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 should
be understood as a service that delivers different goods, ordered through the Internet (as well as fax or
phone), to a place defined by the customer. In this context e-shopping is a form of virtual retailing as
opposed to the usual stationary business.

E-business presents one of the greatest opportunities and challenges in retail. Changes in
technology, the rise of the Internet and the critical need to attract, train and retain talent, make the job
one of the most challenging in retail today. The nature of retailing is changing. Years of fierce
competition on the high street mean that to be successful, retailers have to examine every aspect of their
business to ensure a profitable return on investment.

The new battleground is electronic retailing. New technology means that unified, online supply
chains are becoming the norm, together with home shopping either on the Internet or Digital TV. To
compete effectively retailers must invest aggressively, and at speed, to exploit the staggering growth
potential 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 the
future holds. The cost effective and well managed integration of existing systems with new systems and
new 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 online
retailing.

Channel convergence is forcing retailers to implement integrated in store systems. System

integration efforts are a priority for retailers in the next two years. Customers – shopping multiple
channels-catalogue, kiosk, store, web site – expect consistent levels of services and a more uniform
shopping experience. Retailers that are able to provide the highest level of integration and information
access will be able to leverage their investments to enhance the customer shopping experience. They
will 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 inhabitants
created the classical Indian culture. Arab incursions starting in the 8th century and Turkish in 12 th were
followed by European traders beginning in the late 15th century. By the 19 th century, Britain had
assumed political control of virtually all Indian lands. Non-violent resistance to British colonialism
under Mohandas Gandhi and Jawaharlal Nehru led to independence in 1947. The subcontinent was
divided into the secular state of India and the smaller Muslim state of Pakistan. Fundamental concerns
in India include the ongoing dispute with Pakistan over Kashmir, massive overpopulation, environmental

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degradation, extensive poverty, and ethnic and religious strife, all this despite impressive gains in
economic investment and output.

India, a Union of States, is a Sovereign Socialist Secular Democratic Republic with Parliament
system of government. The Republic is governed in terms of the Constitution, which was adopted on
26 November 1949 and came into force on 26 January 1950. India comprises 28 States and 7 Union
Territories.

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 in
the world and the sixth nation to have gone into outer space to conquer nature for the benefit of the
people.

Area: It covers an area of 3,287,590 sq km, extending from the snow-covered Himalayan
heights to the tropical rain forests of the south. As the seventh largest country in the world, India stands
apart from the rest of Asia, marked off as it is by mountains and the sea, which give the country
a distinct geographical entity. Bounded by the Great Himalayas in the north, it stretches southwards and
at the Tropic of Cancer, tapers off into the Indian Ocean between the Bay of Bengal on the east and the
Arabian Sea on the west. It measures about 2,933 km from north to south between the extreme latitudes
and about 2,933 km from east to west between the extreme longitudes. Terrain is upland plain (Deccan
Plateau) 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 are
four seasons: (i) winter (January-February), (ii) hot weather summer (March-May); (iii) rainy-western
monsoon (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 males
and 495.7 million females). India accounts for a meager 2.4 per cent of the world surface area of
135.79 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 country
is 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 of
the population is too poor to be able to afford an adequate diet. India’s international payments position
remained strong in 2001 with adequate foreign exchange reserves, and moderately depreciating nominal
exchange rates. Growth in manufacturing output has slowed, and electricity shortages continue in many
regions. India has large numbers of well-educated people skilled in English language; India is a major
exporter 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.

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C. E-commerce in India

The cutting edge for business today is e-commerce. Most people think e-commerce means
online shopping. But web shopping is only a small part of the picture. The term also refers to online
stock, 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 services
electronically. The main vehicle of e-commerce remains the Internet and the World Wide Web, but use
of e-mail, fax and telephone orders are also prevalent.

