As govt pushes ONDC as e-com’s UPI equivalent, industry not sure

Further complicating the issue is the government’s own statements on how it wants to roll out ONDC. In March, the Commerce Ministry said that ONDC will help small retailers from the “onslaught” of big tech companies. And just a month later, everyone – “big and small, global or national” – was invited to “hitch on to the ONDC bandwagon”.  Then there was a statement that existing e-commerce platforms joining the network using ONDC-specific apps should refrain from doing so, and instead join with their main platforms and existing operations.

When contacted, ONDC CEO T Koshy, said when UPI was conceptualised, stakeholders like banks, etc, questioned its need when they were already handling millions of transactions a day. “We know how that turned out,” he told The Indian Express. He said the penetration of e-commerce is around 6 per cent of total retail in India. “…the market will expand in the coming years. The success of ONDC is not dependent on that (Amazon, Flipkart, Zomato, Swiggy etc. joining). If the existing platforms join, they should do so with full commitment rather than do that for PR. If you are joining without connecting your existing client-base, that is not acceptable… We don’t want such people in the network,” Koshy said.

Queries sent to the Union Commerce and Industry Ministry, which took the initiative to launch ONDC, remained unanswered until publication.

But private sector e-commerce companies have many questions about ONDC’s strategy. “Do you want to help small retailers, or do you want to build an e-commerce network that includes the big and small players? Both can’t be true. As long as big players compete with the smaller ones, they are most likely to come out on top,” an executive from an e-commerce company said, requesting anonymity.

The original stated vision of ONDC is focussed and resonates with most in the trading community – it has been built to promote open networks for all aspects of exchange of goods and services over digital or electronic networks. It is based on open-sourced methodology, using open specifications and open network protocols independent of any specific platform.

According to an official strategy paper, ONDC will “enable large-scale democratisation of digital commerce in India by providing a level playing field for large and small digital commerce apps and platforms through the opportunity to be ONDC enabled and make buyers/sellers registered with them visible and discoverable”. It was conceptualised by the government and some industry participants during the Covid-19 pandemic after an understanding that there was a “huge disconnect” between the scale of online demand and the ability of the local retail ecosystem to participate.

Since it has shot into prominence over the last two months, ONDC has generated divided opinion. While the government-backed initiative and other stakeholders such as restaurants and small retailers believe there is a use-case for ONDC as more Indians, especially from smaller towns and villages, come online, a number of industry executives and analysts The Indian Express spoke to do not share this optimism.

A senior industry executive claimed, “ONDC is largely an effort at political messaging for India’s trader community which has felt insecure by the proliferation of e-commerce led by foreign money,” he said.  And while ONDC is seeing traction – around 10,000 orders a day, the bulk comprises two extremely hyperlocal items: food and groceries. The other big-ticket items – apparel, consumer electronics – are still not seeing demand, even as it is early days. Another industry executive said, “They want to make it an inclusive network for big and small players, and yet they cannot do it without the bigger ones.”

India’s e-commerce market is growing rapidly, and is expected to reach $163 billion in the next three years from $63 billion now, according to consulting firm Redseer. And clearly, the government sees merit in pushing the public good argument that “democratisation of e-commerce” aims to achieve.

Pointing out this paradox, Sachin Dixit, lead analyst at JM Financial for the internet economy, says “democratisation” will become the core issue with ONDC going forward. “ONDC’s core proposal is that it wants to build an alternative to the control that a handful of companies today have on e-commerce. But at the same time, it also wants these companies to join the network, there’s a paradox there,” he told The Indian Express. “Also, it’s whole pitch about democratising e-commerce is likely to fall apart the moment the big companies join, because then even on ONDC, users are likely to buy goods and services from the brands they are aware of and are likely to give a miss to local sellers.”

An executive from a major e-commerce company that is yet to join ONDC said, “In a marketplace business, sellers are independent – the FDI policy for e-commerce also requires that. Without the concurrence of sellers, a marketplace model like that of Amazon and Flipkart, cannot join a network like ONDC.”

But Koshy is confident and said it is “inevitable” and only a matter of time before the likes of Amazon and Flipkart joined the network. Most investment companies have started asking start-ups they are looking to invest in about their strategy to join ONDC. “People with the money are placing their bets on ONDC. If it was not a good idea, why would they do so,” he said.

Parallels have also been drawn between UPI and ONDC, as both are seen as the Centre’s push of funding efforts of creating what it calls digital public infrastructure, with several commentators noting that the latter could disrupt the e-commerce space just like how UPI disrupted digital payments. However, several analysts say there are issues in conflating the two.

“The UPI loop closes the moment a transaction is completed. But in ONDC, the loop is much longer – you buy something, and that has to be delivered in the offline world. There also needs to be a mechanism for returns, grievance redressal. Since a number of players come together to fulfil one delivery on ONDC, who will handle the non-glamorous parts like returns and customer grievances? When you look at it from a long-term perspective, its value proposition suddenly goes down,” a senior industry executive said.

Koshy admitted ONDC is a far more complex system than UPI, but claimed it has higher business relevance. “In terms of complexity, ONDC is certainly far higher than UPI. But in terms of business relevance it is also very high… There is a very strong market appreciated need for something like ONDC, which is why we are seeing pretty fast adoption. When you are building a national level network like this, you need some time,” he said.

Unlike UPI, which the government has consistently funded, ONDC stakeholders are banks and financial institutions, and it is unlikely to receive similar financial or policy support, a senior official from the Commerce Ministry said.

However, even its detractors pointed out that ONDC could pose a meaningful challenge to the dominance of a handful of companies in various e-commerce segments. The food segment on the ONDC network is currently driving a bulk of the daily transactions on the network, and according to officials could be among the first to face disruption owing to ONDC. “Recently ONDC saw around 10,000 orders a day and almost half of it came from the food delivery segment,” Koshy said. However, a lot of the traction that food deliveries on ONDC received was owing to heavy discounting by ONDC participants – something that they have themselves accused Zomato and Swiggy of in the past.