India is preparing a state-run network to democratise e-commerce

The dominance of global players in its e-commerce ecosystem has prompted India to set up its own e-commerce aggregator platform.

The Open Network for Digital Commerce (ONDC) will begin beta testing in September in either Bengaluru, Delhi, Shillong, Bhopal, or Coimbatore. Users of the chosen city can then place orders for groceries, food items, and other items using any of the apps available on the platform.

ONDC is being touted as the Unified Payments Interface (UPI) of e-commerce in India. UPI is an open source application developed by the Indian government, facilitating real-time inter-bank peer-to-peer and person-to-merchant transactions.

Launched in 2016, UPI, after the initial two slow years, enabled a surge in India’s digital payments index. It had skyrocketed from 153.47 in March 2019 to 304.06 in September 2021, the Reserve Bank of India data shows.

Its e-commerce cousin can, thus, potentially transform India’s marketplace ecosystem to a decentralised one, according to a strategy paper (pdf) published in January. It will be a facilitator-driven interoperable network.

ONDC is likely to provide micro, small, and medium enterprises, as well as small traders, a level playing field with the giants of the e-commerce world.

Amazon and Flipkart mostly set the terms in seller onboarding, customer acquisition, order fulfillment, payment, and returns to complaint redressal. ONDC will let consumers see and compare products on various such sites as also from their local grocers.

Microsoft is on board

ONDC has got Microsoft as its first international marquee member. The software giant will launch a shopping app for its Indian consumers.

Others like Reliance’s Dunzo, too, have joined in, enabling buying and selling besides offering logistics. Firms like Kotak Mahindra Bank and PhonePe form the network’s financial spine.

“ONDC gives the infrastructure to unbundle the supply chain. Credit through AA (account aggregator) allows everyone in the supply chain access to formal credit. So, they no longer depend on the next guy in the supply chain to give them credit,” Nandan Nilekani, chairman of Infosys and a member of ONDC’s advisory council, told Moneycontrol.

What does this mean for Amazon and Flipkart?

Amazon and Flipkart are estimated to have nearly 70% India’s e-commerce market share. However, the new platform is unlikely to challenge them since India’s is still a young market with plenty of room for growth, unlike those of the US and China, according to Shireesh Joshi, chief business officer at ONDC.

E-commerce penetration in China and the US are at 24% and 20%, respectively, a Goldman Sachs report shows. In India, it is 4%-5% in the retail sector.

“It is now up to individual business organisations, whether existing ecommerce players or new ones or non-ecommerce players, on what strategies they choose in order to benefit from this…ONDC itself is democratic and open and not against anyone,” Joshi told Inc42.

The next step for the ONDC initiative may be to include food delivery and hospitality, Joshi said.