What Is ONDC? Its Impact on E-Commerce

ONDC is an open-sourced network for digital commerce. It is an initiative of the Department for Promotion of Industry and Internal Trade (DPIIT).

Digital commerce is a  growing field. With access to more smartphones and the internet, it is evident that the digital market will grow.

But the current models of e-commerce have affected small business owners. Small retailers often get overshadowed by big businesses. This has affected the business opportunities for small business owners.

This has affected the potential of the e-commerce market in India to grow. ONDC is going to solve this problem and level up the playing field for small businesses.

To find out more about what ONDC is and how it will revolutionize the digital commerce market for India, read on.

What is ONDC

ONDC is the Government’s initiative to end the domination of e-commerce giants. Its aim is to democratise digital commerce.

According to Shri Som Parkash, Minister of State in the Ministry of Commerce and Industry, “ Open Network for Digital Commerce (ONDC) is an initiative aiming at promoting open networks for all aspects of exchange of goods and services over digital or electronic networks. ONDC is to be based on open-sourced methodology, using open specifications and open network protocols independent of any specific platform.”

ONDC is an open-sourced network. It will allow people who are a part of e-commerce services, regardless of their size, to be visible to the public.

The aim of ONDC is to create new opportunities and provide level playing fields. and support micro, small and medium enterprises and help them become a part of e-commerce. It is an initiative of the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry.

ONDC is a government-controlled medium that will act as a marketplace for marketplaces. It will allow sellers to take their businesses online. They will have benefits such as access to a marketplace, cashless payment methods and inventory suppliers.

Buyers will also be able to get access to the platform. They can view products from various small businesses and have lots of options to choose from.

According to the ministry, ONDC will digitize the value chain, regulate operations and encourage the inclusion of suppliers. It will also derive efficiencies in logistics and enhance value for stakeholders and consumers.

To give you a better idea, let us look at what ONDC is and what ONDC is not.

What is ONDC:-

  • An open network:- Being open-source, users will be able to use ONDC for free. They can also redistribute their source code and change it according to their use.
  • Eliminates the need for a central intermediary:- ONDC helps buyers connect with sellers directly without any middleman in between.
  • An enabler for e-commerce expansion:- The aim of ONDC is to get more businesses online and increase players in e-commerce.
  • An enabler for broad-based innovation:- ONDC aims to increase innovation by adding a wide range of players within its scope.
  • Market and Community-led initiative:- It is a community-based initiative influenced by the needs of consumers.

What ONDC is not:-

  • An application or a platform:- ONDC is not an application or a platform, it is just a network for digital commerce.
  • A central intermediary:- ONDC is not an intermediary, in fact, it aims to remove any intermediary between the buyers and sellers.
  • A medium to help digitize businesses:- ONDC is not a medium that will help you digitize your business.
  • A regulator:- It is not a government-regulated body.

Why Do We Need ONDC?

There is a need for a platform like ONDC to end monopolistic practices in digital commerce in India. The small business owners find it difficult to survive besides other dominating platforms.

ONDC will help in stopping the malpractice of already established platforms. Amazon is already under investigation for following anti-competitive practices and rigging search results. The Competition Commission of India (CCI) raided the offices of top sellers on Amazon and Flipkart on April 28. According to CCI “It needs to be investigated whether the alleged exclusive arrangements, deep-discounting and preferential listing by the OPs are being used as an exclusionary tactic to foreclose competition and are resulting in an appreciable adverse effect on competition contravening the provisions of Section 3 (1) read with Section 3(4) of the Act”.

The present digital market is platform-centric. The buyers and sellers need to be on the same platform to carry out a transaction. The current model of e-commerce holds does not promote any innovation.

It has created a significant barrier to entry for new players. There is a gap between online demand and the local retail ecosystem. This has affected the participation of people in the e-commerce industry. There is a tremendous opportunity for e-commerce to grow in India.

There is no need for buyers and sellers to be on the same platform. ONDC removes such a rule for any transaction. ONDC will allow for any transaction to occur between a buyer and a seller through any platform. It is like the “UPI of e-commerce”

How ONDC works

ONDC will give equal opportunities to all buyers and sellers. ONDC is going to be a neutral platform. It will set rules for the cataloguing, vendor match and price discovery on an open-source basis.

This means that buyers and sellers don’t have to register on the same portal for transactions. For example, a seller registers his account on platform A and the consumer registers his account on platform B. The consumer does not have to register on platform A to buy any product from the ONDC.

To understand better how ONDC works, let us compare the current model of e-commerce with the ONDC one.

Existing Platform-Centric Model

Here, the buyers and sellers must be on the same platform or application to do a business transaction.

Source:- ondc.org


Here, the buyers and the sellers can enjoy transactions while being on different platforms using a common network.

Source:- ondc.org

Benefit OF ONDC For The Buyers

ONDC will be helpful not only to buyers but also to sellers. Sellers will receive much-needed digital transformation tools that will help them take their business online. They don’t need to become an affiliate with a private e-commerce company. Sellers will get a wide variety of supplies to choose from.

