What is ONDC? How Does Government Plan to Tackle E-Commerce Giants via ONDC?

In India, almost 50%-60% of E-Commerce platform has been covered by Amazon and Flipkart and in the food delivery, Swiggy and Zomato have a major monopoly. India is a Kirana oriented economy with more than 1 Cr. people are self-employed at Kirana shops and they all are not connected to these e-commerce platforms and if some of them are connected they do not get proper visibility because it but obvious that Amazon and Flipkart will always show the visibility for their product on the e-commerce on their platform. To provide equal visibility to this kind of Kirana store the government of India has taken an initiative called ONDC (Open Network for Digital Commerce). On April 29^th the first pilate in a few cities has been launched. Hence, in this article, we will be discussing in detail this concept and will also try to evaluate its benefits to the respective participants. So, let’s get started.

What is Open Network for Digital Commerce (ONDC):

• The government of India on Friday 29th April 2022 launched the pilot phase of the Open Network for Digital Commerce (ONDC), a freely accessible online system for traders and consumers, in five cities (Delhi NCR, Bhopal, Bengaluru, Shillong, and Coimbatore). India's ONDC plan aimed to onboard 3 Cr. sellers and 1 Cr. merchants online. The plan is to cover at least 100 cities and towns by August 2022.
• ONDC will not be a killer of amazon and Flipkart but it is just an initiative to provide uniform visibility to everyone. Professional experts like Nandan Nilekani and Ex- Mckinsey people are working to develop this network.
• Open Network for Digital Commerce (ONDC) is an open-source network, which will help local commerce across segments, such as mobility, grocery, food order, delivery, hotel booking, and travel to reach and engage more people through a network-enabled application. It will seek to curb the dominance of e-commerce giants like Amazon and Walmart-owned Flipkart in the online retail space.
• It is an initiative of the Department for Promotion of Industry and Internal Trade (DPIIT) which seeks to digitize the entire value chain, standardize operations and promote the inclusion of suppliers along with enhancing the value and experience of consumers.
• The Government to connect everything they want to create a platform where all these come together and uniform visibility is given to everyone. It will be an open-source network.
• The government said it had already received support from retailers and venture capital firms. Lenders such as the State Bank of India, ICICI Bank, and Bank of Baroda have already committed total investments of 255 Cr. into ONDC.
• The government has launched it in Pilot Mode in Bhopal, Delhi, Coimbatore, Shillong, and Bangalore and aimed to scale up this in 100 cities by august 2022.
• Amazon and Flipkart simply connect the buyers and sellers, in simple term if someone searches for any product on Flipkart or Amazon it will show the product of the seller which are registered only on their platform but in the ONDC platform, it will show you the product from every platform like Amazon, Flipkart or any other website sellers.

Indian E-Commerce-Industry Overview:

• There are over 4,000 small and big e-commerce companies in India, 500 logistics companies to deliver goods and more than 20,000 entities including travel and hotels that provide services through e-commerce.
• 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 the year 2034.
• India’s E-Commerce sector is expected to reach Rs. 8.35 Lakh Cr. by the year 2025 from Rs. 3.46 Lakh Cr. in the year 2020 growing at a CAGR rate of 19.2%. Further, the industry is expected to become a market of Rs. 26.25 Lakh Cr. by the year 2030.
• This growth is likely to be supported by the growth of the grocery and fashion/apparel market wherein the Indian Online Grocery market is estimated to reach Rs. 2 Lakh Cr. in 2027 from 29,625 Cr. in 2021, expanding at a CAGR rate of 33%.
• Online penetration of retail is expected to reach 10.7% by 2024compared with 4.7% in 2019. Moreover, online shoppers in India are expected to reach 22 Cr. by 2025. According to a report published by IAMAI and Kantar Research, India's internet users are expected to reach 90 Cr. by 2025 from ~62 Cr. internet users in 2020, increasing at a CAGR of 45% until 2025.

Indian E-Commerce Industry-Scope for Digital Commerce:

• In India, around 1.2 crore Kirana stores, which are hyperlocal neighborhood provision stores, account for 80% of the retail sector, but most of these stores are digitally excluded. 
• As of September 2020, India had 4.25 Cr. Micro, Small, and Medium Enterprises (MSMEs) that could benefit from the digital revolution.
• Currently, only about 20% of the internet users in India are online shoppers. Even with this small number, the country has the third-largest online shopper base globally, with 14 Cr. e-retail shoppers in 2020, only behind China and the US.
• The Gross Merchandising Value (GMV) for the digital commerce retail market of India was Rs. 2.85 Lakh Cr. in 2020, which is only 4.3% of the total retail GMV in India and well below the e-retail penetration in countries like China (25%), South Korea (26%), and UK (23%).

