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In the past 15 years, the internet has served as a promising tool that Indian small and medium enterprises can leverage for growth. Research has shown that Indian SMEs using the internet increase revenues by 51% and profits by 49% (Nathan Associates 2013).

Nathan Associates’ July 2013 survey of 951 Indian small and medium-sized enterprises (SMEs) finds that, controlling for other factors, using the internet for business increases both revenue and profits by roughly 50% for SMEs in India. It is estimated that an average SME adopting the internet is able to grow its customer base by 7% and boost employment by 4% (Nathan Associates 2013).

However, internet adoption among SMEs in India is underwhelming despite the apparent benefits. For instance, of those SMEs using the internet, only 49% had their own website and only 51% used the internet to advertise. Nathan Associates points to high IT costs, a weak electronic commerce environment and a general lack of digital literacy as the main barriers to internet adoption by SMEs in India. They recommend that policymakers encourage competition in the IT market, create incentives and offer better infrastructure for SMEs that want to utilize the internet (Nathan Associates 2013).

A 2015 Oxera report also raises the issue that startups with new business models may be particularly exposed to legal uncertainty by serving as internet intermediaries. The study suggests that putting in place an internet intermediary liability (IIL) regime that clearly defines cost-efficient compliance requirements can significantly impact the success of startups and of the internet economy as a whole. In India, such a regime could raise startups’ expected profits by 5% (Oxera 2015).