Electronic commerce is the application communication and information sharing technology among
trading partners to the pursuit of business objectives. E-commerce can be defined as modern business
methodology that address the needs of the organization, merchants and consumers to cut costs while
improving the quality of goods and services and speed of service delivery. E-commerce is associated
with the buying and selling of information, products, services via computer networks. A key element of
e-commerce is information processing.

The effects of e-commerce are already appearing in all areas of business, from customer service
to new product design. It facilitates new types of information based business processes for reaching and
interacting with customers-online advertising and marketing, online, order taking and online customer
service etc. It can also reduce costs in managing orders and interacting with a wide range of suppliers
and trading and trading partners, areas that typically add significant overheads to the cost of products
and services.

Gartner Group predicted in April 2001 that the B2B e-commerce in the Asian and Pacific region
will 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 and
Pacific region will account for 28 per cent of the worldwide B2B e-commerce transactions, which itself
will 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 the
Asian and Pacific region will increase dramatically from 48.7 million in the year 2000 to 173 million in
the year 2004. It will then comprise more than 27 per cent of the global Internet user community
compared with 21 per cent in the year 2000. The same report estimates the number of Internet users in
India 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 to
examine the developments in India. The Government of India has long recognized the need for development
of 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 the
economy. E-commerce applications can make it easier for the country to better integrate with the global
markets, the e-marketplace. This has led the government, over the last few years to formulate liberal
policies 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 cent
every year for the last few years. The total production during the current year, i.e. 2001-2002 was
Rs 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 released
findings of its survey to evaluate the e-commerce scenario in India. As per preliminary findings of the
survey, the total volume of e-commerce transactions in India was about Rs 450 Crores in the year

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1999-2000. 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 in
telecom infrastructure, increase in PC penetration could lead to a sizeable e-commerce transactions in
India in the next two years. In keeping with global norms, it is expected that business-to-business
transactions 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-commerce
solutions are becoming a sought after commodity around the world, even e-commerce based businesses
are 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 of
e-commerce and e-business transactions from local businesses and a huge opportunity for software
exports to other countries by quickly joining the e-business bandwagon. India’s twin assets (the software
industry 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.

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• 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 the
growth 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 exports

potential 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 of
NASSCOM’s survey include the following:

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• 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 per
cent of Manufacturing sector turnover and 35 per cent country’s exports. These SMEs employ over
17 million persons.

The SMEs segment in India is fast getting tacked by the larger companies, who are allays on the
lookout for new market avenues. Computer Associates – which has a healthy clientele among large
corporates – has huge plans to enter the security market comprising the Rs 10-Crore SME sector in
India, offering end-to-end security solutions to smaller players.

There is a huge unexplored market in India and the existing security offerings are scarce and
fragmented. Since the SME market is the largest spender on IT, it is the right time for an entry and also
because SMEs in India are under a great deal of pressure form the bigger customers to create a secure
e-biz infrastructure.

SMEs are increasingly seeing the benefits arising from e-commerce as expanded geographical
coverage 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 (stock
exchanges and banks), automobiles, retail, travel, IT and manufacturing.

For the SME sector, some of the concerns with e-commerce revolve around fear or eroding their
existing customer base and technical issues arising out of lack of computer expertise and the cost of
necessary hardware and software. These are some of the preview highlights of a survey conducted by
NASSCOM 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 on
e-commerce in India. Both the reports came out around the same time, namely June-July 2001. One
was 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 Consulting
Group. Both the reports are optimistic about the growth of e-commerce in India. The Confederation of
Indian Industry (CII) report estimates the volume of e-commerce to grow to Rs 500 billion (US$ 10.6
billion) in the year 2003, out of which B2B will be Rs 420 billion (US$ 9 billion) and B2C will be Rs 80
billion (US$ 1.7 billion) (CII, 2001). The NASSCOM-BCG Report, on the other hand, estimates for the
same year that the total volume of e-commerce will be Rs 1,950 billion (US$ 41.5 billion), out of which
Rs 1,920 billion (US$ 41 billion) will be on account of B2B and Rs 3 billion (US$ 64 million) will be on
account of B2C (NASSCON and BCG, 2001). E-commerce volume for the year is estimated to be
Rs 150-200 billion (US$ 3.2-4.2 billion) (NASSCON and BCG, 2001).

