E-commerce can become a driver of growth across South Asia and boost trade between the region’s countries, but its potential remains largely untapped, says a new World Bank report.
Launched recently in Delhi, the report `Unleashing E-Commerce for South Asian Integration’ notes that although e-commerce has grown significantly in South Asia, online sales accounted for a mere 1.6% and 0.7% of total retail sales in India and Bangladesh, compared to 15% in China and around 14% globally. Increasing the use of e-commerce by consumers and firms in South Asia could potentially help increase competition and firm productivity, and encourage diversification of production and exports, the report adds.
“E-commerce can boost a range of economic indicators across South Asia, from entrepreneurship and job growth to higher GDP rates and overall productivity,” says Sanjay Kathuria, World Bank Lead Economist and co-author of the report. “By unleashing its online trade potential, South Asia can better integrate into international value chains, increase its market access, and strengthen commercial linkages between countries across the region.”
Given that only a small share of firms has access to broadband connections and even fewer transact online, there is enormous room for e-commerce to grow in the region. For example, one forecast shows that India, at a projected annual compound growth rate of almost 18%, will have the fastest growth of any country in retail e-commerce over 2019-23.
A survey of over 2,200 firms in South Asia showed that the top concerns on cross-border e-commerce sales included e-commerce related logistics, e-commerce and digital regulations, and connectivity and information technology infrastructure. These barriers are significantly higher when trading with other South Asian countries. The main international e-partners of firms in South Asia are China, the UK, and the US, and not other South Asian countries.
Small and medium enterprises in the region reported that removing regulatory and logistical challenges to e-commerce would increase their exports, employment, and productivity by as much as 20-30%. To overcome these hurdles, the report proposes reforms in areas such as payments, delivery, market access regulations, consumer protection, and data privacy, at the national, regional, and global levels.
“Some practical steps to strengthen online transactions include leveraging the reputation of large e-commerce platforms to offer consumer protection, return and redress, and data security as an initial substitute for robust contractual and consumer protection mechanisms, and permitting cross-border e-commerce payments,” says Arti Grover, World Bank Senior Economist and co-author of the report. The report also suggests an incremental approach to taking these steps, if necessary, in order to build confidence.
“While cross-border trade within South Asia represents only 5% of the region’s total trade, e-commerce has the potential to stimulate regional trade by bridging the gap between buyers and sellers on different sides of national borders,” says Viviana Perego, World Bank Agriculture Economist and co-author of the report. “And apart from firms, consumers in South Asia stand to gain significantly from the potential reduction in costs and availability of a greater variety of e-traded goods and services.”
E-commerce helps integrate regions across the world and can be a powerful force for economic development. It can help make the international trading system more inclusive, for example, by allowing SMEs to access new markets and by letting consumers break through geographic barriers to reduce search and transaction costs, says the WB report.
Given the potential of e-commerce to connect distant markets, it is possible that e-commerce can also strengthen commercial linkages within South Asia and bring gains to consumers and small players. Through Internet communication, e-commerce has the potential to stimulate regional trade by bridging the gap between buyers and sellers on different sides of national borders. Evidence indicates that the Internet increases trade in physical goods and digital services.
E-commerce and broader issues related to the digital economy can also lend themselves to controversy, such as that surrounding the enormous market power of large digital firms, or data localization. This report does not explore such topics. Instead, it focuses on understanding key constraints to e-commerce in a region that is far behind other regions, including neighboring East Asia, with the aim of unleashing the positive power of e-commerce. Using a regional approach, the report addresses the regulatory complexities of e-commerce, and it explores issues such as data privacy, consumer protection, delivery, cybersecurity, market access regulations, and digital payments.
The report finds that ramping up e-commerce in the region would require significant coordination and cooperation between countries and between different government agencies and regulatory bodies. Knowing that the development of such coordination will be a slow-moving process, the report puts forward some interesting and innovative, yet practical, ideas that would help expande-trade in South Asia.