Open Network for Digital Commerce

Context: 

The Union government is looking to formally launch the Open Network for Digital Commerce (ONDC) this year to democratise e-­commerce and to provide alternatives to proprietary e­commerce sites. 

• The pilot version of ONDC was launched last year in a few major cities.

Image Source: Moneycontrol

What is the ONDC? 

• ONDC is an interoperable network based on the BeckN protocol that anyone can piggyback on. 
• The ONDC entity, a not-for-profit company incorporated under Section 8 of the Companies Act 2013, manages and operates the ONDC Network.
• It is responsible for building and maintaining the underlying infrastructure (common registries and protocols) as well as defining the rules of engagement and code of conduct for the Network Participants through the ONDC Network Policy and the ONDC Network Participant Agreement.
• Seamless operations: It seeks to break down silos in digital commerce by enabling platforms of varying configurations (big or small) to connect and operate seamlessly on it.
• Network Participants: It comprises different entities called Network Participants, including Buyer Applications, Seller Applications, and Gateways that perform the search and discovery function
• Open ­network model: The government wants to change the fundamental structure of the e-­commerce market from the current platform­-centric model to an open ­network model. 

Similarity with Unified Payments Interface (UPI): 

• The ONDC is modelled after the Unified Payments Interface (UPI) project. The government wants to ensure that buyers and sellers of goods in the e­commerce market can transact regardless of the platforms on which they are registered. 
• Under ONDC, a buyer registered on Amazon, for example, may directly purchase goods from a seller who sells on Flipkart. 
• To make such transactions a reality, the government has ordered companies to list themselves on the ONDC. 

Funding of ONDC

• The ONDC entity was initially promoted by the Quality Council of India and Protean e-Gov Technologies Limited. 
• It has raised more than Rs 180 crore from multiple investors including private and public sector banks, depositories, development banks, and other financial institutions.

Significance of ONDC

• ONDC eliminates the need for buyers and sellers to use the same application, and promotes the discoverability of local digital stores across industries.
• The ONDC will put an end to the domination of the e­commerce market by a few large platforms. 
• Level playing field: 
  • ONDC’s network-centric approach levels the playing field by making goods and services equitably accessible to all and benefiting all participants in the ecosystem.
  • Amazon and Flipkart, for instance, have been accused of promoting certain seller entities in which they hold indirect stakes. 
  • Food delivery apps such as Swiggy and Zomato have also been accused of charging high commissions from sellers.
• Benefits to buyers: ONDC offers greater freedom of choice, reducing the overwhelming reliance on a single platform.
• Benefits to sellers: The network-centric approach of ONDC reduces the skewed bargaining power in favour of the platforms, which often results in higher entry barriers and lower margins for sellers.

Criticism 

• Critics argue that the purported benefits of an open network for digital commerce are far from certain at the moment. 
• Sellers are already free to list their products across various e­commerce platforms even in today’s platform centric e-­commerce model. Buyers also routinely shop across platforms. 
• There are also services such as price comparison that are offered by various private websites that bridge the information gap and help buyers make better decisions. 
• So, critics argue, the domination of the e­-commerce market by platforms such as Amazon and Flipkart may not be due to any captive hold that these platforms have over buyers and sellers. 
• The supposed monopoly that platforms are said to enjoy may be no different from the limited monopoly that any business today has over its property.

Government’s involvement in ONDC

• ONDC has been endorsed by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Union Ministry of Commerce and Industry. 
• DPIIT is not involved in ONDC’s funding, but is at the forefront of its evangelisation through light-touch governmental oversight.
• To ensure a market+community driven approach to decision-making, the board includes representatives from banks, the government, and independent industry and civil society members.
• User Council will be established comprising representatives from Network Participants and civil society. 
• It will provide regular guidance on various aspects of the network’s functioning and governance, serving as a liaison between Network Participants, Consumers, and the network.

News Source: Indian Express,  The Hindu