India’s digital initiative seeks to democratise ecommerce

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% of online retail spend­ing by 2030.

How­ev­er, India also has an ecom­merce duop­oly, in which Ama­zon and Wal­mart-owned Flip­kart con­trol more than 60% 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% of India’s GDP and employ 8% 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%, 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 £41bn. 

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.” 

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 Wizzy.ai, 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.