Why's ONDC Eyeing More Funding Despite The Discounts And Incentives?

Open Network for Digital Commerce (ONDC), a government-supported e-commerce network, is reportedly seeking additional funding, as per a report by the Economic Times.

What Happened? According to the report, ONDC, an integral part of India’s digital public infrastructure, India Stack, is currently in talks with potential new investors as well as existing ones. The network had previously secured ₹180 crore in the fiscal year 2021-22 from a diverse group of sources, including banks, stock exchanges, and government bodies like SIDBI and NABARD.

The upcoming funding round could potentially be in the ballpark of a “few hundred crores”, although the precise amount remains unconfirmed. This news surfaces amidst growing concerns regarding ONDC’s escalating cash burn rate.

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ONDC launched in 2022 to revolutionize India’s e-commerce sector. Despite facing challenges in scaling, the network has been offering a variety of incentives to increase volumes. Recently, ONDC announced new incentives of up to ₹100 per order on food, beverages, and grocery sales, and ₹75 for categories such as fashion, beauty, and electronics.

Despite consistent support from government officials and these incentive efforts, ONDC has not yet achieved widespread adoption. However, its mobility business, largely driven by Juspay, is witnessing growth, with major brands like Red Bull, Coca Cola, and Domino's joining the ONDC platform in recent months.

Why It Matters? As ONDC continues to deplete its funds to compete with venture-capital-backed e-commerce behemoths, the sustainability of this strategy is being questioned. The network’s high burn rate and struggles with scaling are significant concerns, especially given the competitive nature of the e-commerce sector. The outcome of the upcoming funding round will be crucial in determining ONDC’s future trajectory and its ability to compete in this rapidly evolving market.

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