Open network for digital commerce

the story So Far: The Indian government announced in late April the launch of a pilot phase of the Open Network for Digital Commerce (ONDC) in five cities, aimed at “democratising” the country’s rapidly growing digital e-commerce space, which is currently Dominated by two American countries. Headquartered Firms – Amazon and Walmart. This announcement was made by Commerce and Industry Minister Piyush Goyal. “After UPI, another game changing idea to democratize commerce – ONDC soft launch today for select consumers, vendors and logistics providers. Get ready for a world of choice, convenience and transparency,” Mr Goyal had tweeted.

What is ONDC?

According to the strategy paper on ONDC, it is a non-profit organization that will offer a network to enable local digital commerce stores across industries to be discovered and engaged by any network-enabled application. It is neither an aggregator application nor a hosting platform, and all existing digital commerce applications and platforms may voluntarily choose to adopt and be part of the ONDC network.

ONDC aims to enable purchase of products by consumers from all participating e-commerce platforms through a single platform. Currently, a buyer has to go to Amazon, for example, to buy a product from a seller on Amazon. Under the ONDC, it is envisaged that a buyer registered on a 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 Unified Payments Interface (UPI) in the digital payments space. UPI allows people to send or receive money, irrespective of the payment platform they are registered on. The concept of open networks extends beyond retail to any number of digital commerce domains including wholesale, mobility, food delivery, logistics, travel, urban services, etc.

What led to the formation of ONDC?

The Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, conducted an outreach during the outbreak of the COVID-19 pandemic to understand its impact on the functioning of small vendors and hyperlocal supply chains. Following which, it was found that there is a huge gap between the scale of online demand and the ability of the local retail ecosystem to participate. Subsequently, consultations were held with several ministries and industry experts and according to the strategy paper “ONDC was envisioned to revolutionize digital commerce in India”.

The paper states that ONDC is envisaged as an entity capable of functioning without requiring day-to-day guidance and advice from the shareholders/members. Freedom of management is linked to the financial independence of the entity, and therefore, the entity would need to obtain funds independently and have a self-sustaining financial model.

What is the Current Status?

Currently, ONDC is in its pilot phase in five cities – Delhi NCR, Bengaluru, Bhopal, Shillong and Coimbatore – aiming to connect around 150 retailers.

The Government has also constituted an Advisory Council to analyze the potential of ONDC as a concept and advise the Government on the measures needed to expedite its adoption. Its members include Nandan M. Nilekani, Non-Executive Chairman, Infosys; RS Sharma, CEO, National Health Authority; Dilip Asbe, Managing Director and CEO, NPCI; Anjali Bansal Founder and President, Avana Capital; Suresh Sethi, Managing Director and CEO, Protein eGov Technologies Ltd.; Arvind Gupta Co-Founder and Head, Digital India Foundation; Kumar Rajagopalan CEO, Retailers Association of India; Adil Jainulbhai Chairman, Quality Council of India and Capacity Building Commission; and Anil Agarwal, Additional Secretary, Department for Promotion of Industry and Internal Trade.

Over the next five years, ONDC expects to add 90 crore users and 1.2 million sellers to the network, enabling 730 crore additional purchases and an additional Gross Selling 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 potential benefits of ONDC

ONDC will standardize functions such as cataloging, inventory management, order management and order fulfillment, making it easier and easier for small businesses to be network searchable and conduct business.

However, experts have pointed to issues related to customer service and payment integration, as well as potentially potential issues such as getting a sufficient number of e-commerce platforms to sign up.