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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 euphoria
of Internet revolution is over. But there is a deeper realization that the opportunities and threats of the
Internet are very real. Organizations that have understood the power of the Internet and have implemented
well thought out business strategies have leveraged B2B and B2C e-commerce to create significant gains
in their business. LG Electronics India Ltd. is a case in point. It expects to realize margins up to
1.5-2 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 low
capital cost, without venture capital funding include: KEY2CROREPATI, MUSICABSOLUTE, GATE2BIZ,
GRIHRACHNA, SHAADIONLINE. Business strategy on the Net is the key to these new portals. The
new entrepreneurs are very clear in what they offer. Since they are not setting web sites with a view to
sell them later, unlike the first wave of dot-coms, they put in their best efforts to check offerings and
their 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 to
distant areas. B2C e-commerce is likely to remain small because of these constraints. In fact, when the
e-tailing market grows in size, high delivery costs, logistical bottlenecks as well as regulatory requirements
will act as major barriers. Coupled with this are the cultural barriers where most shoppers are uncomfortable
buying items they are unable to see or touch. Consumer protection is also not very effective. If goods
are not delivered after electronic placement of orders, the consumers may have to follow long process
for 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. Vishwabharat.com offers domain
names using the alphabet in Indian languages. These will be valid like other domain names and are
expected to help non-English speaking people take advantage of the benefits of Internet. Currently, one
can register in Hindi or Kannada scripts.

Most of India’s banks and financial institutions have set up web sites. Online stock trading has
also taken off in India with the Securities and Exchange Board of India (SEBI) making efforts to
standardize message formats and address issues pertaining to technology, connectivity, security, surveillance
and monitoring. Companies such as <indiabulls.com> and <5paisa.com> actively promote online trading
on their web sites. A number of web sites cater exclusively to the expatriate Indians and offer valuable
information on investment decisions, real estate, etc. Online portals have been set up for B2B
e-commerce exchanges in the areas of automobiles, steel industry, construction, insurance, shipping and
pharmaceuticals. A number of sites also deal in auctions. Most of the sites are in B2B segment, while
there are some in the B2C segment as well. Vortals which cater to specific information needs and
provide 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 and
games 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 financial
transactions. There are four payment gateways operated by ICICI Bank, Citibank, HDFC Bank, and
Global Trust Bank. But all these are closed user groups. There are no real time settlement systems
available to let the users of one gateway settle their accounts with users of another group. No inter-bank
settlement 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 number
5.1 million with total spending of Rs 81 billion (Business India, 14-27 May 2001).

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The industry is alive to the need of being active players in the Internet world. It has aggressively
participated in the recent round of appointment of the Internet Corporation for Assigned Names and
Numbers (ICANN) of new registrars in this region. Two companies have been accredited as registrars in
the .com domain. While registration of web sites for .com, .org and .net could earlier only be done
through Network Solutions Inc., a number of new web sites such as <123registry.com> and
<planet4domains.com> are now offering this service in India.

It may be added here that the software industry which is the greatest strength of India grew at
a compound aggregated growth rate of nearly 50 per cent during the last decade. The Indian software
and services industry has attained a reasonably robust growth of 30 per cent even during the last year
which was a year of turbulence, tragedy, terrorism and slowdown in world economy. The software
exports rose to US$ 7.8 billion in the year 2001-2002 form US$ 6.3 billion in 2000-2001. Majority of
the Fortune, 500 companies have outsourced their software requirements to India. The software solutions
from India have been moving up the value chain and are engaging more and more electronic commerce
and web based technologies. Internet and e-commerce related software and services export from India
accounted for nearly US$ 1200 million in the year 2000-2001. This figure is expected to rise to US$ 3
billion by 2003-2004 (NASSCOM, 2001). Many of the software companies are specializing in supply
chain and distribution management solutions which are the key drivers of the global e-commerce solutions
market. The NASSCOM-BCG Report estimates that the e-solutions market, which worldwide is currently
of the order of US$ 180 billion, will grow to US$ 640 billion in 2005. India should be able to tap up to
US$ 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 their

sustainability over the long run.

