Teething Problems Cause Under-development of Internet and eCommerce in India

By | August 19, 2009

India as an emerging economy, is struggling to overcome barriers for development of Internet and eCommerce. The two biggest barriers for the growth of the broadband in India are affordability and the quality. Broadband in India is very expensive when compared to Western Europe and USA. Despite the 19% jump in urban domestic Internet usage, home access is still a novelty in India.

Overpricing and Low Speeds of Internet
Broadband penetration is estimated to be around only 0.5% in India. By December 2008, India has only 5.52 million broadband subscribers, fewer than Hong Kong, a region it out-populates by nearly a billion people. According to TRAI, Internet subscribers stood at 12.85 million by the quarter ending 31st December 2008, an increase of just 0.31% approx as compared to the preceding quarter. The monthly charge for a broadband connection in India, accounts to 47 to 56 percent of the per capita income*, while it is less than 1 percent in the USA. There should be no reason for such overpricing in India, especially, where the costs are a fraction of wages in the US.

Install and neglect policies of Indian ISPs
According to TRAI report of performance indicators for December 2008, around 36% of the ISPs (5 out of 14 ISPs which have more than 10,000 subscribers and have 98% of market share) failed to meet the benchmark quality in providing service. The Internet growth in India is seriously affected by the poor service quality of the ISPs. Unless and until ISPs encourage Internet subscriptions with improved service and better quality at reasonable price, Internet usage and broadband will not grow considerably.

Challenges for eCommerce growth in India
The eCommerce growth in India is being hindered by various drawbacks and bottlenecks. Only 65 million people are computer literates in India as of September, 2007, according to eMarketer. The number is too small for a country with a population of over 1.1 billion. Poor PC penetration and low Internet penetration are also adding up as barriers for eCommerce growth in India. India has only 36 PCs for every 1000 people as of 2007 according to Gartner. Internet-World-Stats depicts that the Internet penetration in India is only 5.3% as of 2007. The percentage of broadband connections of total Internet subscriptions is around 43% of 12.85 million Internet subscribers, which should grow further to support eCommerce in India.

The growth of the Internet and eCommerce in India is very much depended on how and when the above mentioned drawbacks are addressed by the Government and the Industry.

* Nominal per capita incomes of India and US are taken as $1,043 and $47,025 respectively, according to IMF – 2008.

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