One of the key elements of The Economist’s last month’s cover story on India titled ‘India’s Moment’ was the national “tech stack”. The article said “As the country emerges from the pandemic, however, a new pattern of growth is visible. It is unlike anything you have seen before. An indigenous tech effort is key. As the cost of technology has dropped, India has rolled out a national “tech stack”: a set of state-sponsored digital services that link ordinary Indians with an electronic identity, payments and tax systems, and bank accounts. The rapid adoption of these platforms is forcing a vast, inefficient, informal cash economy into the 21st century.”
In particular, India’s growth in digital payments has been nothing short of spectacular, thanks to the government’s Unified Payments Interface (UPI) which is now the world’s largest digital payments ecosystem. Based on the unique digital identity platform – AADHAAR, UPI has helped India see the fastest fintech adoption rate in the world. India now intends to build on this with a public stack for e-commerce as well. This piece authored by Nandan Nilekani, the founder and chairman of Infosys, India’s second largest IT company and more importantly credited for the creation of Aadhaar and V. Anantha Nageswaran, currently the Chief Economic Advisor to the Govt of India, helps us understand what Open Network for Digital Commerce (ONDC) is all about.
“The idea of ONDC was conceived and has been widely discussed since April 2020, soon after the first wave of covid, when ensuring essential supplies across containment zones was found to be a challenge and a need was felt to alter the current digital commerce approach of “scaling what works” to a new approach of “what works at scale”.
ONDC is a globally first-of-its-kind initiative that aims to democratize digital commerce, moving it from a platform-centric model (where the buyer and seller must use the same platform or application to be digitally visible and do a business transaction) to an open network. It is based on open-sourced methodology, using open specifications and open network protocols, and is independent of any specific platform. ONDC is expected to digitize the entire value chain, standardize operations (like cataloguing, inventory management, order management and order fulfilment), promote the inclusion of suppliers, derive efficiency in logistics, and enhance value for consumers.
This platform envisages equal-opportunity participation and is expected to make e-commerce more inclusive and accessible for consumers as they can potentially discover any seller, product or service by using any compatible application/platform, thus increasing their freedom of choice. It will enable consumers to match demand with the nearest available supply. It enables transactions of any denomination, thus making ONDC a truly ‘open network for democratic commerce’.
ONDC would enable small businesses to use any ONDC-compatible applications instead of being governed by specific platform-centric policies. This will provide multiple options to small businesses to acquire what’s needed to be discoverable over the network and conduct business, without having to pay deep cuts to aggregator platforms. It would also encourage easy adoption of digital means by those currently not on digital commerce networks.
It would be appropriate to say that India serves as a role model in the areas of both identity and payments. India has utilized a financial technology stack in which a unified, multi-layered set of public sector digital platforms combine to provide substantial benefits to the population, from promoting financial inclusion and increasing efficiency to enhancing financial stability. The framework balances consumer protection on one hand and support for market innovation on the other. Compliance with the Information Technology Act, 2000, and the emerging Personal Data Protection Bill are the next critical layers in the country’s financial technology stack which the advisory council on ONDC proposes to support.
India’s experience in public digitalization underscores the need for targeted government interventions to reduce friction and create a firm foundation for both the private and public sectors to build effective and sustainable solutions. The development of ONDC has been very contextual to Indian needs, designed for a diverse society with a wide continuum of digital skills and for solutions to specific local problems.
The initiative is uniquely Indian, for it caters to the existing reality of millions of small transactions even as it creates opportunities for micro, small and medium enterprises (MSMEs) to access technology and far-flung markets both domestically and overseas through it. At the same time, ONDC provides a technological platform to fulfil India’s aspirations to become a middle-income economy that is digitally savvy and wired. Finally, it offers a vital global template for the harnessing of technology for and as a public good at population scale in an inclusive and equitable way.”
Going by how UPI democratised the digital payments space, disintermediating the several private payment platforms, ONDC can be India’s way of curbing any potential for private e-commerce platform monopolies.
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