There are several B2B players. Satyam has developed an engine that can be used to develop
platforms for any industry. The biggest currently in operation is the steel industry TheSteelExchange,
auto companies, are coming together to form eax.com (auto exchange). Probably the biggest ‘internal
B2B’ player is Maruti, which already does a large part of their supply-chain side purchasing and
dealer-networking online.

Some other successful cases are: Hindustan Lever Ltd., General Motors and Godrej. The most
well known B2B e-commerce technology, such as i2 technology and CommerceOne, are yet to be
adopted by Indian corporates. These technologies are presently too expensive and may not result in any
return on investment due to lack of other infrastructure and services such as third party and fourth party
logistics in the country.

There is still a lot that the government can do, starting with resolving the inter-bank settlement
standards to enable online payments. Next could be to strengthen the telecom infrastructure (especially
in the last mile). Another important thing would be to recognize online contracts, which has now been
done 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)

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• 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. The
National Telecom Policy announced in 1994 separated the policy making functions of the government
from those of providing services, and allowed the private sector to provide telecom services. It also
recognized the need for the establishment of an independent Telecom Regulator. As a result, a number
of private companies were given licences for providing mobile telephone services, and more recently for
fixed-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 providing
telecom services as a sole monopoly, was corporatized in the year 2000 and was made to compete with
the 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 gas
authorities have been allowed to set up national long distance carriers for data transmission. A large data
communication backbone with extremely high bandwidth is in the process of making.

In January 2001, the government paved the way for unrestricted competition in basic phone
services. The move will help consolidate the position for those telecom companies that can offer
a basket of services – basic, cellular, Internet, national long distance and broadband – to their customers
with flexible tariff packages and single billing as the country moves towards convergence. The basic
telecom 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 direct
inter-connectivity among service providers. Two-way communication through cable has been permitted
for voice, data and information services. A cable service provider can also obtain a licence as a fixed
service provider. In fact, the country is moving towards full convergence with the Convergence Bill
having been introduced in Parliament. This takes care of increasing convergence between telecom, IT
and broadcasting services. The Communications Convergence Bill, 2001 envisages the setting up of the
Communications Commission of India (CCI) to promote the plurality of different media, forms and
structure and provide access to a range of competing viewpoints and information resources, in addition
to 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 to
5 per cent in September 2002 and is projected to grow to 7 per cent by the year 2005 and to 15 per cent
by 2010. The rural density is expected to grow from the current level of 0.8 per cent to 4 per cent by
2010. (The urban teledensity is around 10 per cent). The number of mobile phones is multiplying at
a very fast rate and are at present 8.5 million. The telecom sector saw an investment in the range of
US$ 4.5 to 5 billion by the government and its agencies alone during the last two years. By 2005, a total
investment 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 optic
networks to wire the major cities and the trunk routes for providing all kinds of services. A number of
them have also set up international gateways for providing bandwidth to the ISPs. Private sector

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companies like Reliance Telecom, Powergrid Corporation, Railways, Bharti Telecom, BPL and GAIL are
creating cross-country optical fiber networks for broadband services. Even non-telecom players like
Enron, Zee TV, and Spectranet are making huge investments in the broadband sector. It is estimated that
investments 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 billion
for a bandwidth of 59 gigabits per second (Gbps). VSNL as well as Hindustan Teleprinters has since
been privatized in March-April, 2002. The private investment of about US$ 1.4 billion by Bharti
Telecom, Dishnet DSL has created a bandwidth of 16.08 tera-bits per second (Tbps) connecting India
with the world through Singapore, Jakarta, Guam, Portland, Los Angels, Hawaii and Japan. Reliance
Telecom 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 cable
modems can enable existing TVs to act as Internet devices. All major cities are being wired with optical
fibers to provide cable TV services, and broadband Internet. The existing 98 million TV sets have the
potential of accessing Internet.

