Unleashing E Commerce For South Asian Integration

This report is part of a broader work program on shaping a more positive narrative on regional integration in South Asia. It is a follow-up to a recent flagship report published by the South Asia Region of the World Bank, A Glass Half Full: The Promise of Regional Trade in South Asia. E-commerce is dramatically changing the way goods and services are transacted nationally, regionally, and globally. It facilitates international trade by reducing the cost of distance and remoteness and can be more inclusive of underrepresented groups such as women, small businesses, and rural entrepreneurs. Intraregional trade in South Asia is still below its potential, and the region lags behind other parts of the world in activating the potential benefits from e-commerce. Adopting a novel yet practical approach, this report explores how e-commerce can be boosted to deepen intraregional trade in South Asia. It examines the main transacting models in the digital space and the channels through which e-commerce helps reduce transactions costs for firms and consumers. It considers the regulations, as well as the regulatory gaps, affecting private sector participation in e-commerce, focusing on data privacy, consumer protection, delivery, cybersecurity, market-access regulations, and digital payments. Finally, the report presents recommendations for regulatory reforms that could enhance e-trade, especially in a regional context and as a possible platform for greater global engagement by South Asian firms. The scale of these recommendations ranges from the modest, such as allowing cross-border payments and streamlining the customs regime, to the more ambitious, such as allowing the operation of regional e-commerce platforms and liberalizing related cross-border logistics services.

This report analyzes e-commerce in Asia and the Pacific, assesses its environmental impact, and explains why providing adequate internet, online payments, and last-mile logistics is key to creating a sustainable and inclusive digital marketplace. Noting the region makes up the largest share of the world’s online retail market, it tracks the impact of the pandemic and emphasizes the need to level the playing field for small businesses. It outlines ways for companies to measure their carbon footprint, highlights the potential risk of anti-competitive behavior, and explains the need to improve digital taxation policies in line with e-commerce’s rapid growth.

South Asia region’s economies continue on a recovery path, with production and export having recovered to pre-COVID trend levels. But the recovery has been uneven across countries and sectors, and significant risks exist that could jeopardize short-term recovery and long-term growth. Over the short-term, low vaccination rates in most countries in the region make the population and economies vulnerable to future COVID waves and lockdowns; supply shortages due to global supply bottlenecks continue to put upward pressure on (food) inflation, especially after consumption recovers. Over the long-term, the region faces long-lasting scarring effects from the pandemic. The emergence of a new services economy creates an opportunity for the region to shift gears and to move towards a services-led development model. The importance of services has been increasing over time and got a further boost during the response to the COVID pandemic, when digital technologies became critical. This new services economy comprises not just the ICT sector, but also business and professional services that are increasingly critical inputs into manufacturing and other sectors, and digital platforms that are creating new markets. It can become the driver of development in South Asia because 1) Services are increasingly tradable and also represent a large part of value added incorporated in the exports of goods. 2) Services firms can drive productivity growth because of innovations that make their own products and other industries more efficient 3) The services sector also generates jobs and helps upgrading skills through on-the-job training. To unleash the potential of the new services economy, policy makers should rethink regulations and establish new institutions to enable 1) competition and innovation 2) increased labor mobility and up-skilling, through education and on-the job training; 3) the absorption of new services by firms and households. Governments in South Asia are addressing these new realities, but they face major challenges. With countries worldwide struggling to find an optimal institutional environment for the new services sectors, a good option for South Asia is to experiment with regulatory sandboxes.

The COVID-19 pandemic, which is still impacting South Asia, has temporarily brought the region to a near standstill. Governments proactively stabilized activity through monetary easing, fiscal stimulus, and supportive financial regulation, but the situation is fragile amid weak buffers and exhausted policy tools. South Asia’s GDP is expected to contract 7.7 percent this year, by far the largest decline on record, but uncertainty around the forecast is substantial. The informal economy in South Asia has been hit hard. Many unorganized workers, self-employed people and microenterprises have experienced a large drop in earnings as the service sectors that were affected most by the lockdowns are dominated by informality. Informal workers and firms tend to have inadequate mechanisms for coping with short-term demand and supply interruptions due to limited savings and constrained access to finance. While the poor have suffered severely during the crisis, many informal workers in the middle of the income distribution have experienced the greatest drop in earnings. Most of them are not covered by social insurance. The crisis lays bare complicated structural problems in the informal sector that need to be addressed.

Agricultural innovation has played a critical role in the economic transformation of developing East Asian countries over the past half century. The Green Revolution—in the form of modern seed varieties, chemical fertilizers, pesticides, and modern machinery—has contributed to increased crop yields and farm incomes, and decreased poverty across the region. Although policy makers’ traditional focus on expanding and intensifying agricultural production has brought many benefits, the focus on productivity has come at a rising cost. The environmental sustainability of agricultural production is increasingly under threat. Moreover, as countries in the region have become more urbanized and demand for processed foods has risen, inadequate food safety systems and related food safety hazards have created a new form of food insecurity. As detailed in Agricultural Innovation in Developing East Asia: Productivity, Safety, and Sustainability, a new generation of innovation in agriculture has the potential to address the challenges of productivity, sustainability, and food safety to deliver a “triple win.†? To make the most of this promising wave of agricultural innovations, policy makers in the region will need to act to strengthen countries’ agricultural innovation systems. This effort will require a cross-cutting approach, including policy and institutional reforms, improved governance of countries’ agri-food systems, and efforts to build farmers’ and firms’ capacities to adopt new technologies and to innovate.

The digital agriculture revolution holds a promise to build an agriculture and food system that is efficient, environmentally sustainable, and equitable, one that can help deliver the Sustainable Development Goals. Unlike past technological revolutions in agriculture, which began on farms, the current revolution is being sparked at multiple points along the agrifood value chain. The change is driven by the ability to collect, use, and analyze massive amounts of machine-readable data about practically every aspect of the value chain, and by the emergence of digital platforms disrupting existing business models. All this allows for drastically reduced transaction costs and pervasive information asymmetries that plague the agrifood system. The success of the digital transformation, however, is not guaranteed as the risks it brings are numerous, including those related to data governance and inadequate competition within and between digital platforms. What’s Cooking: Digital Transformation of the Agrifood System investigates how digital technologies can accelerate the transformation of the agrifood system by increasing efficiency on the farm; improving farmers’ access to output, input, and financial markets; strengthening quality control and traceability; and improving the design and delivery of agriculture policies. It also identifies a key role for the public sector in maximizing the benefits of this process while minimizing its risks, through enabling an innovation ecosystem featuring open datasets, digital platforms, digital entrepreneurship, digital payment systems, and digital skills and encouraging equitable technology adoption.

South Asian leaders have made it a priority to tackle key regional issues such as poverty, environment degradation, trade and investment barriers and food insecurity, among others.

This report offers recommendations on how major actors such as governments, public development institutions, the private sector and civil society organizations can modify their actions and approaches to enhance the ability of the private sector to advance the development process. It highlights the importance of developing businesses as a means to reducing global poverty.