1. Group wants new order on MGNREGA workers revoked
Rule mandates recording attendance on a mobile app
The Union Rural Development Ministry must withdraw its order to discontinue manual attendance for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) work sites with more than 20 workers and use a mobile phone-based application, National Mobile Monitoring Software (NMMS), for recording attendance, the Peoples Action For Employment Guarantee (PAEG), a group of academics and activists working in the field, says.
The PAEG, in a recent letter to Secretary, Rural Development, N.N. Sinha, said that the Ministry’s May 13 order is in violation of the NREGA law and also flagged a series of technical and sociological issues with the app.
Section 15 – Schedule 1 that lays down rules about the muster rolls — clearly says that the muster roll must be accessible to the workers on demand all days during all working hours. If the muster roll is available only digitally, access will be limited.
The app specifies that it is mandatory for workers to upload two time-stamped photos within a pre-determined time window designed by the app.
“This is in direct contravention of Section 3 of the Act which clearly states that workers are entitled to their wages on the basis of work completed by them that is on a piece rate basis,” the letter states.
The app discourages women from being mates which fundamentally undermines the Ministry’s own repeated push towards encouraging women workers as NREGA mates.
“Having a smartphone is now mandatory for mates to record attendance on the NMMS. However, many women from poorer households do not have access to smartphones. Even amongst families that have smartphones, it is an accepted reality that women are the last ones to access them as per priority,” the letter says.
The app has been designed completely in English and there is no technical help provided to redress problems. In case of a glitch, the workers who come to sites are told to go back, since attendance cannot be registered. This, PAEG said, is a violation of rights.
In 1991, the P.V Narashima Rao government proposed a pilot scheme for generating employment in rural areas with the following goals:
- Employment Generation for agricultural labour during the lean season.
- Infrastructure Development
- Enhanced Food Security
This scheme was called the Employment Assurance Scheme which later evolved into the MGNREGA after the merger with the Food for Work Programme in the early 2000s.
Objectives of MGNREGA:
The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has the following objectives:
- Provide 100 days of guaranteed wage employment to rural unskilled labour
- Increase economic security
- Decrease migration of labour from rural to urban areas
MGNREGA differentiates itself from earlier welfare schemes by taking a grassroots-driven approach to employment generation. The programs under the act are demand-driven and provide legal provisions for appeal in the case, work is not provided or payments are delayed. The scheme is funded by the central government which bears the full cost of unskilled labour and 75% of the cost of material for works undertaken under this law. The central and state governments audit the works undertaken under this act through annual reports prepared by CEGC (Central Employment Guarantee Council) and the SEGC (State Employment Guarantee Councils). These reports have to be presented by the incumbent government in the legislature.
A few salient features of the scheme are:
- It gives a significant amount of control to the Gram Panchayats for managing public works, strengthening Panchayati Raj Institutions. Gram Sabhas are free to accept or reject recommendations from Intermediate and District Panchayats.
- It incorporates accountability in its operational guidelines and ensures compliance and transparency at all levels.
Ever since the scheme was implemented, the number of jobs has increased by 240% in the past 10 years. The scheme has been successful in enhancing economic empowerment in rural India and helping overcome the exploitation of labour. The scheme has also diminished wage volatility and the gender pay gap in labour. This can be substantiated the by the following data available at the official site of MGNREGA:
- 14.88 crores MGNREGA job cards have been issued (Active Job Cards – 9.3 crores)
- 28.83 crores workers who gained employed under MGNREGA (2020-21) out of which active workers are 14.49 crores.
Role of Gram Sabha in MGNREGS
- It lists down the works priority-wise w.r.t the potential of the local area
- It monitors the work executed within the Gram Panchayat
- It acts as the primary forum for the social audits
- It also works as a platform to resolve all workers’ queries related to any MGNREGA work
Role of Gram Panchayat in MGNREGS
- It is authorized with the role to receive the job applications
- After receiving the applications, it is responsible to verify them
- All household are registered by the Gram Panchayat
- The MGNREGS job cards are issued by the Gram Panchayat
- It is responsible to allot work within 15 days from the application submission
- It prepares an annual report that covers the achievement of the scheme
- It holds Rozgar Diwas at every ward once a month
Role of State Governments in MGNREGS
The important roles of the state government in executing the MGNREGA scheme are:
- It frames rules charting out state’s responsibility under the act.
