How will the Open Network for Digital Commerce (ONDC) help flourish the Indian E-Commerce Market?

In India, e-commerce is changing the way people do business. Increased internet and smartphone penetration can be attributed to the e-commerce industry's rise. According to an IBEF report, the 'Digital India' program increased the number of internet connections to 830 million by 2021. The number of enterprises conducting business in the virtual world has risen considerably in recent years. Even large firms are shifting in response to the changing logistics landscape and growing public demand. Moreover, the recent COVID-19 pandemic has aided the growth of e-commerce businesses significantly in recent years.

According to the E-Commerce Sector in India, the Indian E-commerce industry is likely to rise to US$ 188 billion by 2025, up from US$ 46.2 billion in 2020. Furthermore, according to RationalStat’s internal analysis, the burgeoning Indian e-commerce sector has moved towards consolidation and saw as much as US$ 2.1 billion in mergers and acquisitions in 2017 following some mergers and acquisitions by industry moguls. For instance, in May 2018, Walmart acquired Flipkart for US$ 16 billion. The e-commerce grocery market is also rising with a healthy CAGR of 57%.

Government to Launch Open Network Digital Commerce

The Department for Promotion of Industry and Internal Trade (DPIIT) is planning to use the Open Network for Digital Commerce (ONDC) to set protocols for cataloging, vendor discovery, and price discovery in order to provide equal opportunities to all marketplace players to make the most of the e-commerce ecosystem in the larger interest of the country and its citizens.

The ONDC platform will enable buyers and sellers to engage with each other and transact online. The Indian government has been focusing on the development of ONDC platform to challenge Amazon and Walmart's dominance in the Indian market. With the introduction of ONDC in May 2022, the government hopes to encourage an open platform for the electronic exchange of goods and services. The move will aid in dealing with issues like predatory pricing, deep discounting, and collusion with corporate sellers. The open network platform will debut in five locations: Delhi NCR, Bengaluru, Bhopal, Shillong, and Coimbatore, with plans to expand to other cities later.

ONDC Will Push Small and Mid-Size Retailers to Engage Online

Traditional retailers and merchants are aware of how quickly things could change and do not want to be locked out or priced out. RationalStat expects that online retail currently accounts for around 6% of India's overall retail sector. With the launch of ONDC, traditional retailers and merchants can penetrate the online marketplace and explore a plethora of business opportunities. The following advantages can be attributed to the launch of ONDC:

• Consumers can potentially discover any vendor, product, or service through this platform by using any ONDC-compatible application or platform, giving them more freedom of choice.
• Transparent standards, light investment, and lower business acquisition costs are projected to help businesses. It is also envisaged that time-to-market and time-to-scale will be significantly reduced.

Support by Public and Private Stakeholders

Around 80 companies are working to connect market participants to the ONDC platform. Enterprise software and apps are created by these companies for vendors, buyers, logistics platforms, and payment gateways. Several public and private sector institutions have invested in ONDC, including HDFC, Kotak Mahindra, Axis Bank, State Bank of India (SBI), and Punjab National Bank (PNB). PNB had previously declared its intention to purchase a 9.5% stake in ONDC in November 2021. According to the Government of India, banks like the State Bank of India, ICICI Bank, and Bank of Baroda have already pledged a total of INR 2.55 billion.

Key Takeaways in the Indian E-commerce Sector:

• In 2021, India's e-commerce sector attracted US$ 15 billion in PE/VC investments, up 5.4 times from the previous year. This is one of the greatest investment values ever obtained by any Indian sector.
• Amazon India introduced the One District One Product (ODOP) mart on its platform in February 2022 to help Micro, Small, and Medium Enterprises (MSMEs).
• Flipkart announced a "sell back scheme" in February 2022 to enable smartphone trade.

Road Ahead

The Indian e-commerce sector has been on the rise, and technology-enabled innovations such as digital payments, hyper-logistics, analytics-driven customer engagement, and digital ads are expected to help the sector flourish. ONDC's three key features namely dynamic pricing, inventory management, and delivery cost optimization, all of which will assist cut the cost of doing business for everyone, including merchants. In the long run, the rise of e-commerce including through the ONDC platform will improve employment, raise export earnings, increase tax collection by exchequers, and give better products and services to customers.

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