Is ONDC the Next Big Thing on the e-commerce platform?

Sushma Ramachandran
Senior Financial Journalist

THE e-commerce arena is buzzing nowadays with the news of a development that could potentially change the Indian retail sector. The word in vogue is ONDC — the Open Network for Digital Commerce. The new entity is a network that provides space for both sellers and buyers, enabling the simplicity of a single marketplace for businesses and consumers alike. Promoted by the government, it remains a private non-profit agency funded largely so far by banks and financial institutions.

Infosys Chairman Nandan Nilekani, who is reported to have been involved in its evolution, is calling it the Next Big Thing which will lead to the ‘democratisation’ of e-commerce.

If one looks for a precise definition of ONDC, it is described as an open-source e-commerce platform that allows all buyers and sellers to transact regardless of the platforms where they are registered. To put it more simply, if a small business wants to sell its goods online, it will have to register separately on e-retail giants like Amazon and Flipkart, or more specialised ones like Myntra. These platforms can take up to 35 per cent commission on product sales, though it can be much lower for inexpensive items. In contrast, the small company can go on ONDC and have its products picked up simultaneously by several online retail bigwigs. The commission here ranges from 2 to 5 per cent right now.

In other words, the thousands of small entities that comprise this country’s enormous retail market will be able to shift to a vast e-marketplace at little cost, unlike right now.

Comparisons are being made to the Unified Payments Interface (UPI) that has become such a huge success that other countries are now trying to replicate or become part of the system. Under the UPI, money can be sent or received on any platform which consumers prefer to use. The aim is to have a similar open network where e-commerce transactions can be carried out, irrespective of platforms.

The plan sounds ideal, but teething troubles have already begun. As several big Internet players like Microsoft, Paytm and PhonePe have come aboard, consumers are beginning to use the options available on the network in different ways. The immediate controversy is over ordering food online through restaurants on ONDC rather than going via the delivery apps like Zomato and Swiggy. Orders placed on ONDC are cheaper due to lower commissions compared to the two big food delivery apps. Restaurants which have been restive in recent times over the control that the big apps have over the food delivery business are now keen to switch to the new e-commerce network.

The only problem is: which agency will be responsible for logistics, which is the expertise of the delivery apps? In case orders are not delivered correctly or on time, there needs to be an entity responsible for such issues. Obviously, these logistical aspects will have to be ironed out in the case of online orders for other segments as well. ONDC says it already has logistics startups on board which will take care of deliveries, but the system clearly needs to be streamlined.

The lure of sales discounts and lower commissions is also not likely to remain intact in the coming days. Even ONDC managers have said in interviews that the sales discounts available right now are aimed at jumpstarting the network and making it more popular. Such discounts will give way to the market forces in the long run.

According to Commerce Ministry data, ONDC now includes 36,000 sellers since its beta launch in September last year. It has 45 network participants, with a weekly average of over 13,000 retail orders, with peak transactions reaching 25,000 orders daily.

The ONDC website also highlights the potential for growth in the e-retail market in India. It says India has the third largest online shopper base globally, with 140 million consumers, behind only China and the US. Yet, the e-retail penetration is only 4.3 per cent in this country compared to 25 per cent in China, 26 per cent in Korea and 23 per cent in the UK. This is a paltry number, given that the country’s Internet user base is as high 750 million.

According to a report by consulting firm Bain with Accel, over 15 million MSMEs are expected to buy and sell online by 2027 compared to the six million doing so currently. ONDC is expected to play a big role in this leap towards the online market.

Though the venture has just started out, doomsday scenarios are already being projected for it. The task is considered too unwieldy by many to be handled by a single network. Plus, the question remains whether Internet giants would join it as only their full participation can make it a success. There were reports in mid-2022 of Google talking with ONDC in preparation for joining, but nothing has been heard since then. e-commerce giants Amazon and Walmart-owned Flipkart haven’t joined yet, but PhonePe — also owned by Walmart — has come on board with a special app, Pincode. Talks are reportedly under way to bring Ola and Uber on the network, but so far, the Bengaluru-based Namma Yatri seems to be the only ride-hailing venture in the mix.

ONDC is clearly in a nascent stage of development. It will take some time before it really gets off the ground. Commerce Minister Piyush Goyal may not, however, have struck the right note when he suggested that those who do not come on board soon should not be allowed later. The success of the venture will rest on its economic viability and use to the participants and a nudge from the government is only useful in giving some initial support.

If ONDC is to be the Next Big Thing for bringing the country into the digital era like UPI and Aadhaar, it will be due to its ambitious and innovative design rather than any government directive. One can only wait and watch for the time being as it seeks to evolve into a brave new world of e-commerce.