Will Open Network for Digital Commerce (ONDC) disrupt E-Commerce, and become the next UPI and Aadhaar?
The ambitious Open Network for Digital Commerce (ONDC), which has been launched in five pilot cities, could completely transform ecommerce in India. Like the Unified Payments Interface (UPI), the ONDC is developing an open digital network with an architecture designed to let all types of e-retail apps and platforms “talk” to each other in the same way that the UPI allows every payment app to seamlessly transfer funds. The ONDC has many implications for the digital ecosystem and its data flow. While it could flatten access for buyers and sellers, there could also be concern about data management and data protection in this system. Besides, as and when the ONDC is running at scale, there would be a logical case for removing many of the current restrictions imposed on overseas groups running e-marketplaces.
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A pilot soft launch of the ONDC was rolled out April 29, 2022 in five cities in India – Delhi National Capital Region, Bhopal, Bengaluru, Shillong, and Coimbatore. So can Open Network for Digital Commerce (ONDC) be the next UPI and Aadhaar, which have been hugely successful government led initiatives and are counted as great technology driven innovations from India? Only time will tell. Given the importance of this topic, MBAUniverse.com has published this latest GD Topic on ONDC. Continue reading for background, benefits, challenges and much more of the ONDC revolution that is coming soon.
E-commerce boom in India
The Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second-largest E-commerce market in the world by 2034. India’s e-commerce sector is expected to reach US$ 111.40 billion by 2025 from US$ 46.20 billion in 2020, growing at a 19.24% CAGR, with grocery and fashion/apparel likely to be the key drivers of incremental growth. The Indian online grocery market is estimated to reach US$ 26.93 billion in 2027 from US$ 3.95 billion in FY21, expanding at a CAGR of 33%. Covid 19 accelerated adoption of E-commerce platform in Inia.
As Indian E commerce booms, Indian Government is keen to level the playing field for e-commerce operators and widen the digital market access for millions of small businesses and traders in the country. To meet this objective, Indian Government has established the Open Network for Digital Commerce (ONDC) as an alternative to platforms like Amazon and Flipkart, who have thus far monopolised India’s e-commerce landscape.
ONDC is not pitched as yet another “platform”, and its objective is to match the online consumer’s demand with the nearest available source of supply. Consumers can thus find any seller, product, or service via any compatible application or platform – offering real freedom of choice. Despite the government’s bullishness, it remains to be seen how the ONDC will be implemented and whether it will reach its objectives. Leading online retail aggregators are also on wait-and-watch mode.
Background
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, have counselled the government on the measures required to design and accelerate the adoption of ONDC. The initiative has been touted as necessary to end the dominance of behemoth platforms like Flipkart and Amazon that have been accused by the government of exercising monopoly, contrary to the law.
How does the Open Network for Digital Commerce (ONDC) work?
The ONDC is expected to provide equal opportunities to all marketplace players, including consumers. It is a neutral platform that will set protocols for cataloguing, vendor match, and price discovery on an open source-basis, like the Unified Payments Interface (UPI).
This means that buyers and sellers can transact on ONDC irrespective of whether they are attached to any specific e-commerce portal. For instance, even if a seller A is registered on platform X, while the consumer is registered on platform Y, the consumer can directly purchase products of seller A without registering on platform X from the ONDC network.
What does ‘Open Source’ mean?
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, while the operating system of iOS is closed source (it cannot be legally modified or used), 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.
ONDC aims at fostering open networks developed on open-sourced methodology, using open specifications and network protocols, and independent of any specific platform.
Who owns ONDC?
Twenty 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. Axis Bank, HDFC, SBI, and Kotak Mahindra have acquired a share of 7.84 percent each, by individually investing INR 100 million (US$1.3 million) to purchase 10,00,000 equity shares of face value of INR 100 each. Earlier in November 2021, PNB had announced its plans to buy 9.5 percent share in ONDC.
Around 80 firms are working to integrate market players with the ONDC platform. These firms are making enterprise software and apps for sellers, buyers, logistics platforms, and payment gateways.
ONDC Benefits
ONDC is expected to digitize the entire value chain, standardize operations, foster inclusion of suppliers, usher in efficiency in logistics, and augment value for consumers.
Challenges for ONDC
Wait and Watch
If the tech platform works, and there are enough buyers and sellers, the ONDC would indeed be revolutionary. It would not only enable small businesses access wider markets, but a higher scale of operations would also make logistics more efficient. A significant reduction in logistics costs would increase overall efficiency in the economy.
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