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June 21, 1999


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E-commerce in analog India: N Vittal prescribes tech, policy and law strategies specific to India.

The computer network as an important infrastructure for trade and commerce has brought on the dawn of electronic commerce.

Simplistically, e-commerce can happen in four situations.

  • Business to business;
  • Business to government;
  • Business to consumers;
  • And consumer to consumer.
Obviously, the nature of e-commerce will change dramatically from one environment to another.

Email this story to a friend. But if we are to talk about enabling e-commerce in India, we will have to move beyond these global concepts and review the harsh realities of a developing nation.

Only then can we think of an e-commerce strategy for India.

Let us begin with the most fundamental questions: Should India pay any attention to e-commerce at all? And are any special efforts needed to enable e-commerce in India?

The answer to both is a resounding yes.

Ignoring e-commerce would be as good as ignoring the World Trade Organisation. E-commerce is the wave of the future. It defines the emerging practice of business.

Take the case of 'electronic data interchange'. EDI is the technology of doing business over 'closed' networks that are accessible only to a set of business partners. In the last 20 years, it has been the prime contributor to the speed of business all over the world.

In Singapore, the time for port transactions were reduced from 3 days to 15 minutes by deploying EDI.

However, when we talk of e-commerce today we must concentrate more on the way the 'open' Internet is used to do business. That is because the Internet is fast replacing EDI.

Now that we have established why India cannot ignore e-commerce, the next issue is about how we can adopt it.

There are two requirements for adopting e-commerce:

  1. The physical requirement of connectivity and technology.
  2. The legal requirement to ensure commerce and trade does not slip into anarchy.
As far as physical requirements are concerned, it will depend upon a series of 'Cs'. These are computer density, connectivity costs and content.

Today, at the political level, there is realisation that India should become an information technology superpower. I would argue that becoming an information technology superpower is meaningless unless we also aim to become an economic superpower.

But, that is not the issue at hand. Right now, we are considering only the issue of electronic commerce and how it can be enabled in India.

There are some positive developments on the policy front. The government set up the National Task Force on Information Technology that has already submitted three reports.

While the first report was immediately accepted and notified, the fate of the second and the third reports is still hanging fire.

If we want to create the appropriate environment for enabling e-commerce in India, the first step would be to adopt all the recommendations of the second and the third reports of the National Task Force on Information Technology.

This will take care of the manufacture of computers and the availability of adequate computer density in the country.

As far as connectivity is concerned, telecommunication is the key. The policy decisions of the government that are welcome in the context of e-commerce are the announcements of the Internet Service Providers' Policy and the New Telecom Policy 1999.

Both these policies represent the growing awareness in the government for the need to ensure that India takes full advantage of the emerging telecom technologies and especially the convergence of communication technologies.

After all, e-commerce ultimately depends, for its full impact on the convergence of audio, video and digital technologies.

As far as the New Telecom Policy is concerned, there are disturbing reports that there is a view that it cannot be implemented.

Let us hope these fears turn out to be baseless. The New Telecom Policy provides for the following:

  • Access to telecommunications is of utmost importance for achievement of the country's social and economic goals. Availability of affordable and effective communications for the citizens is at the core of the vision and goal of the telecom policy.
  • The policy strives to provide a balance between the provision of universal service to all uncovered areas, including the rural areas, and the provision of high-level services capable of meeting the needs of the country's economy.
  • Encourage development of telecommunication facilities in remote, hilly and tribal areas of the country.
  • Create a modern and efficient telecommunications infrastructure, taking into account the convergence of IT, media, telecom and consumer electronics and thereby propel India into becoming an IT superpower.
  • Convert 'public call offices', wherever justified, into 'public teleinfo centres' having multimedia capability like ISDN services, remote database access, government and community information systems.
  • Transform in time-bound manner the telecommunications sector to a greater competitive environment in both urban and rural areas, providing equal opportunities and level playing field for all players.
  • Strengthen research and development efforts in the country and provide an impetus to build world class manufacturing capabilities.
  • Achieve efficiency and transparency in spectrum management
  • Protect the defence and security interests of the country.
  • Enable Indian telecom companies to become truly global players.
In line with the above objectives, the specific targets that NTP 1999 seeks to achieve would be:
  • Make available telephone on demand by 2002 and sustain it thereafter to achieve a teledensity of 7 by 2005 and 15 by 2010.
  • Encourage development of telecom in rural areas, making it more affordable by suitable tariff structure and making rural communication mandatory for all fixed service providers.
  • Increase rural teledensity from the current level of 0.4 to 4 by 2010 and provide reliable transmission media in all rural areas.
  • Achieve telecom coverage of all villages in the country and provide reliable media to all exchanges by 2002.
  • Provide Internet access to all district headquarters by 2000.
  • Provide high-speed data and multimedia capability using technologies including ISDN to all towns with a population greater than 200,000 by 2002.
The second requirement to enable the rapid growth of e-commerce, therefore, is that the Internet Service Providers' Policy and the New Telecom Policy should be immediately and fully implemented.