- It sets up the State Employment Guarantee Council.
- State Employment Guarantee Fund (SEGF) is established by state governments.
- It makes sure to dedicate Employment Guarantee Assistant (Gram Rozgar Sahayak), the PO and the staff at State, district, cluster and Gram Panchayat level; for the execution of the scheme.
MGNREGA – State Employment Guarantee Council (SEGC)
The State Employment Guarantee Council is responsible to advise state government for the implementation of the MGNREG scheme. Some important functions of SEGC under MNREGS are:
- The suggestion of improvements in the execution of the scheme.
- Evaluation and monitoring of the scheme.
- To recommend proposals of the works to the central government.
- To aware the districts about the scheme and its features.
- To prepare an annual report to be submitted by the state government before the state legislature.
This law and the employment guarantee schemes which are part of its provisions are important from the IAS exam point of view. UPSC aspirants should read about this government scheme in detail as questions related to this topic are asked in the Prelims exam and in General Studies paper II. The questions for government schemes like MGNREGA are classified under Welfare schemes, and the topic has a significant overlap with topics like human development, poverty, and hunger.
2. Govt. said to aim to keep deficit at 6.7%
Centre to miss Budget deficit goal of 6.4%, will seek to cap fiscal slippage within last year’s level: officials
India’s government will not be able to cut its budget deficit this fiscal year as previously projected, officials said, but will seek to cap the shortfall at last year’s level to prevent a major deterioration in public finances.
Efforts to maintain fiscal discipline reflect New Delhi’s concern around risks to its sovereign credit rating but will likely limit the government’s firepower to check inflation and provide relief to households and businesses.
In February, the government set a fiscal deficit target of 6.4% of GDP for the year to March 2023, compared with a deficit of 6.7% in the last financial year.
The sources said that while increased spending to provide relief from inflation meant the government would miss this year’s target, policymakers would seek to limit the deviation to 30 basis points.
“We will try to contain the slippage to last year’s levels,” one of the officials, who declined to be identified, told Reuters.
Surging costs forced India in May to cut fuel taxes and change duty structures, hitting revenues by about $19.16 billion, while added fertiliser subsidies lifted expenditure.
The government and central bank have scrambled to contain prices through fiscal measures and monetary tightening after inflation jumped to multi-year highs.
Risks of slippage
The government is wary of the risks fiscal slippage poses to its sovereign credit ratings. Its debt to GDP ratio, which stands at about 95%, is significantly higher than the 60-70% levels for other, similarly rated economies.
That leaves the government little room to provide additional relief, as the May measures are already expected to drive up the deficit by more than 30 basis points if revenue collection does not exceed the budget target.
“The government can definitely do more but at what cost? If more steps are taken, it will require additional market borrowing and that will drive up yields and eventually cause higher inflation,” said a second source who is aware of the discussions.
The government is reluctant to expand its record market borrowing programme of ₹14.31 lakh crore this fiscal, both officials said.
“From here on, monetary policy will bear the larger burden of initiating inflation-growth corrective balance,” said Shubhada Rao, senior economist and founder of QuantEco Research. “The first quarter has been good in terms of tax collection, but… the excise cut could neutralise it,” she added.
The fiscal deficit is the difference between the government’s total expenditure and its total receipts (excluding borrowing). A fiscal deficit occurs when this expenditure exceeds the revenue generated.
- Fiscal deficit is when a government’s total expenditures exceed the revenue that it generates (excluding money from borrowings).
- The deficit does not mean debt, which is an addition of annual deficits.
What is the Formula of Fiscal Deficit?
Fiscal Deficit = Total Expenditure (Revenue Expenditure + Capital Expenditure) – (Revenue Receipts + Recoveries of Loans + Other Capital Receipts (all Revenue and Capital Receipts except loans taken))
- Gross Fiscal Deficit (GFD) of the government is the surplus of its total expenditure, current and capital, as well as loans net of recovery, above revenue receipts (including external grants) and non-debt capital receipts.
- A fiscal deficit happens because of events like a major increase in capital expenditure or due to revenue deficit.
