EXPLAINER
The story so far: The government of India announced the launch of the pilot phase of open network for digital commerce (ONDC) in five cities in late April with an aim to “democratise” the country’s fast growing digital e-commerce space that is currently dominated by the two U.S.-headquartered firms — Amazon and Walmart. The announcement was made by Commerce and Industry Minister Piyush Goyal. “After UPI, another game changing idea to democratise commerce — ONDC soft launch today to select consumers, sellers and logistics providers. Get ready for a world of choice, convenience and transparency,” Mr Goyal had tweeted.
What is ONDC?
As per the strategy paper on ONDC, it is a not-for-profit organisation that will offer a network to enable local digital commerce stores across industries to be discovered and engaged by any network-enabled applications. It is neither an aggregator application nor a hosting platform, and all existing digital commerce applications and platforms can voluntarily choose to adopt and be a part of the ONDC network.
The ONDC aims to enable buying of products from all participating e-commerce platforms by consumers through a single platform. Currently, a buyer needs to go to Amazon, for example, to buy a product from a seller on Amazon. Under ONDC, it is envisaged that a buyer registered on one participating e-commerce site (for example, Amazon) may purchase goods from a seller on another participating e-commerce site (for example, Flipkart).
The ONDC model is trying to replicate the success of the Unified Payments Interface (UPI) in the field of digital payments. UPI allows people to send or receive money irrespective of the payment platforms they are registered on. The open network concept also extends beyond the retail sector, to any digital commerce domains including wholesale, mobility, food delivery, logistics, travel, urban services, etc.
What led to formation of ONDC?
The Department for Promotion of Industry and Internal Trade (DPIIT), under Ministry of Commerce and Industries, conducted an outreach during the outbreak of the COVID-19 pandemic to understand its impact on small sellers and hyperlocal supply chain functioning. Post which, it found that there is a huge disconnect between the scale of online demand and the ability of the local retail ecosystem to participate. Following this, consultations were held with multiple ministries and industry experts and “ONDC was envisioned to revolutionise digital commerce in India,” as per the strategy paper.
The paper added that ONDC has been envisaged as an entity which should be able to work without the need for day-to-day guidance and advisory from the shareholders/members. The independence of the management is linked to the financial independence of the entity, and therefore, the entity will be required to get funding independently and have a self-sustaining financial model.
What is the current status?
Presently, ONDC is in its pilot stage in five cities — Delhi NCR, Bengaluru, Bhopal, Shillong and Coimbatore — with a target of onboarding around 150 retailers.
The government has also constituted an advisory council to analyse the potential of ONDC as a concept and to advise the government on measures needed to accelerate its adoption. Its members include Nandan M. Nilekani, Non- Executive Chairman, Infosys; R.S. Sharma, CEO, National Health Authority; Dilip Asbe, Managing Director and CEO, NPCI; Anjali Bansal Founder and Chairperson, Avaana Capital; Suresh Sethi, Managing Director and CEO, Protean eGov Technologies Ltd.; Arvind Gupta Co-Founder & Head, Digital India Foundation; Kumar Rajagopalan CEO, Retailers Association of India; Adil Zainulbhai Chairman, Quality Council of India and Capacity Building Commission; and Anil Agrawal, Additional Secretary, Department for Promotion of Industry and Internal Trade.
Over the next five years, the ONDC expects to bring on board 90 crore users and 12 lakh sellers on the network, enabling 730 crore additional purchases and an additional gross merchandising value (GMV) of ₹3.75 crore. The GMV for the digital commerce retail market in India was ₹2.85 lakh crore ($38 billion) in 2020, which is only 4.3% of the total retail GMV in India.
What are the likely benefits of ONDC
The ONDC will standardise operations like cataloguing, inventory management, order management and order fulfilment, hence making it simpler and easier for small businesses to be discoverable over network and conduct business.
However, experts have pointed out some likely potential issues such as getting enough number of e-commerce platforms to sign up, along with issues related to customer service and payment integration.