CASE STUDY

• Suppose a person called Ashal Patel, a 30-year-old from Prahlad Nagar, Ahmedabad a Kirana shop owner selling his goods on GoFrugal, and a girl named Vidhi from Delhi ordering Ashirwad Atta via Paytm.
• In this case, Paytm is a buyer application and Ashal has a GoFrugal application which is a seller application. Now, when Vidhi searches for Ashirwad atta on Paytm, the ONDC network will show all the networks where Ashirwad atta is available h like Big Basket, GoFrugal, D-mart, etc. with all the details,
• Vidhi can choose the platform from where she wants to buy it. Now, suppose Vidhi has chosen GoFrugal and decided to purchase it from Ashal Patel, as soon as Ashal Patel received the order GoFrugal will check his inventory for Ashirwad atta and the approved the order. Inventory management platforms can also be connected through ONDC.
• Now, Ashal has to deliver the Ashirwad Atta for this he has multiple gateways like Swiggy, Dunzo, etc.
• Ashal will choose one platform via which he wants to deliver the Ashirwad Atta to Vidhi. Suppose Ashal has chosen Dunzo to deliver Ashirwad atta, so automatically a massaged will be delivered to Vidhi stating that she will receive her product via Dunzo with all the details like delivery date, tracking number, etc. Now she can track on the same app Paytm.

Structure of ONDC:

Source: ONDC Paper

• The Indian Government said, there needs to be “a paradigm shift from an operator-driven monolithic platform-centric model to a facilitator-driven, interoperable decentralized network”. 
• This open network will not be owned or controlled by a single entity or platform and the idea behind it is to connect buyers, suppliers, payment, and logistics providers through open-source specifications and protocols.
• ONDC will be created by unbundling the current system.
• “‘Unbundling’ refers to the breaking down of a complex system into granular activities or microservices which can be separately operated to orchestrate a whole transaction. 

Building Blocks of ONDC:

Source: ONDC Paper

Need & Functions of ONDC:

1) Need of ONDC:

• The ONDC will work on a format similar to that used in the Unified Payments Interface (UPI). Through the network, traders will be able to save their data, build a credit history and reach consumers.
• ONDC will take measures to ensure confidentiality and privacy of data in the network, the government's official statement said. It shall not be mandatory for participants to share transaction-level data with ONDC.

2) Functions of ONDC:

• ONDC is a step beyond the current platform-centric e-commerce system where both the buyer and seller have to use the same platform or application to conduct a business transaction.
• Businesses and consumers will be able to carry out transactions over ONDC using any compatible application of their choice.
• Marketplaces such as Amazon, Flipkart, BigBasket, Grofers, and Zomato will have to register on the platform that will be created by DPIIT and QCI.
• This will give consumers the choice to pick any seller, product, or service by using any compatible application or platform.

Benefit to Sellers

1. Access to more buyers.
2. Better Discoverability of product.
3. Autonomy on terms because of multiple choices for being digitally visible.
4. Lower cost of doing business.
5. More options for value chain services like logistics and fulfillment.
6. Credit Access- All the banks that are ready to provide credit to this kind of organization will be connected to ONDC.
7. Procurement Facility.
8. Maintaining Books- Khata Books, etc.

Benefit to Buyers

1. Access to More Sellers.
2. More Product Choices.
3. Better services and faster deliveries due to access to hyper-local retailers.
4. Better customer experiences.

Benefits for Tech platforms

1. Reduced time-to-market and time-to-scale.
2. New opportunities for the start-up to drive innovation in various parts of the network.
3. Focus on niche aspects leaving other partners to focus on different aspects.

Is Launching of ONDC a Great Move by Government?

Overall, it is beneficial for everyone but the monopoly of a few players in e-commerce will be reduced, and also scaling up this idea will take huge time. Adoption of this technology will also take huge time; and whether it will happen as per the government plan or not. We have to wait and watch how things will change and how it will impact the overall e-commerce platform like Swiggy, Nyka, Flipkart, etc.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.