India’s digital initiative seeks to democratise ecommerce

Raconteur, October 24, 2022

The world’s lowest data and smartphone costs, increasing levels of online shopping in small cities and villages, and a pandemic that forced people into digital purchases have led to a dramatic rise in ecommerce in India.

The ecommerce market on the subcontinent is expected to reach £103 billion by 2026 from a low of £32 billion in 2021, with online shoppers from rural areas expected to account for 24 percent of online retail spending by 2030.

However, India also has an ecommerce duopoly, in which Amazon and Walmart-owned Flipkart control more than 60 per cent of the market, squeezing out kirana stores, the locally owned shops that provide daily supplies and essentials to small neighbourhood communities. The 12 to 20 million kirana shops in India contribute 10 percent of India’s GDP and employ 8 percent of the workforce. However, they lag behind in digital adoption and that’s going to be necessary for their survival in light of shifting consumer preferences.

A recent government initiative is hoping to do just that. The Open Network for Digital Commerce (ONDC) is a non-profit initiative established by the Indian Department for Promotion of Industry and Internal Trade. Its goal is to develop open ecommerce and level the playing field for small businesses across retail, travel, hotels, food order and delivery, and other sectors.

ONDC will allow store owners to sign up to the network once and have their products appear on all participating ecommerce platforms and in search results across all apps. Commissions are capped at 3 percent, a 10th of what sellers pay on larger platforms. For shoppers, this means that instead of having to do price comparisons by logging in to each individual ecommerce store, there will be a single app where results from all participating buyers will be shown.

“ONDC goes beyond the current platform-centric digital commerce model, where the buyer and seller have to use the same platform or application to be digitally visible and do a business transaction,” the union minister of state, commerce and industry, Som Parkash, noted in a response to the Lok Sabha (the Indian parliament). “ONDC protocols would standardise operations like cataloguing, inventory management, order management and order fulfilment. Thus, small businesses would be able to use any ONDC-compatible applications instead of being governed by specific platform-centric policies.”

The pilot phase of the project was begun in April 2022 in five cities – New Delhi, Bengaluru, Bhopal, Shillong and Coimbatore – with 100 more cities serviced by August. The goal is to have ONDC live on a national level and covering the entire country by the end of the year. It is hoped that the initiative will bring 1.2 million sellers and 900 million shoppers to the network, while achieving a gross merchandise value of £41 billion.

Opportunities and challenges
In theory, the concept is appealing and aims to answer the questions that advanced and emerging economies are grappling with, says Amol Kulkarni, director of research at CUTS (Consumer Unity & Trust Society) International, an organisation that seeks to protect consumer rights through research-based advocacy. On the one hand, big tech networks bring credibility, trust and some level of certainty but, on the other, they are exclusionary, with high prices and anti-competitive practices.

“The government is saying – because we’re pioneers in technology and have good use cases of population scale in government tech and digital public goods – what we’ll do is come up with both seller side and buyer side apps, and connect these apps to create an ecosystem and marketplace where sellers don’t need to reach out to buyers themselves.”
“Price differentiation may favour larger players as they might burn a lot of money initially to gain market share on the network.

In practice, there are still a few kinks to be ironed out. For one, there is no clarity on how smaller players will defend their competitiveness on the platform, says Sanjay Mehta, an entrepreneur-turned-venture-capitalist who has invested in more than 150 global startups, including, a search engine for ecommerce stores that is working with ONDC.

“We might see bigger players use their abundant resources to scavenge the market early on, dismissing any sort of democratisation in its real sense. Price differentiation may favour larger players as they might burn a lot of money initially to gain market share on the network.”

Another issue is that the more complex the ecosystem, the harder it will be to get both buyers and sellers on board. A senior employee at Amazon was reported as saying that one of the reasons Amazon, Flipkart, and other platforms are reluctant to join ONDC right now is because of the lack of clarity about the architecture.

Global model for ecommerce
In August, Microsoft became the first big tech company to join the ONDC initiative. The software giant said it intends to introduce social ecommerce in the Indian market. The company will establish a shopping app in India, which will be available on the ONDC network and allow buyers to discover the best prices offered by retailers. Amazon, Flipkart and Google are also reportedly in talks to join.

Despite some reservations, most experts and businesses are excited about ONDC and how it could change the ecommerce landscape, not only in India but globally. Infosys co-founder and billionaire Nandan Nilekani, who is advising the government on the adoption of ONDC, calls it “an idea whose time has come”. He told Fortune magazine that ONDC “will provide a glimpse for the whole world of how open commerce can drive positive non-zero-sum outcomes for business and society.”

If successful, ONDC could be a template for how to democratise ecommerce globally. Like Unified Payments Interface (UPI), a payment system developed by National Payments Corporation of India that simplified peer-to-peer money transfers – and that is now being introduced in countries such as Singapore, Malaysia, Thailand, Hong Kong, and the UK – ONDC could easily become the model for digital commerce.

“All of us have seen the exponential growth of UPI over the past few years,” says Mehta. “The ONDC has the potential to be the UPI of the ecommerce space.”

It may still be a few years before ONDC’s full potential can be realised but, in the meantime, the initiative is encouraging small kirana shop owners to digitise their stores and start competing with – and beating – the bigger platforms in their own communities.

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