Open Network for Digital Commerce (ONDC)

India’s small and medium enterprises face several challenges in the current e-commerce landscape.
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Overview of ONDC

ECommerce in India is expected to grow at 20% Compound Annual Growth Rate (CAGR) and reach $350 billion by 2030, driven largely by a growing, smartphone-savvy, young population. However, India’s small and medium enterprises face several challenges in the current e-commerce landscape, such as high commission rates of e-commerce platforms, preferential treatment to the platform’s own sellers, and lack of transparency in price fluctuations and processes.

In order to bridge these gaps, the government has developed an Open Network for Digital Commerce (ONDC) that aims to create a level playing field for all players. The ONDC enables ecommerce in India to shift from a platform-centric model to an open network model, ensuring greater discoverability, transparency and interoperability between players. A product listed on any one platform (e.g. Myntra) would be discoverable and available for purchase from any other platform (e.g. Amazon, Flipkart), improving visibility and market reach for players. It also offers services like delivery and warehousing through listed B2B providers on the network to sellers who do not have integrated logistics and warehousing assistance (like Amazon and Flipkart).

Components of ONDC

The ONDC comprises of three core building blocks, (1) An open protocol, the Beckn protocol, which forms the technological foundation of the network to enhance discoverability for players; (2) the network’s participants, such as the buyers, sellers, and other providers, who are vital components, as their adoption implies the network’s success, and (3) regulatory guide rails that ensure network and data protection across participants.

Governance and Implementation

To regulate ecommerce in India, the government has set up the ONDC company, a private non-profit to facilitate the adoption, effective governance, conflict resolution, and technological advancement of the network. It is majorly owned by private companies ( 20 investors) who have committed over US$2.5 billion, according to the ONDC strategy paper released in January 2022. Additionally, the government has also set up an advisory council that includes industry experts from both the public and private domains to guide the government on the design and public adoption of the network.

The ONDC was piloted across four states in April 2022, bringing together select buyer- and seller-side applications to determine the network’s viability on the ground. Several players, both public and private, have partnered with the ONDC to deliver unique services leveraging one or more aspects of the network.

Challenges for ONDC

Existing grey areas in the ONDC’s strategy that needs to be addressed include clarity on accountability in product- or delivery-related issues, ways to compete with peers that offer hefty discounts, adoption of the revenue generation model for the network, the need for initial investments required of individual sellers.

Role of the philanthropic sector

The philanthropic sector can play a critical role in catalysing the adoption of and facilitating ease of business for the Micro, Small and Medium Enterprises (MSME) on the network, primarily through their potential to (a) foster innovation of inclusive applications such as low-data applications, simple user interfaces, and low-cost solutions for technology setup; (b) enable credit solutions for sellers through innovative financing methods such as a first-loss guarantee; (c) support the government in building guidelines, organising adoption campaigns, and schemes for MSMEs such as One District One Product (ODOP), and (d) create demand for products from small sellers.

Authors: Abhishek Modi, with support from Arnab Mukherjee, Pragati Keswani and Rythm Setia

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