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The Hindu
The Hindu
National
Aroon Deep

Orders on ONDC grow rapidly as India Post gears up to join in

The Open Network for Digital Commerce (ONDC) is not meant to “to create a price war,” but to “help small enterprises to get” to a threshold in digital commerce, the network’s Chief Executive Officer Thampy Koshy told reporters on May 11. ONDC is a government-backed modular network for e-commerce, food and grocery delivery, and cabs. ONDC activity has grown dramatically — partly on the back of incentives it has provided to participants. India Post may soon join the network, which would bring one of the world’s largest logistics systems on board. 

In January, Mr. Koshy said, “We had 800 merchants, fifty transactions a day, and twenty network participants.” Network participants are the term for tech firms that provide an app to access or sell through ONDC. “By March end, with mobility, retail and food delivery, we had 1,000 orders a day. By April end, we had 10,000 a day.” And at present, Mr. Koshy said, ONDC was clocking over 25,000 orders a day. 

ONDC was launched to curb “potential rent seeking” behaviour from top e-commerce platforms in retail, food delivery and cab aggregation, and leave each part of the value chain, from cataloguing orders to actually delivering them, to different players. Having it all be done by one platform “there is inefficiency that’s created,” Mr. Koshy said. 

Incentives continue 

Just like with the Unified Payments Interface (UPI), the payment technology with which ONDC is frequently compared, new participants in the network are receiving financial incentives — which some have passed on to customers in the form of significant discounts — to provide “handholding support”. The incentives are funded with financing that ONDC raised from banks. 

The incentives are leading to ONDC growing at a pace comparable to the large food and e-commerce retail giants it is up against. On Wednesday, Minister of State for Communications Devusinh Chauhan announced that India Post would join ONDC, gradually shaping it as one of the government’s most closely supported pieces of Digital Public Infrastructure (DPI).

While ONDC’s architecture allows “network participants” to focus on whittling down the economics of their individual part of the e-commerce process, there is also the larger goal of reducing the power of the large players in the market, with food delivery players like Swiggy and Zomato most under threat. As the honeymoon period of financing rapid expansion and acquiring customers with well-subsidised discounts plays out this year, these players find themselves under pressure to cut costs themselves.  

“Restaurants have also been pressurised in the sense that thirty to 35% of the commission stays with Zomato and Swiggy and only some of the rest is transferred to the restaurant,” Ritu Chhikara, who heads the Centre for Sustainability and Social Responsibility at BML Munjal University said. “The restaurant also has to make profits. So, they eventually increase the price of various items on the menu.” 

Even though ONDC breaks down the architecture of e-commerce use cases to discrete units, that may not necessarily lead to a diversity of participants. “Even on UPI, the National Payments Corporation of India’s (NPCI) own numbers indicate that the top three platforms control 94% of traffic,” Aparajita Bharti, a co-founder of policy research firm The Quantum Hub told The Hindu. “So even with interoperability, it’s actually hard to break network effects online.” A network effect plays out when a rapidly growing entity can rely on its reach for further growth and stability.  

If a reported proposal to prohibit e-commerce delivery firms from using their own in-house delivery firms for transporting their own orders (in what are called related party transactions), the impact of ONDC and India Post’s participation in it may be far more impactful. “There are multiple stakeholders in the value chain” of e-commerce, Dr. Chhikara said. “And if the same firm captures all of it, then what is the point?”  

Food economics 

The economics for venture capital-backed firms have been shifting rapidly even as ONDC grows, as investors tread with caution amid economic headwinds and recession fears. This is hitting quick-commerce firms and food delivery players most. Zomato-owned Blinkit, for instance, saw its grocery delivery agents’ pay cut to Rs 15 for each order they delivered, leading to strikes in some cities.  

ONDC, Dr. Chhikara said, might motivate consumers to pay more for delivery, especially when the price of the food or groceries is far lower, as even though delivery prices may look higher, the overall price is competitive.  

At least for the growth stage, ONDC is funnelling incentives into sellers and apps, giving the latter over ` 2 lakh a day if they can get customers to make purchases, mimicking the tactics of venture capital-backed apps. Unlike UPI, though, there is no long-term plan from the government itself to finance ONDC, Department for Promotion of Industry and Internal Trade secretary Rajesh Kumar Singh told reporters on Thursday. 

Will ONDC constitute a major threat to the heavyweights of e-commerce and online food delivery thanks to state support? Dr. Chhikara speculated that there would be intense competition, even if e-commerce firms find themselves joining ONDC, the network that seeks to displace them. A “cat and an elephant” — small sellers and large platforms — will be competing with each other on the same playground, Dr. Chhikara said. 

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