Amid questions being asked about the source of funds for discounts and incentives on Open Network for Digital Commerce (ONDC), the network’s chief executive officer told Moneycontrol that no government money is being used for such purposes.
“ONDC, as the network orchestrator, has introduced certain limited interventions and incentives for a limited period to jumpstart the network and to support broad-based adoption. This support being given to the network participants is from ONDC's funds. None of these incentives provided by ONDC are from the government budget,” said ONDC CEO T Koshy.
ONDC's own funds essentially comprise the Rs 180 crore that was raised from 19 banks and financial institutions. The government has not put in any money since ONDC was established as a company in late 2021. The only time that any taxpayer money was utilised had been at the stage when ONDC was being planned as a project under the Quality Council of India.
"In the platform-centric model that is prevalent today, the platform normally decides on the schemes, and incentives for the buyers and the conditions and cost for the merchants to participate in these schemes. In the open network world of ONDC, the users have the leverage,” Koshy told Moneycontrol.
“The sellers and seller platforms evolve their own schemes and incentive programmes without any need for approval from the buyer platforms. Similarly, the buyer platforms can decide their own incentives to stimulate their buyer base and there is no compulsion to participate in these schemes by the sellers. Everything is market-driven," he added.
Self sustainable model
As reported by Moneycontrol last year, it is expected that as the volume of orders picks up, ONDC may start charging a very small fee to ensure that it is a self-sustainable entity eventually. With ONDC being a not-for-profit entity with no dividend or listing expectation and with no central platform to maintain, this is expected to be minimal.
A raft of discounts and incentives is creating a lot of buzz on social media, which has pushed ONDC’s daily order volumes up 2.5X, from 10,000 to 25,000 orders in a span of a few days. This led people to question whether ONDC would kill the duopoly of Swiggy and Zomato, the two companies that control over 90 percent of India's $5-billion food delivery market.
Koshy said that ONDC and its network participants are continuously designing new schemes and incentives, while revising older ones.
For example, a guidance issued on May 7 aims to make the incentives broad-based and not lead to few network participants or sellers being the beneficiaries of the entire support. Accordingly, the total benefit per seller app is capped at Rs 2,25,000 and also has a sub-limit of Rs 3,750 per seller and Rs 75 per order.
Subject to this limit the seller apps may decide to spread this among orders in the most appropriate manner. For example, if a seller chooses to give a Rs 15 logistics incentive rather than Rs 75, then they can spread it out over 5 times the number of orders.
Marketing campaigns
“ONDC is also planning a scheme with SIDBI wherein the bank will give its employees Rs 10,000 each to spend on artisans and small merchants onboarded by it on the network. We are chalking out similar plans with other network participants and companies to give a boost to the network via coupons given to employees for spending on ONDC,” said Koshy.
“In addition to this, some of the buyer apps, seller apps, and sellers have also introduced incentives as they believe in the potential of ONDC and want faster adoption of this global-first vision of Prime Minister Narendra Modi for the democratisation of digital commerce,” he added.
Meanwhile, industry watchers have pointed out that the growth has been fuelled by a large amount of discounts and influencer marketing campaigns that players like Zomato and Swiggy typically indulge in.
In several cases, buyers have been surprised to find that the bill payable on ONDC for a particular food item from some restaurants could be as much as 30-40 percent lower than Zomato and Swiggy.
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