As a result of these policies a number of ISPs have come into being which have spearheaded the
growth of Internet connectivity in a big way. Over 170 ISPs are fully operational in the country which
have taken the number of Internet connections from a mere half a million three years ago, to 3.5 million
by September 2002. Each Internet connection is used by multiple users. The estimated number of
Internet users is 17 million. By 2005, Internet connections are expected to go up to 25 million while the
Internet users will rise to over 100 million.

The NASSCOM survey finds that there are over 400 cities that have at least 2000 Internet
connections. This number will double in the next one year. This shows that Internet has penetrated well
beyond 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, the
bandwidth demand will be at the level of 100 Gbps. By the year 2005, data traffic which is 5 per cent
today, will account for 50 per cent to 65 per cent. Wireless, broadband and convergence of media are
emerging 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 of
e-commerce. It has created the necessary legal and administrative framework through the enactment of
the Information Technology IT Act which combines e-commerce transactions and computer misuse and
frauds 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 confidence
among the public that the frauds in the cyber space will not go unpunished. The Controller of Certifying
Authorities (CCA) has been put in place for effective implementation of the IT Act. The Act also
enables 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 responsible
for the establishment of PKI the country through licensing of certifying authorities (CAs). For this
purpose, it has notified standards which are based on international standards as adopted by the International
Telecom Union, the Internet Engineering Task Force (IETF), Institute of Electrical and Electronics

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Engineers, Inc. (IEEE) and the Federal Information Processing Standards (FIPS) of the Government of
the United States. These standards range from specifying the high security modules for storing private
keys 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 who
would be responsible for auditing the technical and physical infrastructure of the CAs to ensure conformance
with 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 per
established procedures to create the required level of trust in electronic environment.

The CCA has established the National Root infrastructure which would be used for digitally
signing the certificates of all the certifying authorities. Beginning February 2002, four Certifying
Authority licence have been issued to operate under the Root. It is also setting up the National Repository
to store all the certificates issued by all the CAs in the country as required under the Information
Technology Act.

6. Actions to be taken at national level

The CII and NASSCOM reports and many other businesses have observed that there are some
difficulties associated with the formation of online contracts in the present formulation of the IT Act. It
is argued that legal enforceability of electronic contracts is open to challenge and legal jurisdiction of
contracts involving international parties is not defined. The Act is also silent on issues regarding
taxation of electronic transactions. Customs duty for cross border taxation, sales tax, etc. (indirect
taxation) for goods and services delivered electronically are not clearly spelled out. The jurisdiction of
e-commerce transactions is also not clarified. They have also pointed out that there is no provision for
dual-key pairs for individuals and businesses which can create some difficulties for confidentiality of
e-transactions.

Other difficulties associated with the IT Act relate to the cybercrimes which are not fully
covered are an area of concern for the growth of e-commerce. In this context it is also argued that Law
Enforcement Agencies are not fully equipped and trained to deal in cybercrimes. Safeguards to protect
privacy of personal and business data collected over the Internet are not covered under the Act. Also the
IT Act is silent on the issue of protection of intellectual rights (patents, trademarks, copyrights) including
domain names. Finally, payment gateways have to evolve to a level that inter-bank settlement should be
enabled through Real Time Gross Settlement (RTGS).