- Capital expenditure is incurred to create long-term assets like buildings, factories, infrastructure development, etc.
- Fiscal deficit serves as an indicator of how well the government is managing its finances.
- A recurring high fiscal deficit implies that the government has been spending beyond its means.
- However, the fiscal deficit is seen in almost every economy while the fiscal surplus is quite rare. The high fiscal deficit is not always a negative thing if the amount is utilised for constructing roads, airports, infrastructure, etc. since these will generate revenue in the long run.
- Fiscal Consolidation refers to the policies undertaken by governments (national and sub-national levels) to reduce their deficits and accumulation of debt stock. Read all about fiscal consolidation in the linked article.
Fiscal Deficit Calculation
Fiscal deficit is arrived at by calculating the difference between the total expenditures incurred by the government in a fiscal year and the total revenue obtained by it.
Fiscal deficit = Total Expenditure – Total Revenue (excluding the borrowings)
The fiscal deficit is usually expressed as a percentage of GDP.
Components of Fiscal Deficit
The two components of the fiscal deficit are income and expenditure.
- Income: the total income generated by the government can be divided into:
- Tax revenue: GST, customs duties, corporate tax, etc.
- Non-tax revenue: dividends and profits, interest receipts, etc.
- Expenditure: this includes capital expenditure, revenue expenditure, grants for capital assets creation, interest payments, etc.
How is Fiscal Deficit Financed?
There are two sources to finance the fiscal deficit. They are:
- Borrowings: internally from a commercial bank, or from external sources like the IMF, other governments, etc.
- Deficit financing (that is, printing new currency): borrowing funds from RBI against its securities (so, RBI prints new currency).
The government meets the fiscal deficit by borrowing so, it can be said that the total borrowing requirements of a government in a year is equal to the fiscal deficit of that year.
India’s Fiscal Policy Framework
Here are some interesting facts about India’s fiscal policy agenda:
- The Indian Constitution has provided directives for the formation of a Finance Commission (FC) every five years.
- This is to provide the basis for the assignment of some of the centre’s revenues to the state governments and provide medium-term direction on fiscal matters, as the taxing capacity of the states are not necessarily proportionate with their spending responsibilities.
- The Union Budget where the government shall put before the Parliament an account of its proposed taxing and spending provisions for legislative debate and approval is also an important part of fiscal policy.
- The Fiscal Responsibility and Budget Management Act (FRBM) 2003 is an Act concerned with fiscal discipline.
Difference between Fiscal Deficit and Revenue Deficit
3. Editorial-1: Majoritarian politics, Muslim marginality
It raises questions about the new notions of representation in political life and the future of pluralism in India
India is a country of incredible religious, ethnic, and linguistic diversity. Muslims form an important part of that mosaic which would be incomplete without them. Muslim communities themselves are ‘diverse, with differences in language, ethnicity, and access to political and economic power’. But, lately, they have faced discrimination regardless of their internal differences in employment, education and housing. Many lack access to health care and basic services. Above all, they often struggle to secure justice despite constitutional protections and equal citizenship guarantees.
The ruling party, its politics
In general, Muslims are under-represented in public institutions and representative bodies in India. While there have been improvements in the representation of most groups, for example, the percentage of backward caste Members of Parliament in the Hindi belt had nearly doubled from 11% in 1984 to more than 20% in the 1990s, Muslims continued to be under-represented in relation to the general population. Upper castes remain the most over-represented in the Lok Sabha with nearly 29% and Other Backward Classes 22% in 2019. Most importantly, there will be no Muslim Member of Parliament in the Bharatiya Janata Party (BJP) when the terms of three of its Muslim MPs in the Rajya Sabha ends in July. It did not nominate any Muslim member to the Rajya Sabha in the recently concluded elections to the Upper House to recompense for their absence in the party contingent in the Lok Sabha. This marks an unprecedented moment in the history of our democracy as for the first time the ruling party will have no Members of Parliament from the largest minority in the Lok Sabha or the Rajya Sabha, signalling their distance from political power and curtailing their opportunities of getting heard where it matters.
