Indian E-Commerce Models

The Indian e-commerce models are presently, and in the near future
will be, replicas of the global model. In India, a new breed of
entrepreneurs is emerging such as intermediaries, cybermediaries etc.
The Indian netizen is adopting the new jargon with zest as we move
from "word of mouth" to "word of mouse" and from "market-share" to
"eyeball share". Priceline.com's "dynamic pricing" model perfectly suits
the Indian psyche which thrives on haggling, bargaining and never
having to pay for what can be got for free.

Indian businesses recognise that any engagement in the areas of
finance, banking, insurance, medical services will require that they are
Internet-enabled. India is quickly adapting a new lexicon of having "e"
everything, from e-business to e-governance and no one can say when
we will have 'e-nough'.

Let's consider the Business to Consumer (B2C) Model. Currently, at least
80 e-commerce pioneers have entered India's rough waters in the B2C
segment. They offer and are likely to continue to offer the same range of
products as in the USA i.e. flowers, low-priced gifts, books, CDs, movie
tickets, vegetables, price and stock information and directories, etc. Also,
manufacturing and service companies will gradually introduce customer-
facing Internet enabled techniques. As you will know, the Internet is also
becoming a meeting place for buyers and sellers.

Now let's look at the Business to Business (B2B) Model. In the B2B
segment, companies are entering and will increasingly provide financial
services, travel, hospitality, business services, communications and
utility services on the Net. In some businesses, that lend themselves
to the direct marketing model, the intermediary will disappear. A recent
KPMG survey demonstrates that over 50% of Indian businesses
recognise that e-commerce will either play a crucial, or substantial, part
in their overall strategy. But infrastructure costs, security, inadequate
volumes, non-availability of technology, lack of standardised payment
infrastructure, lack of trust among partners remain significant barriers.

Indian ISPs are experiencing the worldwide phenomenon, that plain
vanilla Internet services only consume bandwidth, without yielding rich
profits. Consequently, following their US, European and Korean counterparts
through alliances with PC and software retailers, bundled discounted
offers have become the norm. The larger ISPs provide customised and
secure solutions for corporates through managed networks. Emerging on
the horizon are alliances among software developers, telecom & Internet
equipment providers and management consultancy firms to provide
complete solutions to customers. Acquisitions and mergers will also be
replicated in India.


The Challenges

1. The Subscriber Base
India has a long way to go to achieve the critical mass required to make
e-commerce a part of the daily lives of its citizens. Presently, we have
barely 3 PCs per 1000 people and close to 2.2 telephones per 100 people.
India has roughly 350,000 Internet subscribers, comparatively, China has
4 million subscribers. However, in India high double digit growth is occurring.

2. Infrastructure
India requires reliable and secure networks with the capacity to satisfy
both domestic and export market requirements. The National Telecom
Policy (NTP'99) envisages bandwidths of 10 GB on national routes, and
even terabits on the more congested routes.

3. Over-Regulation of the Incumbent Operator
There is an additional threat to private operators from India's state-
owned monopoly operators. In several countries, including Australia,
the UK, and the USA, clear restrictions were placed on the activities
of the dominant operator, which often has the market power to drive
new players out of existence through unfair competitive practices. How
can private operators argue that it is against the national interest to
continue to allow state-owned enterprises to provide cheap telecom
services? It is here that the debate is stalled. The Videsh Sanchar
Nigam Limited and the Mahanagar Telephone Nigam Limited, both
state-owned telecom giants are positioning themselves to control
large chunks of the Internet market through subsidies.


The Solutions

1. Cyber Cafés : A Unique Phenomenon in India
The phenomenon of telephone kiosks has been extended to cyber
cafes, and are rapidly becoming one-stop shops for telecom services
to consumers. 'Universal service' in India means "access", not
ownership of PC or phone. The reasons: a huge gap between
purchasing power, and the (per-subscriber) cost for communications
equipment and connectivity. Many of India's 200 million middle class
consumers give low priority to acquiring a PC and an Internet connection,
given current prices and services. This is also evident in India's stagnant
cellular telephony market. 'Universal service' in India also means, a
phone for every 500 people and a phone in every village.

2. Entry of Cable TV Operators
The National Telecom Policy allows CATV operators to enter the
Internet market. Several are already planning to enter the market.
Indian ISPs are forming alliances with cable TV providers. Of course, to
experience rapid penetration through this route the cost of set-top
boxes must fall and the existing CATV networks, currently in deplorable
condition must be fully replaced to cater to the requirements for
two-way connectivity at high-speeds.

3. Voice Over Internet Protocol
There is still one hangover of the previously ill thought out licenses
for basic services, first issued in 1996 - voice services are prohibited
to ISPs. The state monopoly, the Department of Telecommunications,
worried about the emerging threat of VoIP technologies, gave exclusive
rights to fixed line basic service providers for voice delivery. Still, sooner
or later, India will have to change these licenses in the face of immutable
technological developments, of which VoIP is but one.