These are some of the barriers that have been identified and have to be overcome, in addition to
achieving 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 following
concepts: government wide information infrastructure, reengineering of government processes, service
delivery to citizens on commercial basis and best practices. The web sites designed for information
dissemination are in the process of moving from the publish mode to the interact mode and then to the
transact mode. Establishment of Public Key Infrastructure for issuance of certificates to citizens and
government agencies, creating electronic payment gateways for accepting service charges, involving
banks and credit card agencies, and establishing service delivery points are some of the important
elements of e-governance. Finally, there is realization and consequent emphasis that the digital divide in
the country should be minimized; it must not be worse than the existing gaps in other amenities such as
the electric power or supply of drinking water between the rich and poor, between the urban and rural
people. Effective policy framework has been outlined by the Indian government to bridge this gap. It
has launched community information centres that provide broadband Internet access to population in the
underdeveloped and underprivileged areas such as in the northeast and hill-area states.

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There is a need to generate much greater awareness about e-commerce and its benefits. An
appropriate communication strategy needs to be formulated to spread e-commerce awareness among
enterprises by underscoring the benefits and dispel any misconceptions. The apex industry bodies like
the CII should coordinate with themselves and the Government to educate people in decision-making
positions in Indian organizations.

IT education would be a major driving force towards the development, adoption and growth of
e-commerce in India. To keep pace with the changing software and hardware scenario it is necessary to
emphasize on the current IT trends and develop quality programmes to impart training and education in
contemporary topics. Newer, better and more effective methods of imparting education are evolving
which will supplement traditional methods of teaching using books, classroom lectures and written
exams 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 in
interactive as well as self paced mode. IT education could be encouraged by facilitating the setting up of
institutes for imparting such education, by the way of tax incentives, etc. The government could partner
with 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 the
content and applications is not accessible to a significant majority of the Indian population. Creative
solutions need to be thought of for overcoming this challenge. While, on one hand local language
content and applications need to be developed, on the other hand, voice applications on Internet accessible
through a normal touch tone telephone need to be developed. The society as a whole needs to guard
itself against the emergence of a digital divide, where the section of the population with access to
Internet gain significant advantage over the others.

D. Regional cooperation

Information Technology Changes the global economy, making it a wired economy by changing
the priority of protection factors such as labour and capital, and information technology adaptation and
deployment. This calls for an information order for the Government and industry, increasing consumer
awareness 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 global
market 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 different

levels may depend on resources situated in various countries. Similarly, any disputes related to
a transaction may span multiple countries.

It also calls for a better legal system and institutional reforms and information education for
knowledge and information – based society, better asset evaluation system, stringent privacy protection
laws 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 strengthening
information infrastructure enabling anyone to access high-speed communication services anywhere, at
any 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 mutual
recognition 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

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network security policies, information resources protection, better security management policies,
retransformation and reskilling human resources in terms of identifying roles and responsibilities and
improving physical and environmental security.

The trans-border data flow also cause serious concerns about authorization control, better audit
trails, the country’s legal laws and secure technology restrictions for developing nations, calls for
supporting e-laws, better consumer education, better network management, cooperative regional and
multilateral agreements between nations.

The delivery mechanisms and transportation should be tuned with appropriate modernization of
clearing 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 to
enhance 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 in
society and economy as a whole. Many countries in Asia are taking advantage of e-commerce through
opening 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 per
cent. Same is true of PCs, Internet connections, and the number of Internet hosts. All these traditional
indicators for India as seen above are still small. But the total number of Internet connections are large
in absolute numbers. Large enough to have a critical mass of 10 to 20 million users to be able to make
an impact on e-commerce and e-governance. In the next 3 to 5 years, India will have 30 to 70 million
Internet users which will equal, if not surpass, many of the developed countries. Internet economy will
then become more meaningful in India. The number of e-transactions will be large enough to sustain the
Internet economy.

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Bajaj, K.K., Country Report on E-Commerce (India, Ministry of Communications and Information
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Das, Sanchita, 2001. “Cables in the deep”, 2-15 April 2001.

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