage costs are one of the highest in the world and service levels are very low.

The security aspect in web trade is another roadblock hampering the growth of e-commerce. There should be reduction in tariff for international connectivity. Today the cost for a 1 MB link is about US $ 35,000 per month in India against US $ 4,000 in USA. The bandwidth demand in the country is expected to increase manifold with the rising e-commerce transactions. If the required bandwidth is not provided, India could lose the opportunity to earn as much as US $ 22.5 billion.

The government’s decision of exempting tax on e-commerce transactions has proved to be a silver lining amidst these problems. The cabinet has allowed 100% FDI in B2B e-commerce transactions. However these companies if listed on overseas stock markets have to divest 26% equity in favour of the Indian public within 5 years. The opening up of international gateway for private Internet service providers would also be a big boon for e-commerce. If the obstacles the industry is facing currently are solved, it will become a major growth driver for software industry.


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