Cyber Laws

India's proposed cyber laws are flexible and futuristic in that they are
'technology neutral'. We have drawn upon the rich experiences of other
countries and institutions and have especially depended on the
Uncitral Model Law of Electronic Commerce, the laws of some US State
governments, Germany, Malaysia and Singapore. The proposed Indian
cyberlaws formally recognise digital signatures, electronic contracts,
various forms of electronic business, certification, the validity of an offer
being accepted when it is sent etc. These proposals also envisage
amendments to several historical Acts.


Encryption

In the area of encryption, the proposed cyber laws override the current
power of the state-owned countrywide operator, the Department of
Telecommunications, which has sole authority over encryption and
telecommunication. Under current Indian policies individuals and
organisations can deploy indigenous or imported encryption equipment
with upto 40-bit key-length. Industry is now demanding a minimum of
56-bit key-length.


Liability of Network Providers

In keeping with international trends, as in the USA and Singapore, the
proposed cyber laws remove the liability on ISPs & network service
providers for third party electronic material passing over their networks.


Taxation

The Indian government needs to provide a number of clear policy
directions from the Income Tax perspective. 'E-establishments' need to
know whether they are to be taxed at 'source' or 'residence', and if
they require a physical presence. Jurisdictional issues regarding
taxation of royalties, interest and license fees for data will require
clarity from a double taxation perspective. Tax incentives will be
required, to prevent e-businesses from shifting to tax haven countries.
The Government will also need to agree on double-taxation agreements
from an e-commerce perspective.


e-Money

In the next millennium, for the first time in the history of the modern-
nation state private parties may well be on their way to issue money.
However, if digital or cyber cash is to become acceptable as money,
it is essential to treat it as physical cash. In India, as elsewhere, the
state is unwilling to relinquish its sole control over money creation easily.
If non-banking institutions have the power to create liquidity, the role of
the central bank in managing foreign currency inflows and outflows will
be significantly undermined. Also foreign exchange controls will also
increasingly move out of the purview of the government. Financial
markets will become increasingly volatile, as capital will flow even more
freely across borders.


Evidence

The Indian Evidence Act still lags, although Customs and Excise
laws do admit records kept in disk, microfilm and other electronic
memory systems as evidence. The Reserve Bank of India has made
some proposals in this regard, which are being presently studied
by the Government of India.


Security

Forrester Research has projected that the global e-commerce market
will reach US$3.2 trillion in 2003 if it is managed well, but less than
half if security and regulatory problems persist. India, as in other
countries, is also seeing the emergence of an industry to prevent
hackers, thieves (or even the government) from infiltrating web bank
accounts; e-mails or corporate purchasing networks. E-businesses
know that technology alone will not sufficiently protect them from
devious and innovative hackers and organised criminals. So they will
need to establish certifying sites which adhere to certain standards
relating to privacy, high-tech encryption and about financial or health data.


The Citizen & the State

The world over, it is expected that e-commerce in the next millennium
will change the relationship between the state and the citizen. The
state will at once become increasingly 'intrusive' and 'inclusive'. The
Indian Central government and some State governments, are moving
towards becoming IT and Internet enabled. They are creating networks,
computerising their databases, issuing country-wide Personal Account
Numbers for Income Tax assesses, etc. This enables the State to keep
better tabs on their citizens. Already, the government requires cellular
operators to provide customer lists to control tax avoidance, and to
prevent crime. Such demands from the State can also be expected of
ISPs and e-businesses. On the other hand, IT-enablement also helps
the State provide better quality public services like healthcare,
education, railway, power, telecommunications, water facilities etc.


In Conclusion

In conclusion, over the next five years in India, we can expect the
supply of Internet services to increase, as the cost of equipment
continues to fall and the purchasing power of Indians continues to
rise. Since commerce will grow with increased access, the 'cyberkiosk'
model may be extended to several areas. This can be done through
government and private sector participation. Small and medium
enterprises - apparel producers, farmers etc. - that cannot afford to
become Internet-enabled. on their own, may form partnerships with
ISPs to become 'e-commerce ready'. Information may be made available
to them on Internet kiosks scattered throughout the country.
Government financing, already available for financing youth employment,
may be utilised to finance kiosks that provide a range of convergent
services. Governments and the private sector will need to join hands to
provide the necessary bandwidth to service a large range of services
requiring robust data networks for business purposes such as call-
centres, application service providers, enterprise information portals etc.
Governments and private companies will also need to join hands to
provide better health-care and distance learning. Much of this will need
to be financed through a 'universal service' Fund. We expect many of
these initiatives to come through in the early part of the next millennium
in India.