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The quiet launch of ONDC, or Open National Digital Commerce platform, in five cities including Coimbatore to help local businesses and even mom and pop stores open online storefronts is the Union government’s bid to curb the power of giants such as Amazon and Flipkart over India’s $ 700 billion retail sector. 

Since the arrival of online e-retail giants in the country, and their expansion using massive US investments and big data analytics, worry has been growing that the BJP’s core base of kirana (local) stores has taken a big hit. Some of them in grocery sales have responded by aggregating local customers using WhatsApp, their own websites and Dunzo, but several more have been left behind. Besides, niche local businesses have been unable to expand, because the giant online e-store model is a bad fit for them. 

A UPI for retail
The ONDC initiative, described as similar to the Unified Payments Interface (UPI) for making online payments, offers to on-board the local store on a common platform, making it discoverable and open for business. Potentially, the online operation could serve both local and remote customers if it can get aspects such as warehousing, logistics and online trackability systems right.

An online trading system for local businesses needs a robust ecosystem in place, not just for payments, but for trackability of transactions and delivery of goods and services.

“This is potentially a big step, since the existing option is to list on expensive directory websites who exploit the bottleneck to charge heavy fees for discoverability and customer connections,” says Udhayakumar, who owns Subasri Interiors, a family home design business in Chennai’s southern suburb of Ottiyambakkam. His case represents the classic dilemma of the small business in India, which is unable to go online due to knowledge asymmetries, high costs and lack of reliable systems to reach customers directly. Udhayakumar is interested in launching his own website, but finds it expensive and daunting. He uses WhatsApp to transact, but has to rely on word-of-mouth for new local business.

local businesses

With the arrival of e-commerce giants like Amazon and Flipkart, local kirana stores have had to bear the brunt of losing out on their sales. Word-of-mouth for new local businesses can only benefit them to a small extent(Image credits: flikr)

As it launched in Delhi NCR, Bengaluru, Bhopal and Shillong, besides Coimbatore, the ONDC platform was praised by industrialist Anand Mahindra as a “world-beating retail revolution” that will “democratise e-commerce”, while Nandan Nilekani, credited with its creation, called it a great team effort. 

The April 29 launch of the desi alternative to Amazon and Flipkart, the latter with a majority stake held by US retail major Walmart, comes at a time when the Competition Commission of India (CCI) has carried out repeated investigations on the Indian entities, most recently on May 2 on Amazon, focusing on its privileged relationship with some of its retail partners. Last year, Reuters reported at length on Amazon’s alleged anti-competitive practices, notably its use of sales data to launch similar products under its own brands and giving them an edge on the store, to the detriment of other sellers. It also exploited access to data from other sellers to advance its own brands, the report said.

Exciting as it sounds, with millions of storefronts opening up online offering open architecture for access, there are major challenges too. The UPI payments interface has proved resilient, although failed transaction rates either due to wrong entries by users or technical reasons such as poor infrastructure have been an issue. The latest official UPI data for March 2022 show that some small rural banks have a technical decline (TD) rate as high as 16%, while even mainstream Indian Bank has a high TD of 2.92% and Central Bank of India 2.26%. Evidently, an online trading system for local businesses needs a robust ecosystem in place, not just for payments, but for trackability of transactions and delivery of goods and services. 

Several Indian banks, including the State Bank of India, and the Quality Council of India, NSDL, NABARD, Small Industries Bank of India, are among the investors in the ONDC venture. 

Building credibility
While it is caught up in a controversy over its disproportionate power over sellers and ability to manipulate consumers through search results, Amazon has features such as returns covering several types of articles, a ratings system for verified buyers, and active trackability of orders. 

ONDC’s platform requires similar consumer-focused features, like that of Tata’s integrator app for goods and services to help weed out fly-by-night fraudulent sellers. 

There is some controversy, with some small companies in the US influencing the ratings with unethical offers. This writer was approached by a Delhi-based seller with an offer of extended warranty if the three-star rating for an office chair was raised to four. The behemoths have been joined recently by the Tata group with its own integrator app for goods and services. ONDC’s platform would require similar consumer-focused features, and the ability to weed out fly-by-night fraudulent sellers. 

A hyperlocal approach
A hyperlocal approach to online e-commerce could still make ONDC a winner. By shifting their durable goods and services online for neighbourhood shoppers, and introducing a reliable payments system, several well-known businesses could be poised for growth. This includes, for instance, articles with Geographical Indication status, such as Karuppur Kalamkari paintings and Kallakurichi wood carvings in Tamil Nadu, which received GI tags last year.

local businesses

ONDC by helping local businesses like Karuppur Kalamkari paintings shift their goods and services online for neighbourhood shoppers can contribute to their growth.

But then, what do Indians spend on in a normal year, one uninfluenced by peak events such as the COVID-19 pandemic? According to the Key Indicators of Household Expenditure on Services and Durable Goods put out by the NSSO, 72nd round (2014-15) urban Indians spent the maximum on durables linked to transport, heating and cooling devices (53% together), while other spends were predominantly on jewellery and ornaments (18%), IT and communication devices (9.91%), followed by equipment for recreation, furniture and so on. On services, urban spending was highest on communication, TV and radio, domestic help, recreation, repair services, tailoring and religious activity. 

Besides the political gains to be achieved from an apparent levelling of the field for brick and mortar stores, ONDC could help expand the local businesses sector hit by the pandemic.  Last year, NASSCOM estimated that the retail sector could add 25 million jobs in the offline-online hybrid mode by 2030, while the size of retailing could be of the order of $1.4 trillion. 

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