Analyzing the Impact of ONDC’s 9.95 Million Transactions in June on Retail Category Growth

The Open Network for Digital Commerce (ONDC) experienced a 12% month-on-month growth in transactions in June, reaching 9.95 million, up from 8.9 million in May. This increase was primarily driven by a surge in retail category purchases, according to sources close to the developments.

Of the total transactions, 3.94 million were in the mobility category via the Namma Yatri platform, while approximately 6.01 million were retail purchases made by consumers on the government-backed network.

The retail category has seen rapid growth in the first six months of 2024, with companies like Ola, Paytm, and Magicpin accelerating their efforts. In comparison, retail orders on ONDC in December 2023 were 2.1 million, indicating that monthly purchases have nearly tripled over the past six months.

In June, food orders grew by 40% month-on-month to 1.4 million. However, grocery orders declined from 1.02 million to 870,000, and fashion orders fell from 630,000 to 580,000. The remaining orders came from smaller segments like beauty and personal care, electronics, and gift cards.

Overall, the retail category’s growth was 20% month-on-month, rising from 5 million in May. Consequently, the food segment’s contribution to the retail category slightly increased from 20% in May to 23% in June.

Meanwhile, the mobility category’s growth has somewhat stagnated in the first half of 2024, as established players like Ola and Uber started experimenting with a similar subscription model for drivers that Namma Yatri had initiated. The mobility category on ONDC had recorded 3.5 million transactions in the last months of 2023.

ONDC’s Report Card and Upcoming Changes

Over the past 18 months, several new-age companies such as Paytm, Ola, PhonePe,

Meesho, Magicpin, and Shiprocket have joined ONDC, aiming to disrupt the dominance of a few major players like Amazon, Flipkart, Zomato, and Swiggy in India’s online retail sector.

The government aims to increase e-commerce penetration in the country to 25% within the next few years, targeting a gross merchandise value of $48 billion through ONDC.

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

The network has been offering financial incentives to players based on order volumes and categories. This money is used to fund discounts and offers for customers, promoting rapid adoption of the government-backed network.

The new incentive structure has reduced the maximum monthly limit of incentives that can be availed by a player from Rs 3 crore to Rs 2.5 crore, and a new quarterly limit of Rs 6 crore has been set.

The highest drop in incentives is for the food & beverages (F&B) and grocery categories, which together constitute about 40% of the network’s monthly retail order volumes at present.

For instance, a buyer app that processed 10,000 monthly orders in the F&B category in the

June quarter would have received an incentive of Rs 70 per order. This will be reduced to Rs 42 in July, Rs 32 in August, and Rs 21 in September, translating to a 70% reduction by the end of the ongoing quarter.

Similarly, a buyer app processing 10,000 monthly orders in the grocery category in the June quarter would have been eligible for a subsidy of Rs 65 per order. This will decrease to Rs 39 in July, Rs 29 in August, and Rs 20 in September, amounting to a 75% reduction by the end of the quarter.

For non-food and grocery categories like fashion, home decor, and electronics, the decrease in incentives will be slightly lower, ranging from 40-60% under different scenarios.