It is better to take the industry into confidence and remove operational bottlenecks before we can talk meaningfully of e-commerce being enabled in India.

That brings us to the next aspect of e-commerce; the legal framework.

Here again, adequate homework has been done by the Department of Electronics. The Information Technology Bill prepared by the Department of Electronics is already with the government. The Ministry of Commerce has also come with the draft Electronic Commerce Act of 1998. As I see it, a lot of preparatory work has already been done.

I would strongly urge that it is better to take the first step and get moving instead of getting lost in analysis/paralysis.

The White Paper on E-Commerce, the commerce ministry's draft on E-Commerce Act and Department of Electronics' IT Bill can all be synthesised. An ordinance can be issued, if necessary, so that appropriate legal framework for e-commerce is immediately available. This will take care of issues like authentication of documents in cyberspace, contracts, liabilities etc.

Banks and financial institutions form the bulwark of the financial infrastructure and are very necessary for commerce.

Unfortunately, only 5,000 of the 65,000 bank branches in India have been computerised. But I am happy that they have reacted positively to a directive from my office as chief vigilance commissioner. The directive has asked the banks to computerise at least 70 per cent of their business by January 1, 2001.

Banks and all financial institutions will have to computerise and simultaneously take precautions to guard against new types of crimes online.

An important issue that has to be faced in the context of e-commerce is the issue of taxation. It is here, I think, that the government should show imagination and repeat what successful trading countries did in the age of physical trade and commerce, which of course continues and will continue forever.

After all, e-commerce is only the icing on the cake of physical commerce. Experience shows that countries like Singapore, which adopted an open outward looking policy flourished in international trade.

Countries, which locked themselves behind huge tariff barriers, lagged behind. In the case of electronic commerce, at least, government should adopt the policy of a moratorium on taxes and adopt a zero tax regime, at least for the first decade of the 21st Century.

This will help attract business to India. As I see it, the government will not be a loser. Because, as far as physical trade and commerce is concerned, taxation at present may continue.

E-commerce can be looked upon as commerce using the computer network, a medium for entering into contracts and exchange goods and services.

Physical trade can effectively be taxed according to the existing legal framework. New problems are going to arise only in the area of cyberspace.

Here a tax free regime may be useful because such a policy may in fact provide greater employment opportunities to be developed in India, both because of its size and the potential market, and more importantly, because of the Indian talent in software, in particular, and information technology in general.

I would therefore suggest that the following four-point strategy be adopted for enabling e-commerce in India.

  1. The New Telecom Policy and Internet Service Providers' Policy, which have already been announced, must be implemented in full. Any remaining hitches must be immediately sorted out by meeting all stakeholders so that the government's intentions in expressing these two policies is effectively translated into reality.
  2. Based on the Department of Electronics' Bill and the inputs from the ministry of commerce, a legal framework can be worked out. An ordinance can be issued, if necessary, so that a legal background for developing e-commerce is created.
  3. A promotional approach must be adopted for e-commerce and a zero tax regime for e-commerce should be announced for the first decade of next century up to 2010.
  4. Banks and financial institutions must computerize their operations fully so that once the legal framework and networks are in place, e-commerce does not suffer because of paperbound banks, swathed in yards of red tape.
N Vittal is the chief vigilance commissioner of India. Prior to this he was the chairman of the Public Enterprises Selection Board. But he is best known as the biggest evangelist for deployment of information technology in government. In an earlier tenure as the secretary of the Telecom Commission he won his credentials by introducing many revolutionary policies.

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