The BJP has no Muslim Members of the Legislative Assembly in the States either. This is a direct result of a political strategy first implemented in Gujarat of winning a majority without minority support. This strategy has been extended to other States, most strikingly to Uttar Pradesh in the 2017 and 2022 Assembly elections, where it won huge majorities with negligible minority support. Muslims have thus been pushed out of the system first by rendering them irrelevant electorally and then rendering them invisible in the public sphere owing to their electoral inconsequentiality.
The erosion of the secular
This raises questions about how inclusive India is to its large Muslim minority population. What is at stake however is not the question of representation of Muslims as much as a series of questions about the new notions of representation in political life and the future of pluralism — which is the bedrock of India’s democracy. Pluralism was a way of demonstrating that India’s democracy represented everyone and this gradually became the cornerstone of Indian political practice. However, the transformational changes in Indian politics in the last decade have eroded the secular and pluralist basis of the nation. The failure to keep creed out of politics, a major fault line of Indian democracy today, is changing the structure and basis of representation. It is worth remembering in this context that the Uttar Pradesh Chief Minister Yogi Adityanath had framed the 2022 Assembly election as an 80 per cent versus 20 per cent election, where the 20% group (a dog whistle for Muslims) represented supporters of mafias and criminals thus effectively delegitimising and derecognising a whole community.
The dominant template
This form of brazen majoritarian politics changes the very meaning of liberal democracy, reshaping it to provide expression through state power to the majority will while disregarding and excluding minorities. In these circumstances, parties that depend on the support of minorities too end up making them invisible in order to compete on somewhat similar grounds to fit into the dominant template. This approach denies the ‘legitimacy of political majorities forged with the aid of minority support or votes’. For this reason Rahul Gandhi was mocked and ridiculed for contesting from Wayanad in Kerala claiming that he has done so because it is a Muslim majority constituency.
As noted above, Muslims have remained under-represented in the legislative arena since Independence. The number of Muslim Members of Parliament has gone up marginally from 23 to 27 (roughly 4%), which is still very low compared to other groups. That modest increase took place even though the share of Muslims candidates decreased. Among the main parties, the overall number of Muslim candidates decreased, from 10.3% to 8%, the biggest decrease reported in State-based parties. The explanation for this cannot be found in the structural limitations of the first-past-the-post electoral system and the lack of winnability of Muslim candidates. It is political factors, that is to say the growth of majoritarian politics, that is aggravating the problem of under-representation. Over the last few years, majoritarian politics has changed the political landscape markedly in relation to Muslims. Hereafter, decline in representation is apparent in the States where majoritarian politics is a dominant force. In the event, most parties disregard their claims to tickets as they fear their rivals would accuse them of sacrificing the interests of the majority community. Hence, parties are busy reducing the tickets given to Muslims for fear of being branded anti-Hindu if they give fair representation to them or promote and protect their interests.
This trend directly relates to the privileging of the majority community and the ethnicisation of the state. It marks a shift from representative democracy based on inclusive politics in which everyone has equal rights, regardless of caste or creed, to an ethnic-majoritarian politics which treats accommodation of diversity as concessions to minorities at the expense of the majority community.
An instrument of protection
It is certainly not necessary or desirable for Muslim concerns to be represented by Muslims; in fact it is infinitely better for them to be represented by non-sectarian secular parties. But when parties are unwilling to stand up for them when they are explicitly subjected to hate speech or their constant targeting by the state is not countered or when institutions refuse to speak up for them when their homes and shops are illegally demolished and their livelihoods destroyed, then their presence in institutions matters. Instead of being understood as concession, political representation should be conceived of as an instrument of minority rights protection. The dwindling representation of Muslims in legislatures and public institutions matters also because substantive representation (of the interests of a group) is linked to descriptive representation (their numerical presence). The Indian experience shows that ‘access to institutions is a key element to obtaining the state’s attention. Interests tend to be better represented once a group has actual representation in public institutions’.
A litmus test
To conclude, diversity in public institutions is essential to promote stability and integration of the state as an institution of governance since an underlying premise of democracy is power sharing along multiple axes — religious, linguistic, regional, caste, tribal, etc. The extent to which ethnic or racial minorities are present in legislatures can be viewed as a litmus test for the effectiveness of a country’s democratic system and for redressing ethnic inequalities or addressing discrimination. At the same time it underlines the complexities of democratic politics with regard to the relationship between formal and substantive equality and the question of whether it is enough to give people formal equality, or whether there is a need also to address the structural obstacles that prevent certain groups from making full use of their equal rights, as said in a paper on ‘The Political Representation of Ethnic and Racial Minorities’, New South Wales Parliamentary Library. One thing is clear from recent Indian experience. Rights without participation in public institutions have been largely ineffective.
