Open Network For Digital Commerce (ONDC) – Explained, pointwise

Introduction

The fast-expanding digital economy has been one of the major supporting pillars of India’s growth in recent times. India has the world’s highest fintech adoption rate of 87%, as compared with the global average of 64%. 3 of the largest public digital platforms in the world are from India: Aadhaar is the largest unique digital identity platform, Unified Payments Interface (UPI) is the largest digital payments ecosystem, and Co-Win is the largest vaccination platform. Realizing the potential of digital space, the Government of India has launched Open Network For Digital Commerce (ONDC) as a prospective alternative to dominant global giants Amazon.com and Walmart in its fast-growing e-commerce market.

What is the background of ONDC?

The idea of ONDC was conceived and has been widely discussed since April 2020, soon after the first wave of COVID. During this time, ensuring essential supplies across containment zones was found to be a challenge. Therefore a need was felt to alter the current digital commerce approach of ‘scaling what works’ to a new approach of ‘what works at scale’.

On December 31, 2021, ONDC was incorporated as a private sector, non-profit (Section-8) company to democratize e-commerce in India and offer alternatives to proprietary e-commerce sites. 

ONDC was incubated by the Department for Promotion of Industry and Internal Trade (DPIIT) at the Quality Council of India. A nine-member advisory council, including Nandan Nilekani from Infosys and National Health Authority CEO RS Sharma, counseled the government on the measures required to design and accelerate the adoption of ONDC.

What is the meaning of Open Source Software?

To make a process or a software ‘open source’ implies that the technology or code deployed for the process is freely made available for everyone to use, redistribute, and modify. For instance, the operating system of iOS is closed source (it cannot be legally modified or used). However, the android operating system is open source, making it possible for smartphone manufacturers, such as Samsung, Nokia, Xiaomi, etc., to modify it for their respective hardware.

What is Open Network for Digital Commerce (ONDC)?

ONDC is a non-profit company whose network will enable the display of products and services from all participating e-commerce platforms in search results across all apps on the network. For example, if both Amazon and Walmart’s Flipkart integrate their platforms with ONDC, a user searching for a Bluetooth headset on Amazon would also see results from Flipkart on the Amazon app.

ONDC is a globally first-of-its-kind initiative that aims to democratize digital commerce. The ONDC will provide equal opportunities to all marketplace players, including consumers. It moves from a platform-centric model (where the buyer and seller must use the same platform or application to be digitally visible and do a business transaction) to an open network.

It is based on open-sourced methodology, using open specifications and open network protocols, and is independent of any specific platform. It is a neutral platform that will set protocols for cataloging, vendor match, and price discovery on an open source-basis, like the Unified Payments Interface (UPI).

What is the current status of ONDC?

ONDC has been rolled out in 5 cities – Delhi NCR, Bengaluru, Bhopal, Shillong, and Coimbatore. The operations are presently focused on retail and restaurants and facilitating real-time transactions. The open network will later-on extend to other categories like travel and mobility. 

Based on the pilot exercise and after the network stabilizes, ONDC will be expanded to 100 cities and towns across India by October 2022. The goal is to accommodate 30 million sellers and 10 million merchants online.

Who are the key stakeholders in ONDC?

20 government and private organizations have confirmed investments worth INR 2.55 billion (US$ 33.34 million). Several public and private sector banks, such as HDFC, Kotak Mahindra, Axis Bank, State Bank of India (SBI), and Punjab National Bank (PNB), have picked up stakes in ONDC.

Around 80 firms are working to integrate market players with the ONDC platform. Start-ups like Flipkart’s logistics arm eKart Logistics, hyperlocal delivery startup Dunzo, and payment service provider PhonePe, are in the process of integrating with ONDC.

What is the significance of ONDC?

Boost E-Commerce transactions: It will help in enhancing the volume as well the value of e commerce transactions. The Government estimates that India’s e-commerce market was worth more than US$ 55 billion in gross merchandise value in 2021 and will grow to US$ 350 billion by the end of this decade. This target seems much more achievable with ONDC.

Promotes Competition: According to the Government, existing platforms work in silos and are tightly controlled, keeping out many small players. At present, Amazon and Walmart’s Flipkart control more than 60% of the market. However, ONDC will increase competition and foster innovation by start-ups through the display of products and services from all participating e-commerce platforms. Further, it will limit opportunities for selected sellers to receive preferential treatment. This preferential treatment is a common accusation against major e-commerce companies. It will also help to end predatory pricing, especially in high-margin, high-value products.

Freedom of Choice: It is expected to make e-commerce more inclusive and accessible for consumers. They can potentially discover any seller, product or service by using any compatible application/platform, thus increasing their freedom of choice.

Cost Reduction for Sellers: ONDC would enable small businesses to use any ONDC-compatible applications instead of being governed by specific platform-centric policies. This will provide multiple options to small businesses to acquire what’s needed to be discoverable over the network and conduct business, without having to pay deep cuts to aggregator platforms.

Attracts Investment: Businesses are expected to benefit from transparent rules, lightweight investment, and lower cost of business acquisition. It is also expected that the time-to-market as well as time-to-scale shall also be substantially reduced. All this will help in attracting greater investment in the e-commerce space.

Aid in Diplomacy: The digital platforms are becoming an avenue for a new type of global diplomacy. India’s identity and payments platforms are being looked at with interest across the world. Recently, the Co-Win platform was offered by India to interested countries.

What lies ahead?

First, the ONDC aims to raise e-commerce penetration in the next two years to 25% of India’s consumer purchases, from nearly 8% now, in a country of 1.35 billion people.

Second, It also hopes to sign up 900 million buyers and 1.2 million sellers on the shared network within the next five years, while achieving gross merchandise value of $48 billion.

Third, It also hopes to bring in logistics firms and others who can collaborate with sellers to deliver products to customers. The focus should be on small merchants and rural consumers, with apps in Indian languages.

Fourth, ONDC aims mainly to tap millions of small businesses that often lack technological expertise, so the government will have to run a massive awareness campaign to get them on board.

Fifth, the role of Competition Commission of India would be crucial in the success of ONDC as smaller businesses with low volumes lack the resources to match the discounts offered by heavyweights like Amazon and Flipkart. Their integration and sustenance could be done only when big players are effectively stopped from indulging in anti competitive practices.

Sixth, the government also needs to make sure that ONDC complies with the Information Technology Act, 2000, and the emerging Personal Data Protection Bill.

Conclusion

ONDC provides a technological platform to fulfil India’s aspirations to become a middle-income economy that is digitally savvy and wired. It offers a vital global template for the harnessing of technology for and as a public good at population scale in an inclusive and equitable way.

Source: Mint, Mint, Business Standard