Benefits Of ONDC For The Sellers?

ONDC will be helpful not only to buyers but also to sellers. Sellers will receive much-needed digital transformation tools that will help them take their business online. They don’t need to become an affiliate with a private e-commerce company. Sellers will get a wide variety of supplies to choose from.

They will get access to more buyers as more businesses will go online. Their products will be discoverable by anyone connected to the ONDC. They will have complete control over their products and services.

Sellers will have access to logistics to further improve their business. The cost of doing business through ONDC will also be pretty low.

Impact of ONDC on E-commerce

ONDC will be implemented at the national level by August 2022. It would be mandatory for all e-commerce companies to connect and use the ONDC model for digital commerce. This would imply that all e-commerce companies will follow the same standards and processes.

This will help small retailers and new entrants by making them more visible to buyers. They will also be able to improve their ability to cooperate and work with each other.

ONDC will empower both buyers and sellers by ending the monopoly of giant platforms. It will transform and improve businesses across every sector.

Businesses will receive a huge help because of the transparency in the rules of ONDC. They will have to spend less money on setting up their businesses. By getting connected to ONDC, businesses will find that their process of bringing products into the market has become quicker. They will also be able to scale up their business in a shorter span of time.

The government has high hopes for India’s e-commerce market. It expects increased participation of all types of businesses in e-commerce. According to Statista, “Owing to the increasing internet user base and favourable market conditions, India has a lot of potential in the e-commerce industry. Growing at an exponential rate, the market value of the e-commerce industry in India was approximately 22 billion U.S. dollars in 2018. This number was estimated to reach 200 billion U.S. dollars by 2027”.

At present, online retail shops account for only six per cent of India’s total retail market. Even the traditional retailers understand with the fast growth of internet users, this number is only going to increase. They too want to take part in this digital revolution and not get left out.

With over 492 million smartphone users, India has a huge market for even global retailers. The only other country with such a huge market is China, where local businesses thrive.

Who are the key stakeholders of the ONDC?

According to a report from ANI, twenty government, as well as private organisations of national repute, have confirmed investments of Rs. 255 croreS.

The Times Of India has reported that the private sector lenders HDFC Bank, Kotak Mahindra Bank and Axis Bank have acquired a 7.84 per cent stake each in the open public digital infrastructure framework entity ONDC. All the three banks have invested Rs. 10 crores each in the entity.”

[Fortune India](https://www.fortuneindia.com/enterprise/after-pnb-sbi-acquires-stake-in-ondc-all-you-need-to-know-about-e-commerce-platform/107514#:~:text=State Bank of India has,consideration of ₹10 crore.&text=State Bank of India (SBI,-source e-commerce platform.) has reported that the State Bank of India (SBI), the country’s largest lender, has invested ₹10 crores to acquire a 7.84% equity stake in Open Network for Digital Commerce (ONDC), an open-source e-commerce platform. In November last year, Punjab National Bank (PNB) proposed to invest as a promoter in ONDC by picking up a 9.5% stake in the company. The lender had said it would invest ₹25 crores in ONDC or acquire 9.5% equity capital, whichever would be lower.”

According to the Ministry of Commerce, about 80 firms are currently working on the platform and are at different stages of integration. The officials further added that the platform plans to add 150 retailers in five cities during the pilot phase.

Economic Times has reported that the E-commerce Private Limited (PEPL), the parent entity of Paytm Mall, will pivot to Open Network for Digital Commerce (ONDC) as its primary focus and explore opportunities in export business in place of traditional physical goods e-commerce. This move will enable the company to create a long-term sustainable business in partnership with ONDC, which aims to democratize the purchase and sale of goods in the Indian market, driving transparency and digital independence for small businesses in the country.

Alphabet Inc’s (GOOGL.O) Google is in talks with the Indian government to integrate its shopping services with the country’s open e-commerce network ONDC, two sources familiar with the matter told Reuters.

One of the most prominent individuals associated with ONDC is Nandan Nilekani. He is the technology entrepreneur and co-founder of Infosys who envisions ONDC to be the game-changer for the e-commerce market. He is famous for his work involving the development of the Aadhar biometric ID system and of the digital payment method UPI.

What Are The Challenges ONDC Faces?

1) Unequal Opportunities:- One challenge the ONDC will face is to give equal opportunity to every seller that has been listed on the platform. It will be a real challenge because everyone would like to buy from big brands which will make them list higher in the rank. This will force the small business owners to fall far behind.

2) Price:- For small businesses to get ahead of larger businesses, they would have to keep the prices of their products at a very low cost. Larger companies will also have to reduce costs for their products. But since large companies are heavily funded, they would be able to survive at a low margin of income. This is where the problem for small business owners comes in. They won’t be able to survive at low-cost margins for too long and thus might even end up being bankrupt.

3) Data privacy Concerns:- ONDC will have to deal with a huge quantity of personal data on a day-to-day basis. This means that having proper security is very crucial. How the ONDC will ensure data security and secure personal information about individuals is going to be a serious issue.

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