Why in News:
- The government of India announced the launch of the pilot phase of open network for digital commerce (ONDC) in five cities with an aim to “democratise” the country’s fast growing digital e-commerce space that is currently dominated by the two U.S.-headquartered firms — Amazon and Walmart.
What is ONDC?
- ONDC is a not-for-profit organisation that will offer a network to enable local digital commerce stores across industries to be discovered and engaged by any network-enabled applications.
- It is neither an aggregator application nor a hosting platform, and all existing digital commerce applications and platforms can voluntarily choose to adopt and be a part of the ONDC network.
- The ONDC aims to enable buying of products from all participating e-commerce platforms by consumers through a single platform.
- Currently, a buyer needs to go to Amazon, for example, to buy a product from a seller on Amazon.
- Under ONDC, it is envisaged that a buyer registered on one participating e-commerce site (for example, Amazon) may purchase goods from a seller on another participating e-commerce site (for example, Flipkart).
- The ONDC model is trying to replicate the success of the Unified Payments Interface (UPI) in the field of digital payments.
- UPI allows people to send or receive money irrespective of the payment platforms they are registered on. The open network concept also extends beyond the retail sector, to any digital commerce domains including wholesale, mobility, food delivery, logistics, travel, urban services, etc.
What led to formation of ONDC?
- During the outbreak of the COVID-19 pandemic, the government tried to understand its impact on small sellers and hyperlocal supply chain functioning. Post which, it found that there is a huge disconnect between the scale of online demand and the ability of the local retail ecosystem to participate.
- ONDC has been envisaged as an entity which should be able to work without the need for day-to-day guidance and advisory from the shareholders/members.
- The independence of the management is linked to the financial independence of the entity, and therefore, the entity will be required to get funding independently and have a self-sustaining financial model.
- The government believes that ONDC will put an end to the domination of the e-commerce market by a few large platforms. It says that the e-commerce market is currently broken into “silos” operated and dominated by these platforms.
- Amazon and Flipkart, for instance, have been accused of discriminating among sellers on their platforms and promoting certain seller entities in which they hold indirect stakes. With an open network like ONDC that connects buyers and sellers across platforms, the government hopes to level the playing field and make platforms redundant.
- It is said that buyers will also be able to access sellers across platforms without having to switch between multiple platforms.
- Over the next five years, the ONDC expects to bring on board 90 crore users and 12 lakh sellers on the network, enabling 730 crore additional purchases and an additional gross merchandising value (GMV) of ₹3.75 crore. The GMV for the digital commerce retail market in India was ₹2.85 lakh crore ($38 billion) in 2020, which is only 4.3% of the total retail GMV in India.
What are the likely benefits of ONDC
- The ONDC will standardise operations like cataloguing, inventory management, order management and order fulfilment, hence making it simpler and easier for small businesses to be discoverable over network and conduct business.
What do the critics say?
- Sellers are already free to list their products across various e-commerce platforms even in today’s platform-centric e-commerce model. Buyers also routinely shop across platforms. Then there are services such as price-comparison offered by various private websites that bridge the information gap and help buyers make better decisions. So the domination of the e-commerce market by platforms such as Amazon and Flipkart may not be due to any captive hold that these platforms have over buyers and sellers.
- Further, the supposed “monopoly” that platforms are said to enjoy may be no different from the limited monopoly that any business has over its property.
- Experts have pointed out some likely potential issues such as getting enough e-commerce platforms to sign up, along with issues related to customer service and payment integration.