4. Editorial-2: A turning point for Ukraine and its women’s rights
Its ratifing the Istanbul Convention is also timely in the context of Russia’s invasion and Kyiv moving closer to Europe
The Ukrainian Parliament — the Verkhovna Rada — passed a Bill on June 20 ratifying the Council of Europe Convention on preventing and combating violence against women and domestic violence. Better known as the Istanbul Convention, it is the most far-reaching international treaty designed to set legally binding standards for governments in Europe for the prevention, protection, and prosecution of gender-based violence. According to official numbers, 259 deputies voted in favour of the bill, eight voted against it, 28 voted blank and 47 abstained.
It will make a difference
While the convention was first signed by Ukraine in 2011 — despite repeated calls from activists to ratify it — the government, for years, remained stubbornly mute on the subject and continued to delay its ratification because of opposition by religious and conservative groups over the term “gender” used in the document, as a recent article by Asami Terajima in the Kyiv Independent on Ukraine’s ratification makes clear. Ukraine in fact, came close to ratifying the convention in 2016 but failed after a majority in Parliament voted against it. As a result, until today, Ukraine was one of the 11 countries that had signed but never ratified the Istanbul Convention.
However, the government’s recent decision to ratify the convention is a huge step forward for the protection of women and girls from all forms of violence, whether in Ukraine or abroad, and could not be more timely for a number of reasons.
To begin with, the risk of women becoming victims of gender-based violence in Ukraine has increased immensely over the course of Russia’s eight-year war. In fact, the increasing number of reports that have emerged since the beginning of Russia’s invasion in late February 2022 only suggests that the Russian troops have been using rape and sexual violence as a weapon of war and instrument of terror to control civilians. These fears were further crystallised following Russian withdrawal from Bucha, when some nearly 20 women and girls were assaulted by forces in a basement, nine of whom became pregnant from the assault.
Although, the Russian authorities have denied alleged sexual abuse by their troops, the truth is that women in Ukraine have been disproportionately affected by the war. And as the tensions continue to rise, the risk of gender-based violence will also be heightened, with survivors suffering more severe levels of abuse. The prompt implementation of the convention could thus equip the Ukrainian authorities to deal with these atrocities and serve to reassure the survivors and provide them with the confidence to seek justice.
Besides, women’s rights activists in Ukraine have long been calling for changes — as highlighted in Ms. Terajima’s article — in legislation to ‘impose harsher forms of punishment against the offenders of gender violence. For instance, domestic violence has been an administrative offence in Ukraine since 2003, which is punishable by a fine, community work of up to 60 hours or by imprisonment of up to 15 days. Then in 2019, systematic domestic violence was criminalised, which in practice meant that criminal charges will only be imposed if the abuser commits three offences in a year’. However, these pieces of legislation and forms of punishment often fell short of what the victims anticipated as being fair prosecution, discouraging them and others to go through the process of seeking justice.
In this sense, the convention’s ratification will not only expand ‘the list of abuse against women punishable by law in Ukraine — including but not limited to psychological abuse, stalking, forced marriage, physical and sexual abuse, forced abortion, sterilisation’ — but also provide the authorities with the opportunity to bring about changes in its legislation and institutional procedures. In furtherance, it will also mean that Ukraine will be responsible for financing more shelters for women, training social workers to adequately handle cases of sexual violence, and increase resources of assistance available for victims.
Aiding EU integration
Apart from being a decisive step in the fight against gender-based violence, the adoption of the Istanbul Convention will also help in Ukraine’s European integration. Guaranteeing human rights is the most important aspect that is considered when European Union (EU) membership is being extended to a country. It has thus been crucial for Ukraine to demonstrate actions that will bring the country closer to European legislations and values. And a good way of doing this is through the ratification of the Istanbul Convention. The decision is in fact, of particular significance for the Netherlands and Sweden, two ‘sceptical’ countries that were initially blocking Ukraine’s candidate seat but have now eventually agreed to back EU member status for Ukraine.
