ONDC's growth slows to 5% in August amid reduction of cash incentives

On-network logistics transactions for orders continued its surge in August, growing 20 percent month-on-month to hit 1.7 million

Open Network for Digital Commerce (ONDC) recorded a 5 percent month-on-month growth in transactions in August to 12.58 million, compared to a 21 percent surge in July, amid a tightening of cash incentives for mature segments like food and grocery by the government-backed interoperable network.

Out of the total, 4.74 million transactions were in the mobility category through Uber, Ola challenger Namma Yatri and the rest 7.84 million were in the non-mobility category, which included retail purchases made by consumers and on-network logistics transactions to deliver those orders.

Until a few months back, most of the orders placed on ONDC were delivered by sellers off the network. However, this has changed rapidly as logistics services provided on the network by companies like Ola, Loadshare, Pidge, and Shadowfax have ramped up the offering in the past few months. On-network logistics transactions for orders continued its surge in August, growing 20 percent month-on-month to 1.7 million.

While the number of orders in the grocery segment had surged 61 percent in July, its contracted 11 percent to 1.28 million orders in August. The volume of food and beverage orders rose 12.5 percent month-on-month to 1.89 million.

Fashion contributed 650,000 transactions in August, home and kitchen accounted for 570,000, and the balance 1.75 million orders were cumulatively from other categories like gift cards and electronics.

Over the past year-and-a-half, multiple new-age companies such as Paytm, Ola, PhonePe, Meesho, Magicpin and Shiprocket have taken to ONDC, aimed at breaking the stranglehold of a few players such as Amazon, Flipkart, Zomato and Swiggy on online retail in the country.

With ONDC, the government hopes to increase e-commerce penetration in the country to 25 percent in the next couple of years, reaching a gross merchandise value of $48 billion.

Amid the retail category’s fast growth, ONDC has announced a phased reduction of up to 75 percent in financial incentives for network participants by the September quarter. Network participants have also been advised against adjusting the incentive payouts against their goods and services tax calculation.

The network has been giving financial incentives to network players depending on order volumes and categories. This money is in turn used to fund discounts and offers for customers to promote rapid adoption of the government-backed network.

The new incentive structure has also reduced the maximum monthly limit of incentives that can be availed of by a player to Rs 2.5 crore from Rs 3 crore earlier. In addition, it has also designated a quarterly limit of Rs 6 crore.

In the new structure, the highest drop in incentives is for the food and beverages (F&B) and grocery categories which together make up a large share of the network’s monthly retail order volumes at present.