Explainer: What is ONDC, India’s project for an open e-commerce network?

India’s government in April launched its Open Network For Digital Commerce (ONDC) as a prospective alternative to dominant global giants Amazon.com (AMZN.O) and Walmart (WMT.N) in its fast-growing e-commerce market.

Here is a description of the different moving parts of ONDC.

WHAT IS ONDC?

ONDC is a non-profit company whose network will enable the display of products and services from all participating e-commerce platforms in search results across all apps on the network.

For example, if both Amazon and Walmart’s Flipkart integrate their platforms with ONDC, a user searching for a Bluetooth headset on Amazon would also see results from Flipkart on the Amazon app.

WHAT ARE ONDC’S TRANSACTION TARGETS?

ONDC aims to raise e-commerce penetration in the next two years to 25% of India’s consumer purchases, from nearly 8% now, in a country of 1.35 billion people.

It also hopes to sign up 900 million buyers and 1.2 million sellers on the shared network within the next five years, while achieving gross merchandise value of $48 billion.

The government estimates that India’s e-commerce market was worth more than $55 billion in gross merchandise value in 2021 and will grow to $350 billion by the end of this decade. Currently, Amazon and Walmart’s Flipkart control more than 60% of the market.

HOW DOES ONDC AIM TO BOOST COMPETITION?

The government says existing platforms work in silos and are tightly controlled, keeping out many small players. It expects ONDC to increase competition and foster innovation by start-ups.

It also hopes to bring in logistics firms and others who can collaborate with sellers to deliver products to customers.

The focus would be on small merchants and rural consumers, with apps in Indian languages.

ONDC officials liken the network to a mall with 1,000 gates instead of just two, thereby limiting opportunities for selected sellers to receive preferential treatment – a common accusation against major e-commerce companies.

Users will be able to rate service providers on ONDC, which will be applicable and visible across the network.

The government says ONDC will help to end “predatory pricing, especially in high-margin, high-value products”. Amazon and Flipkart deny that they have engaged in predatory pricing.

WHAT CHALLENGES DOES ONDC FACE?

ONDC aims mainly to tap millions of small businesses that often lack technological expertise, so the government will have to run a massive awareness campaign to get them on board, said the Confederation of All India Traders, a group that represents 80 million such businesses.

Smaller businesses with low volumes may also lack the resources to match the discounts offered by heavyweights like Amazon and Flipkart.

Reporting by Munsif Vengattil in New Delhi; Editing by Edmund Klamann

This article was originally published by Reuters.