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Home / Opinion / Views /  The promise of ONDC and the challenges it will face

In the first half of 2016, when the Unified Payments Interface (UPI) which enables real-time payment or transfer of funds between banks was launched, a black swan event in the form of demonetisation in November that year provided the major ballast that was required for digital payments to take off in India. What was touted as the WhatsApp moment for India is now being described as the coming UPI moment for the country with the launch soon of the Open Network for Digital Commerce or ONDC—the home-grown attempt to take on the likes of e-commerce giants such as Amazon and the Walmart-backed Flipkart.

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This new digital highway or platform is an ambitious public-private initiative to bring together buyers and sellers pan India, especially from the hinterland, on an open digital platform to transact in goods and services. The lofty aim is to democratise or alter the terms of engagement in the country’s e-commerce market dominated by Amazon and Flipkart. These players have a closed network, implying that the entire process starting from the customer to payments to resolution is controlled. It also means that both the buyer and seller have to be on the same platform unlike the ONDC which will have an open network facilitating access for every buyer to every seller including all those listed or visible on the platforms of the biggies in the business. More importantly, the broader aim is to encourage the local kiranas, and small and medium enterprises, especially in the smaller towns of India, to come on board this platform to offer their products, including from the farm sector, and reach a wider universe of customers. And to sign up on their terms unlike the other platforms while handholding a large number of small and medium enterprises who may not be part of a digital network. This can remove barriers on their growth, and help convert the potential of the India Growth Story into real gains on the ground.

There is much going for this project. Government backing for yet another digital architecture, a model patterned on the National Payments Corporation of India with private investors led by institutions, incorporation as a not-for-profit company and the involvement of Nandan Nilekani, a huge influence in India’s digital revolution. And Nilekani is right when he talks of a knock-on impact of this in terms of a massive formalisation of the economy over the next decade with the promise of more jobs. That should translate over time into higher tax collections if projections of e-commerce worth $350 billion by the end of this decade compared to over $55 billion in 2021 are on target. It should help the ruling party too in terms of positioning this as a move to bust digital monopolies to one of its traditional voter base, retail traders.

As ONDC debuts in a combination of India’s big cities and many small towns across different geographies, the early challenges could be in the form of logistics; reaching products from the hinterland to a big metro or to a tier-two city; warehousing support and infrastructure; ensuring the quality of products; transaction fees; providing comfort to a set of buyers and sellers, new to the digital world; and a swift digital resolution mechanism. Key to the evangelisation of this digital public good are state governments especially those where MSMEs have a large presence. The timing is opportune with the unveiling of a logistics policy and the growing adoption of digital payments.

This will be a test for Indian banks and lenders and their innovation skills in building credit information records based on digital transactions of many participants who will be part of this open network. That would call for greater investments in technology to make the transition from what has traditionally been an asset- or collateral-backed model of lending to a new set of borrowers excluded from the world of formal banking or finance to a new template based on record and trail of digital transactions. An enabling framework for account aggregators ought to help.

There is much riding on this ambitious project with the pressure of a first-of-its-kind global initiative and attention though unlike the global e-commerce majors there is much less to worry about generating profits. What is exciting though is the promise of a huge makeover in the Indian digital marketplace and the resultant spin-offs.

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