What is ONDC? How will it change India’s e-commerce market?

In an effort to break Amazon and Walmart’s dominance in the e-commerce sector in the country by establishing its own open network, India has started lining up banks and other key players needed to move it forward.

Some of India's biggest banks are in discussions about setting up 'buyer platforms' to let their customers place orders for goods and services over the Open Network for Digital Commerce (ONDC), which the Indian government soft-launched in April, Reuters reported quoting sources on Wednesday.

Indian e-commerce was worth more than USD 55 billion in gross merchandise value in 2021 and will grow to USD 350 billion by the end of this decade, according to government estimates.

Amazon and Flipkart control more than 60% of that market, which now accounts for about 8% of consumer purchases in a country of 1.35 billion people.

WHAT IS ONDC?

• The Indian government in April launched its Open Network For Digital Commerce (ONDC) as a prospective alternative to big global and domestic companies in its e-commerce market. 
• ONDC is a non-profit company whose platform 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 an item on Amazon would also see results from Flipkart on the Amazon app, reported Reuters.
• This initiative also seeks to digitise the entire value chain, standardise operations and promote inclusion of suppliers. Infosys co-founder Nandan Nilekani is part of the nine-member advisory council that was constituted to advise the government on the project, reported CNBCTV18.

HOW WILL IT WORK?

• The government says the existing platforms are very tightly controlled by the big companies, keeping out many small players. It expects ONDC to increase competition and foster innovation by start-ups. The focus would be on small merchants and rural consumers, with apps in Indian languages, reported Reuters.
• ONDC officials are comparing the network to a mall with 1,000 gates instead of just two or three, thereby limiting opportunities for selected sellers to receive preferential treatment. Users will be able to rate service providers on ONDC, which will be applicable and visible across the network.
• The government says ONDC will help to end 'predatory pricing, especially in high-margin, high-value products'. ONDC aims to raise e-commerce penetration in the next two years to 25% of India's consumer purchases.

WHAT ARE THE CHALLENGES?

• ONDC's main aim will be to tap a huge number of small businesses that lack technological expertise and the infrastructure the big companies have. So, the government will have to run an awareness campaign to get them on board, said the Confederation of All India Traders, a group that represents 80 million such businesses, reported Reuters.

• Smaller businesses with low volumes may also lack the resources to match the discounts offered by Amazon and Flipkart. So, the ONDC will have to make sure the companies keep maintaining their profits while competing with the heavyweights.

• Major FMCG players like ITC, Unilever, Dabur and Nivea are in talks with ONDC to join the network, Moneycontrol reported, quoting sources familiar with developments. “Discussions are on with Shopify also. If it comes on board, then all the sellers on Shopify will come on board automatically,” said an official working with ONDC.