ONDC – Social e-commerce Initiative for Small Businesses
Open network for digital commerce (ONDC) is a Government of India initiative to provide decentralized access to small businesses. It is designed to become the next disruption after UPI since the government hopes that ONDC will democratize e-commerce allowing smaller vendors to access systems and technologies that are currently available only to larger companies like Flipkart and Amazon.
What is the ONDC project?
This project is an initiative to offer and promote open networks for the exchange of goods and services over digital and electronic networks. ONDC is based on an open-source methodology and will use open network protocols and specifications that are independent of a particular platform. The project is undertaken to mitigate the duopoly dictated by the two giants, Amazon and Flipkart, in the Indian e-commerce industry.
In May 2022, the Department of Promotion of Industry and Internal Trade (DPIIT) took the ONDC platform live in test runs across several cities, which include Bengaluru, Bhopal, Coimbatore, Delhi – NCR, and Shillong.
ONDC – an unusual solution for a fundamental problem
A 35-year-old man inherited a local store from his father with a dependable customer base earning about INR 15,000 per month. Then the COVID-19 pandemic put not just the city but the world into lockdown, and people started buying their groceries online. Even after the resumption of regular activities, many consumers continue using online services as these promise quick deliveries of 20 minutes and lower.
As a result, his earnings have been reduced by almost 50%. With huge expenses like website design, marketing and branding, and logistics, opening an online store isn’t a viable option for this 35-year-old shopkeeper.
But thanks to the DPIIT initiative, the ONDC app will enable all kinds of vendors to display their goods and services along with the bigger retailers. Customers can open their favorite app (which must be integrated with the ONDC platform) and find products from every vendor who is associated with ONDC, including the local mom-and-pop stores.
In an age when Big Tech and online giants are capturing the markets, the government-backed ONDC India initiative aims to deliver an unusual solution to a fundamental problem. The country’s government is developing a protocol that will bring all vendors under a single umbrella. This project will address the issue of platform-centric models, which result in market concentration, and this initiative is a smart solution that is democratic, fair, inclusive, and participatory.
The government aims to link 10 million merchants and 30 million vendors to this app and expand to about 100 cities by October 2022. Industry experts believe that e-commerce has disrupted the industry and taken away a huge chunk of traditional businesses. But this initiative will significantly redefine how people conduct business. A large number of the Indian population search online while shopping for various goods and services, and switching to online buying will become easier if they find their local and trusted vendors on digital networks.
Why did retailers need assistance?
Over the last decade, the proliferation of Amazon and Flipkart brutally impacted mom-and-pop stores. As Internet penetration increased and the pandemic hit the world, more and more people opted for online shopping, even for basic requirements like groceries and medicines. As business for local stores reduced, the instant grocery delivery apps promising quick deliveries within minutes worsened their situation further. Some of these apps provide discounts that are not economically viable for the local vendors, which significantly reduced their earnings. Some apps not only decrease the retail price but provide further discounts.
The instant grocery delivery market is in the nascent stage in India and, within a year, has crossed $700 million. It is estimated that this market will reach $5.5 billion by 2025, which will exceed China’s and the EU’s adoption of this industry. The ultra-fast online delivery apps have several side effects, like more delivery personnel putting them at higher risk of an accident and more local vendors witnessing a huge loss of business.
Potential of online deliveries
Compared to the USA or Germany, there is one difference in India, and that is scale. Our country has the second-largest population, and the average age of an Indian is 29 years, which means India has one of the youngest populations in the world. They have higher disposable incomes but no time for shopping due to hectic work lives. Combined with the steady growth of the middle class, India is poised to witness an unprecedented growth of online services.
The ONDC project can be favorable for offline vendors who now have access to an online platform to compete with large companies with access to unlimited funds. All vendors, irrespective of their size, can be a part of this network. The small mom-and-pop stores can create localized smaller networks to provide exponential growth in choices for the customers.
India’s international trade is expected to reach $2 billion by 2030. Furthermore, our country is poised to become a $30 trillion economy by 2047 – 2050, which creates huge opportunities with exciting times in the future. The ONDC platform will offer smaller vendors more visibility and is expected to be the next big revolution in fintech.
About 1.2 crores of local Kirana stores account for roughly 80% of the Indian retail sector, and a majority of these are not connected digitally. To provide small vendors more opportunities, ONDC will facilitate a shift from an operator-driven monolithic platform-centric model to a facilitator-driven interoperable decentralized network.
The project aims to increase e-commerce penetration from 8% to 25% over the next two years. Additionally, its objective is to sign up approximately 90 crores buyers and 12 lakh vendors in five years and add about $48 billion to the merchandise value.
Who can be a part of ONDC?
In addition to buyers and vendors, enterprises playing the following roles can be a part of this open network:
Connectors of buyers to the network – Applications and websites that provide access to customers and allow them to browse various goods and services available on this network
Connectors of sellers – Websites and apps that allow vendors to display their goods and services on the network and accept orders
Gateways – Apps that broadcast search requests from buy-side applications to sell-side apps listed on the network
Technology service providers – Offering software and technical add-ons for the three aforementioned categories
This project is not only for the retail sector. When fully developed, it will facilitate digital transactions across buyers and vendors for all kinds of goods and services, which include food delivery, logistics, mobility, travel, urban services, and wholesale. It will also cover B2B transactions.
When fully operational and integrated, an immediate outcome of this initiative will be interoperability and unbundling, allowing B2C and B2B transactions for all types of goods and services. Every seller will have access to each potential buyer and vice versa.
The visibility offered on this platform will further boost the MSME and SME sectors, which are the backbone of the Indian economy and contribute significantly to the country’s GDP. Manufacturers do not have to be worried about logistics and warehousing and are required only to showcase their goods on this network. This significantly enhances their visibility, providing a larger opportunity for B2B transactions. The open network aims to digitalize the complete value chain, encouraging vendors’ inclusion, systemized operations, and enhancing user experience.
ONDC will encourage cross-trades between suppliers. All registered buyers on any e-commerce site can buy products from a registered vendor. Our country has a large number of MSMEs and SMEs that employ crores of people. This sector is expected to make significant contributions as India moves closer to its goal of becoming a $5 trillion economy.
This open network will not only boost B2C digital transactions but will also increase the number of B2B transactions. Smaller manufacturers of industrial products, automated systems, and several other modern technologies are unable to sell their goods due to the high costs of digitalization. ONDC will make it easy for such manufacturers to register on the platform and make their products visible to buyers across various geographies. For example, a vending machine manufacturer based in Pune will register on this platform and display its various products. When another business like a hospital or an educational institute based in Tamil Nadu is looking for such machines, it does not have to find a local manufacturer. By registering on the ONDC platform, the Tamil Nadu buyer can place an order with the Pune manufacturer to get the best products at competitive prices.
This open network is expected to revolutionize the way in which buying and selling of goods and services will occur in the future. Get on board to provide your business with the boost to take it to the next level.