The ratification, as Ms. Terajima’s article highlights, is thus, a big milestone for Ukraine and has been applauded by many institutions, including the United Nations Human Rights Council and the EU Commission on human rights in the hope that it will decrease both the number of gender-based violence and domestic violence cases. It will also bring Ukraine closer to other countries that have already ratified the convention. However, an important thing to keep in mind is the fact that the proper implementation of the convention will require financial resources, which seems like a challenging goal for a country already facing economic downfall due to the Russian invasion.
5. Editorial-3: The problems plaguing thermal power generators
With a coal-supply demand gap, and international coal prices rising, cash-strapped thermal power generators are left with critical stocks
On June 10, India’s power demand touched a record high of 211 MW even as the coal shortage continued with coal stocks available only for eight days. In the last two months, as temperatures soared and the economy recovered, the power demand breached the 200 MW level on several occasions. But the coal stock position at power plants remained worrisome. Consequently, the Ministry of Power sprang into action. To bridge the gap between shortage in domestic supply and increasing demand, power-generating companies or ‘gencos’ were directed to use imported coal for 10% of their requirement, failing which their domestic supplies would be cut.
How did India get here?
India is the second largest producer of coal, with reserves that could last up to 100 years. Despite that, year after year, the shortage of coal supplies continues to be an issue. Why does India have a recurring power crisis? As seen in chart 1, the domestic production of coal stagnated between FY18 and FY21, but revived in FY22. The power demand too surged owing to economic recovery and hotter weather conditions. In a press release published on May 27, the Ministry of Power noted that “despite efforts to increase the supply of domestic coal, there is still a gap between the requirement of coal and the supply of coal.”.
Until FY20, domestic sources contributed to about 90% of the power sector’s coal receipts; the remaining was filled by imports. But by FY22, the reliance on imports dwindled to 3.8% which built pressure on domestic supplies. As chart 2 shows, the coal imported by power plants declined to 27 MT in FY22 from 66.06 MT in FY17. Coal imported for blending purposes by power plants that run on indigenous coal declined to 8 MT in the last financial year, from 19.7 MT in FY17. Past data show that importing coal for blending has always seen few takers. A bulk of imports was made by power plants designed for imported coal. Notably, their share of imports too saw a decline of 60% in FY22 since FY17. Out of 15 such import-based power plants in India, five had little or no coal stock as of June 15.
This dip in imports can be attributed to the skyrocketing prices of coal in the international markets (chart 3). The price of imported coal is nearly 5-6 times higher than domestic supply. It is in this scenario that the Power Ministry asked the gencos to import coal. However, States are wary of using imported coal as it would raise the cost of power substantially. The shortfall in domestic supplies and the rising cost of imports have put power plants in a precarious situation (chart 4). About 79 of the 150 plants that depend on domestic coal had critical stocks (<25% of the required stock) as of June 15. Eight import-based coal plants were also at critical levels.
The use of imported coal will also push up the price of power supply to the power distribution companies or ‘Discoms,’ often dubbed as the weakest link in the power sector chain. Discoms owe long-standing dues to the tune of ₹1.16 lakh crore to the gencos. Delays in payments by discoms create a working capital crunch for generating companies which in turn inhibits them from procuring an adequate quantity of coal.
According to the 2019-20 report by the Power Finance Corporation, discoms had accumulated losses up to ₹5.07 lakh crore and were therefore unable to pay generators on time. Discoms in Tamil Nadu, Rajasthan and Uttar Pradesh are the most financially stressed (see chart 5).
Discoms are bleeding because the revenue they generate is much lower than their costs. This is evident from the gap between the average cost of supply and average revenue realised (see chart 6). Tamil Nadu, Jammu and Kashmir, and Rajasthan have the widest gap between revenues and expenses of discoms. Apart from providing power at cheaper rates, some State governments do not revise tariffs periodically. Further, the delay in getting compensation from the government also compounds the woes of cash-strapped discoms.
6. Open network for digital commerce
What is ONDC and how will it change e-commerce platforms? How will the ONDC network aid online applications?
ONDC is a not-for-profit organisation that will offer a network to enable local digital commerce stores across industries to be discovered and engaged by any network-enabled applications.
