By Ashoke Agarrwal
India is proud of the digital stack it has created with Aadhar and UPI, which is bringing more of India’s informal economy into the formal financial channels. In addition, the digital stack allowed India to launch a very successful formally certified Covid vaccination programme at all levels of the socio-economic strategy—the digital stack in the public health and e-government sectors is in the works.
Even based on the above achievement, India’s public digital infrastructure is genuinely world-class.
Add the Open Network for Digital Commerce (ONDC) to it, and India’s digital public infrastructure will take another world-beating leap forward.
ONDC is a Section 8 (non-profit) company launched a year ago as an initiative of the government but funded by non-government means and managed by an independent Board.
ONDC’s launch was a low-key affair, and its progress went mostly unnoticed over most of the year. But as it celebrated its birthday this April, it is emerging as the paradigm-shifting concept it is.
The impetus for ONDC came because of the profile of the e-commerce sector in India as it has emerged in India compared to its overall retail industry.
1.2 crore (12 million) of Kiranas (hyperlocal neighborhood provision stores) account for 80% of India’s retail sector. However, 90% of the Kiranas are in the unorganised sector and digitally excluded. Moreover, 4.25 crore (42.5 million) of India’s medium and micro enterprises (MSMEs) are not part of the digital revolution. Only 20% of internet users are online shoppers at the shopper end.
This is the chief reason for the low penetration of e-commerce in India. The GMV of e-commerce in India in 2020 was Rs 2.85 lakh crore (Rs 2.85 trillion, USD 38 billion in nominal terms) which adds up to just 4.3% of the total retail sales as compared to China at 25%, South Korea at 26% and the UK at 23%.
An alternative before the decision-makers were to let private e-commerce integrated platforms like Amazon and Flipkart drive the growth of e-commerce. Such an option would leave the e-commerce market to those with the capital to make the significant investments an integrated platform requires. Moreover, dependence on integrated platforms would lead to exclusion and discretionary behaviour, which will likely leave much of India’s Kirana and MSME sector out in the cold. Another reason why integrated e-commerce platforms undercut both sellers and buyers is that the data and credibility that accumulates, which by all rights should be the property of the buyer or the seller, is appropriated by the platform. In that way, an integrated platform dams value and prevents it from flowing across the entire ecosystem.
The solution was to build an open network for e-commerce that is akin to the open networks like Internet Message Access Protocol (IMAP) and Simple Mail Transfer Protocol (SMTP) that drive the e-mail ecosystem, the Hypertext Transfer Protocol (HTTP) that underpins the web and our own UPI that creates an open network payments ecosystem.
ONDC’s design of an open network for e-commerce is an exercise in disaggregation. ONDC provides the plumbing and the basic rules to buyer-side Apps and seller-side Apps, along with service providers like logistics, technology, and other service providers like analytics to freely interact with each other.
So, if a buyer through a buyer App searches for a particular product type, the ONDC network would list products from all the seller Apps. Once the buyer chooses a specific seller, he can choose from various delivery service providers. The ONDC platform has no single owner, and all the entities – buyers, sellers, and service providers – are equals and are owners of all the data they generate and can use it within the constraints of privacy rules. ONDC is an innovative breakthrough in making a community-owned e-commerce infrastructure that allows the flow of value across the community in stark contrast to the hogging of value by integrated platforms owned by a single entity.
This design can bring India’s vast semi-organized and unorganized sectors into the low-friction e-commerce world. Hence, it has the potential to add many percentage points to India’s GDP growth.
However, from design to delivery is a long process which needs catalysts. During the first few months, one wondered where the triggers would come from. Over the past few months, the contours of the ONDC community have emerged. HUL and ITC became part of the ecosystem. ONDC offers them a readymade platform for “e-commerce” their distribution to the millions of Kiranas they deal with. It also allows them to strengthen their trade relationship by helping Kiranas become e-commerce players in their neighborhood. After its divorce from Walmart, Phone Pe announced its initiative, “Pincode”. Pincode will be a hyperlocal commerce App that connects local stores to neighboring consumers. At the backend, they will enable its partner stores and Kiranas to become e-commerce ready. Another promising avenue that ONDC illustrates is a ride-hailing App called Namma Yatri that offers three-wheeler rides in Bangalore with zero commission charges to buyers and sellers. In a few months, 45000 auto drivers on the App and half a million users have used it. What is Namma Yatri’s business model? It all falls into place when you realise that the Auto Driver’s Union owns the App.
Today, the ONDC has 26000 merchants and 27 lakhs products on its network. It recently extended its categories of products from food and groceries to beauty, fashion, and electronics. Its logistics provider network can serve 90% of pin codes in India. The transaction volume is still low – at 600 a day- but the signs of being on a hockey stick path are all there.
Recently Amazon announced plans to join ONDC as a logistics provider and with SmartCommerce, an AWS-powered suite of SaaS products that will enable MSMEs to board the ONDC network. T Koshy, the Chairman of ONDC, welcomed the giant and, in a subtle dig, opined that he hopes they will soon bring their buyer and sales platforms to ONDC! Or was Mr Koshy taking the micky to Amazon? Way to go, Mr Koshy!
As the ONDC network matures, it will open new vistas in hyperlocal and MSME marketing, branding and advertising services. The marketing and advertising services industry must figure out innovative structures and systems to serve this demand. If the ONDC universe takes 5% of the total retail cake a decade later, it will be Rs 5 trillion market. As a result, spending on marketing advisory, analytics, martech, adtech, branding and creative services can be as high as 6 % of the total sales, a Rs 30,000 crore market mainly in fees and production costs. A significant share of this market will go to agencies and consultancies that jump in today to grasp the dynamics of the ONDC system as it develops.
In sum, ONDC will be the next giant digital leap India makes and could open a global market for one more Indian concept and service. So, let’s wish it luck and Godspeed.