ONDC: Where lofty ideals may take an operational reality check

The 'me-too' e-commerce platform has formidable rivals in international players such as Amazon and Flipkart

ONDC platform for kirana shops
It may seem very idealistic for the government to spend so much money on an e-commerce platform which will help poor sellers and kirana shops. Image: iStock

The Union Commerce Ministry recently launched the beta version of its Open Network for Digital Commerce (ONDC) platform in major cities. It is the first big step in the government’s effort to disrupt, or be part of, the e-commerce market dominated in India by two big players — Amazon and Flipkart, both owned by global entities.

This move in the digital space comes after the government’s successful entry into financial services with the launch of payment gateway UPI and credit card RuPay. The Union and state governments together have entered almost all segments of the internet and almost all public services across the country can be accessed online, though most apps or websites are sub-standard.

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If the ambitious e-commerce platform ONDC becomes a success, it will enable the government to intervene in controlling the price of various goods, and help small traders and kirana shops sell their products online. It will also show a threatening sign to Amazon and Flipkart, which now set the market prices for various products, especially high-end electronics and white goods.

India has grown exponentially in the digital space in recent years. The numbers are mind boggling. The nation has more than 1.17 billion telecom subscribers, 600 million smartphone users, 840 million internet connections. All villages are covered by 4G. The digital economy grew 2.4 times faster than the overall economy from 2014 to 2019, according to government figures.

Tempting for government 

So, it is obviously tempting for the government to enter the e-commerce space. The main aim of the free platform is to entice sellers to join and offer their wares without having to pay 10-25 per cent commission, which is the norm if you sell on Amazon or other private platforms. The government also hopes to bring more sellers into the GST bracket.

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During the ongoing trial stage you can order by going to the Paytm wallet for instance, and search for ONDC, where you can find small sellers onboarded. They are mostly government sellers like Hantex and many local crafts and curio sellers. Now, there is no courier charge and sellers will also get an incentive of ₹50 for every transaction.

It may seem very idealistic for the government to spend so much money on an e-commerce platform which will help poor sellers and kirana shops. Banks have committed $33.26 million for the platform, which can be made available on any other e-commerce website. But, the question is why intervene when the private sector is doing very well, handling annual online commerce in India to an estimated $55million in merchandise value. There are about 150 million people who buy online in India.

Forbes, quoting London-based data and analytics company Global Data, said e-commerce sales in India will rise at a compound annual growth rate (CAGR) of just over 18 per cent between 2021 and 2025, to reach $120.1 billion (or 8.8 trillion Indian rupees).

By 2030, the e-commerce market will be around $350billion, according to government estimates, making India the second biggest online market in the world. But, all this is small change compared to the major statistic: in 2020, the share of e-commerce in the entire retailing market in India was only 4.3 per cent.

But, the potential for the sector in India is immense due mostly to the low data charges as compared to the other countries. “The deviation from the platform-centric pedagogy to an open-source framework will assist the democratisation of digital commerce. ONDC will help digitise the entire value chain, encourage suppliers’ inclusion, systematising operations, derive efficiencies in logistics, and enhance value for consumers” —  this is the stated government intention.

Tough task on hand

The idea about the government owning such a platform came from Nandan Nilekani. ONDC is now headed by IIM graduate Thampy Koshy, who also worked on Aadhaar with Nilekani, while EY is the consultant. According to a consultant working on the project, the daily transaction will soon reach 1 lakh from the 25,000 or so happening now, when the government formally launches it.

Whether open sourced or holding aloft high ideals of democratising the space, it is going to be a tough task for such a government platform to be hugely successful or cause the biggies to go on their knees, though it can survive as a “Me-too” platform.

The only direct benefit for the  government will be the increase in GST revenue. But, the government has other ways to increase GST revenue, so why take such a tough route?  Further down the line, when new technologies are introduced, a government platform working with consultants will find it hard to spend the money or hire high-salaried tech wizards to keep the platform up to date.

In terms of policy, there is no need at all for the government to play catch-up with the likes of Amazon or Flipkart, which operate at a very un-Indian and high level of efficiency and tech support. To challenge them with Indian efficiencies is a pipe dream.

For instance, in all big Amazon hubs and fulfilment centres in the US and Europe, the entire operation is handled by robots. Amazon will soon start delivering using drones in some areas. What then is the point in spending public money to democratise the e-commerce space? Also, all major e-commerce platforms encourage small and rural sellers to join them with incentives.

Though the government platform is not a seller but only an enabler, finally, when the deliveries get delayed, refund demands keep growing, logistics partners pull out etc., this platform will take a hit and customers and sellers will face major issues.

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For instance, this writer ordered a product for ₹200 as a test. ONDC on the Paytm platform (any e-commerce platform can connect to ONDC) picked up my address correctly but got the state wrong. Now, it will offer me the chance to compare prices of the same product on all sites. That is not a big deal. Koshy wants to make the process “entity-agnostic”, which will happen but the ultimate benefit to the government is unknown and remains a mystery.

Weird position to take

To have just a finger in the e-commerce pie and leave the rest of the job to the inefficiencies of the Indian retail ecosystem is asking for trouble. It’s like the traffic cop in a busy street saying his job is just to ensure the red and green lights are working, and that the huge snarl down the street is not his headache. Kirana or mom-and-pop shops just don’t have the expertise to be online due to various issues.

The ONDC platform’s unstated intention is to rein in the e-commerce giants. For a pro-capital, pro-monopoly government, this is a weird position to take. Even five or six years later, no product is going to sell more on ONDC than on Amazon. If a product worth ₹500 from a couple of sellers has sold 10,000 units a day on ONDC platform, Amazon will immediately cut the price of the same product and next day it will sell the same product at  ₹450 each. Amazon uses bots and other tech to keep track of sales of every item online.

While marking a presence in e-commerce with a lofty ideal is one thing, making it work well is quite another. But against odds, if the platform becomes the favourite selling space for small, medium and even big sellers and brands, then Nilekani’s dream will come true.

(Binoo K John is a senior journalist and the author of ‘Top Game: Winning, Losing and a New Understanding of Sport’)

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily  reflect the views of The Federal)