The ONDC model is trying to replicate the success of the Unified Payments Interface (UPI) in the field of digital payments.
Over the next five years, the ONDC expects to bring on board 90 crore users and 12 lakh sellers on the network, enabling 730 crore additional purchases.
The story so far: The government of India announced the launch of the pilot phase of open network for digital commerce (ONDC) in five cities in late April with an aim to “democratise” the country’s fast growing digital e-commerce space that is currently dominated by the two U.S.-headquartered firms — Amazon and Walmart. The announcement was made by Commerce and Industry Minister Piyush Goyal. “After UPI, another game changing idea to democratise commerce — ONDC soft launch today to select consumers, sellers and logistics providers. Get ready for a world of choice, convenience and transparency,” Mr Goyal had tweeted.
What is ONDC?
As per the strategy paper on ONDC, it is a not-for-profit organisation that will offer a network to enable local digital commerce stores across industries to be discovered and engaged by any network-enabled applications. It is neither an aggregator application nor a hosting platform, and all existing digital commerce applications and platforms can voluntarily choose to adopt and be a part of the ONDC network.
The ONDC aims to enable buying of products from all participating e-commerce platforms by consumers through a single platform. Currently, a buyer needs to go to Amazon, for example, to buy a product from a seller on Amazon. Under ONDC, it is envisaged that a buyer registered on one participating e-commerce site (for example, Amazon) may purchase goods from a seller on another participating e-commerce site (for example, Flipkart).
The ONDC model is trying to replicate the success of the Unified Payments Interface (UPI) in the field of digital payments. UPI allows people to send or receive money irrespective of the payment platforms they are registered on. The open network concept also extends beyond the retail sector, to any digital commerce domains including wholesale, mobility, food delivery, logistics, travel, urban services, etc.
What led to formation of ONDC?
The Department for Promotion of Industry and Internal Trade (DPIIT), under Ministry of Commerce and Industries, conducted an outreach during the outbreak of the COVID-19 pandemic to understand its impact on small sellers and hyperlocal supply chain functioning. Post which, it found that there is a huge disconnect between the scale of online demand and the ability of the local retail ecosystem to participate. Following this, consultations were held with multiple ministries and industry experts and “ONDC was envisioned to revolutionise digital commerce in India,” as per the strategy paper.
The paper added that ONDC has been envisaged as an entity which should be able to work without the need for day-to-day guidance and advisory from the shareholders/members. The independence of the management is linked to the financial independence of the entity, and therefore, the entity will be required to get funding independently and have a self-sustaining financial model.
What is the current status?
Presently, ONDC is in its pilot stage in five cities — Delhi NCR, Bengaluru, Bhopal, Shillong and Coimbatore — with a target of onboarding around 150 retailers.
The government has also constituted an advisory council to analyse the potential of ONDC as a concept and to advise the government on measures needed to accelerate its adoption. Its members include Nandan M. Nilekani, Non- Executive Chairman, Infosys; R.S. Sharma, CEO, National Health Authority; Dilip Asbe, Managing Director and CEO, NPCI; Anjali Bansal Founder and Chairperson, Avaana Capital; Suresh Sethi, Managing Director and CEO, Protean eGov Technologies Ltd.; Arvind Gupta Co-Founder & Head, Digital India Foundation; Kumar Rajagopalan CEO, Retailers Association of India; Adil Zainulbhai Chairman, Quality Council of India and Capacity Building Commission; and Anil Agrawal, Additional Secretary, Department for Promotion of Industry and Internal Trade.
Over the next five years, the ONDC expects to bring on board 90 crore users and 12 lakh sellers on the network, enabling 730 crore additional purchases and an additional gross merchandising value (GMV) of ₹3.75 crore. The GMV for the digital commerce retail market in India was ₹2.85 lakh crore ($38 billion) in 2020, which is only 4.3% of the total retail GMV in India.
What are the likely benefits of ONDC
The ONDC will standardise operations like cataloguing, inventory management, order management and order fulfilment, hence making it simpler and easier for small businesses to be discoverable over network and conduct business.
However, experts have pointed out some likely potential issues such as getting enough number of e-commerce platforms to sign up, along with issues related to customer service and payment integration.