An Indian Biryani Won’t Democratize E-Commerce

Infosys Ltd Chairman Nandan Nilekani’s latest foray into public-policy propaganda: Restaurant-delivery platforms are already worried about open network digital commerce. But it’s not just food or groceries. Separation of e-commerce in India could wipe out billions of dollars of investment. Walmart Inc is temporarily backing the government-backed initiative to see where it goes. Amazon.com Inc. has so far agreed to integrate its logistics services – from pickup to delivery – with ONDC.

If China pioneered the quick-response, or QR, code revolution, India’s only contribution to the world of money in the last seven years has been the Unified Payments Interface, a powerful idea that made it possible to spend deposits scattered around various banks. made easy. A smartphone in the form of cash. The model, which was copied around the world, is now its biggest success in Brazil’s Pix platform, which has made cards redundant. The plan is to replicate India’s UPI globally in money transfer across borders.

Meanwhile, Nilekani has turned his attention to e-commerce. Nearly 75% of Indians with internet access are not shopping online, while only 5 million of the country’s 100 million micro, small and medium firms are registered to sell digitally. Only a few of them achieve meaningful business on the platform. In a report with the consulting firm McKinsey & Co., ONDC, the nonprofit that has emerged as a result of Nilekani’s advocacy and the government’s blessing, outlines how it will expand this blocky landscape:

ONDC offers an alternative to the existing platform-centric model. Taking India’s diverse marketplace of goods and services online democratizes digital commerce for buyers and sellers. Shoppers can tap an item to begin searching for it using any participating app. The network makes it possible for them to connect with thousands of sellers across the country who sell on ONDC through their preferred seller app. Within seconds, the customer sees a set of options at a range of price points, along with transparent options for delivery mode, time and cost provided by a choice of logistics operators.

However, political wrangling with ONDC is undermining the economic promise of the project. Commerce Minister Piyush Goyal says India will use the “full might of the government” to promote an open e-commerce network. Two US-owned market leaders, Walmart’s Flipkart Marketplace and Amazon’s India shopping site, can expect that as the rhetoric heats up as next year’s general elections draw closer. Those who don’t come on board with their customer data now will regret it as TechCrunch recently quoted the minister as saying, at some stage “we will have to cut even those who are left behind.”

The threats and warnings are adding an unnecessarily statistical undertaking to the technical side of the ONDC. Although they are growing rapidly, online sales account for just 7% of all commerce in India, much of which passes through millions of mom-and-pop stores. India faces the problem of emerging monopolies in government-regulated sectors such as telecommunications and transportation. But for some reason, New Delhi is giving the impression that affordable chicken tikka for the middle class is a policy priority.

At least here is the project. In Bengaluru and New Delhi, thousands of online restaurant orders are bypassing Swiggy and Zomato, two popular online food-delivery platforms. Customers are getting a McChicken Meal for Rs 190 ($2.30) on fintech apps like Paytm, while the same item is selling for Rs 204 on Zomato Ltd’s site. (Hot tip to Moneycontrol, which did a recent price comparison.)

Paytm is gaining behavioral data by observing more of its users’ shopping transactions; Its not a headache to fulfill those orders. Walmart is the more reluctant evangelist. After all, the government’s open market won’t stop at ordering food or auto-rickshaw rides alone. Participating too enthusiastically could mean cannibalizing Flipkart, its core retail business. Which is probably why Walmart’s PhonePe payments arm has designed Pincode, a custom-built app for hyperlocal shopping. But Goyal hit it off and threatened to oust e-commerce companies that are not coming on the network with their core platforms.

I’m skeptical of ONDC, and not just because of its clunky nickname. (Luckily Millennials and Gen Z are being enticed by this acronym.) The word-of-mouth popularity is largely due to the Rs 50-per-transaction introductory discount that the banks backing ONDC are funding. Take that away, drop subsidies on delivery charges and end incentives to vendors, and this is where the dust is likely to settle – restaurants will get a slightly better deal from now on, prompting Swiggy and Zomato to reduce their commissions and improve service. Will have to be forced. There will be no revolution.

Aadhaar, the unique number used to digitally authenticate people’s identities, took off because the state put its coercive power behind it. Payment innovation succeeds because money enjoys one universal parity – demand deposits are instantly convertible into predetermined amounts of sovereign-issued cash, no questions asked. When that assurance comes under doubt, as during the recent US bank failure, officials take extraordinary steps.

However, everything is a little different except for money. Vegetables are available fresh in one shop and cheaper in the other. Wealthy customers buy the largest bottle of shampoo, while poor families buy the smaller sachets because that’s all they have. The everyday staples have proved challenging not only for pure e-commerce players but also for Mumbai tycoon Mukesh Ambani’s vast network of mom-and-pop stores. In a country of India’s size and diversity, it is very difficult to organize the supply chain so well that what the consumer wants is available in the neighborhood shop.

In theory, the idea of ​​breaking into e-commerce sounds good. One set of apps may let buyers search for products, another may allow sellers to upload their inventory and enable logistics players to offer their services. As one participant in the ONDC experiment told me, the democratization that Nilekani is calling for may eventually lead to a “Third Front” role in Indian politics. The country’s two major political organizations, the ruling Bharatiya Janata Party and its main opposition party, the Congress, can never rule out an alliance of regional groups, however improbable. It acts as a check on the behavior of the political system. ONDC will not replace Amazon and Walmart, but will improve the consumer’s bargaining position as a third actor and unlike the zero-sum game of politics, there may be an opportunity to expand the market here.

Big businesses can tap the potential first. The India unit of Unilever Plc or ITC Ltd, the tobacco giant that sells everything from wheat flour and soap to paper and hotel rooms, could add its brands to ONDC’s so-called seller app. Their products already enjoy consumer trust. Becoming discoverable outside of the top e-commerce platforms means adding distribution channels. Over time, the benefits may diminish. Some hyperlocal enterprises will gain customers, and some artisans’ popularity will extend beyond their immediate domain. But this will not address the real constraint on e-commerce in India, the lack of purchasing power at the bottom of the economic pyramid.

When you open a service, you reintroduce all the wrinkles someone made it their business to remove: wrong shirt size, cold food, smelly ride, no returns, no refunds — and nobody should blame Twitter except for one nonprofit. Ahead of religious festivals, algorithms on India’s popular e-commerce platform are on high alert for spikes in orders for “ornamental” swords. They could be used to trigger riots, seriously denting the coveted capital of giants like Amazon and Walmart. Will ONDC be equipped to handle this bewildering gamut of complexity?

It is fine for the government to promote ONDCs, but it should ask how forcefully it wants to do it and for what purpose. If the open, free market can do everything, why do we still have for-profit organizations? That question, asked by Nobel Prize-winning economist Ronald Coase in his 1937 paper, “The Nature of the Firm,” remains alive despite digitization’s reduction in transaction costs. Of the 11,000 ONDC orders on April 30, as of 10,000. Moneycontrol has reported that MagicPin, an Indian startup, was affected in some way. It’s still early days, but even with open markets there is no escaping the winner-takes-all phenomenon. For all the hype around cheap food, Nilekani’s democratization of commerce may prove to be a nothingburger.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Prior to this, he worked for Reuters, The Straits Times and Bloomberg News.