ONDC to cut its discount funding by up to 75%; advises against GST adjustment

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

The Open Network for Digital Commerce (ONDC) plans a phased reduction of up to 75 percent in financial incentives at the per order level 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.

ONDC 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.

Last week, it sent a memo to its network participants, which include companies like Paytm, PhonePe, Ola, Snapdeal and Magicpin, about its new incentive structure that is applicable from July to September.

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.

Moneycontrol has reviewed a copy of the letter detailing the revised incentive scheme.

“The Buyer apps are free to structure the pricing interventions but shall not adjust these for the purpose of tax calculation, especially GST. Thus, GST shall be computed by each participant in the transaction at the gross value i.e. value without adjusting such transaction level discounts, cart level discounts, subsidised delivery etc.,” ONDC said in the letter.

Network participants on ONDC are categorised as buyer apps which are consumer facing platforms, seller apps that onboard and showcase merchants on the network, and logistics participants that transport goods from sellers to buyers.

Reduction of discounts

In the new structure, the highest drop in incentives is for the food & beverages (F&B) and grocery categories which together make up about 40 percent of the network’s monthly retail order volumes at present.

For example, a buyer app that did 10,000 monthly orders in the F&B category in the June quarter would have received an incentive of Rs 70 per order. This is being rapidly brought down to Rs 42 in July, Rs 32 in August and Rs 21 in September — which translates to a 70 percent drop by the end of the ongoing quarter.

Similarly, a buyer app that did 10,000 monthly orders in the grocery category in the June quarter would be eligible to get a subsidy of Rs 65 per order. This is to be decreased to Rs 39 in July, Rs 29 in August and Rs 20 in September — which means a drop of 75 percent at the end of the quarter.

For non-food and grocery categories like fashion, home decor and electronics, the decrease in incentives is a bit lower i.e. 40-60 percent under different scenarios.

However, the new scheme also specifies different top-up incentives if the players cross certain volume thresholds during a month. But, these amounts are small and amount to between Rs 2 and Rs 5 per order under different scenarios.

ONDC is estimated to have logged almost 10 million transactions — including mobility and retail — in June, representing a 5x growth year-on-year.

There has been a significant change in the makeup of ONDC’s retail category transactions over the past few months as the share of food delivery orders has been consistently falling, while other categories such as grocery, fashion, home and kitchen have seen an uptick.

All eyes on ONDC

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.

Large corporate houses and philanthropic organisations such as Nasscom Foundation, JSW Foundation etc. are volunteering to build various parts of the ONDC ecosystem by imparting vocational training, building robust and easy to use technology stacks, providing on ground hand holding support etc. as their strategic priorities.

They are also working around to leverage their CSR muscles to deploy required capital investments for the network. Last year, Hindustan Unilever, the country’s largest packaged consumer goods firm, had committed to help onboard 1.3 million kirana stores on the central government’s ONDC network.

Meanwhile, the Bill and Melinda Gates Foundation has partnered with ONDC to empower 1 million women entrepreneurs to help them leverage the ONDC network and enhance their earning potential by more than 25 percent.