Growth of ecommerce in South Asia stunted by regulatory, logistical constraints: World Bank

Regulations in the substantially growing yet relatively new ecommerce sector has been a talking point around most major geographies in the world. India has been no exception.

As governments continue to mull over policies to oversee the ways and workings of the sector, leading as well as small and medium enterprises (SMEs) players face the direct impact of these regulations.

Appropriate regulations can help unleash the potential of ecommerce to reduce transaction costs. Regulatory hurdles that businesses face when engaging in ecommerce can relate to five focus areas. Consumer protection, data protection and privacy, e-transactions and e-signatures, cybersecurity, market access and investment related policy measures have been identified as regulatory hurdles that B2C ecommerce businesses face, says a recent report by the World Bank.

Alongside regulatory and institutional barriers to ecommerce across developing countries in the South Asian region, the report highlights logistical constraints, citing structural gaps in the socio-economic and business environments, lack of basic infrastructure, efficient transportation and low levels of digital literacy.

However, the report adds that an improved regulatory framework can be designed relatively easily in the short run, whereas infrastructural upgrades are likely to require costly investment and will take a longer time to complete.

The increasing use of ecommerce by consumers and firms in South Asia could potentially help increase competition and firm productivity, and encourage diversification of production and exports, according to the report titled ‘Unleashing Ecommerce for South Asian Integration’.

In India, online sales as a percentage of total retail sales were only 1.6%, versus over 15% for China and around 14% globally, the report said.

The lack of a clear regulatory framework is critically constraining ecommerce, not just in South Asia, at its national and intraregional levels, but globally as well. The European Commission attributes the slow pace of online transactions to the complicated and unclear regulatory framework, the World Bank said.

Surveys conducted in making the report suggested that regulatory constraints on ecommerce and digital payments particularly hurt small firms. SMEs reported that removing regulatory and logistical challenges to ecommerce would increase their exports, employment, and boost productivity by as much as 20–30 percent.

In countries such as India and Sri Lanka, foreign multi-brand retailers cannot have their own inventory, and international giants such as Amazon, Walmart-Flipkart and Daraz must operate as pure marketplaces. This may have consequences for market access for small firms with limited digital and logistical skills because it reduces the options available to these small retailers and producers, the report said.

Field interviews in Sri Lanka and Nepal showed how some entrepreneurs, to sell more conveniently in international marketplaces, open subsidiaries overseas (for example, in Australia, Singapore, or the United States), the report revealed.

This allows them to receive international payments and fulfil international orders, but it involves additional overhead and transaction costs. Restrictions on payment methods and foreign exchange controls can thus have a substantial impact on business, especially when dealing with cross-border transactions.