The Open Network for Digital Commerce (ONDC) is an “ambitious and revolutionary initiative” but “various issues regarding operational strategy, fair competition, technical capability of MSMEs (Micro, Small and Medium Enterprises) to leverage the network and clarity in assigning liability is yet to be addressed,” the Parliamentary Standing Committee on Commerce said in its report on Promotion and Regulation of E-Commerce in India presented to the Rajya Sabha on June 16.
ONDC is a digital initiative supported by the Indian government to promote an open UPI-like architecture for the e-commerce industry. To give you a better idea: What if there’s a shopping app that shows you products not just from sellers on the app itself but also from sellers on other platforms like Amazon, Meesho, and even your local Kirana store. And as a seller, what if there’s an app that allows you to list your products on multiple platforms and also choose logistics and payment services independent of these platforms. Now, imagine many such apps and platforms not just for retail, but mobility, food delivery, hotel booking, and ticketing, and you will have a fair idea of what the ONDC is supposed to do.
Why does this matter? ONDC was first announced in 2020 and its implementation has picked up considerable pace in recent months with pilots involving various platforms being conducted in cities across the country. The Parliamentary Committee report, however, cautions that ONDC, as it is, does not address key issues like competition, which the government has touted as ONDC’s unique selling point as opposed to platforms like Amazon and Flipkart.
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What problem does the Committee report identify with ONDC?
The Committee pointed out that the ONDC Strategy Paper put out by the government in January 2022 is lacking in the following ways:
- No road map or strategy for some key aspects: “On perusal of the strategy paper, it is found that that the success of the ONDC is contingent upon certain factors, such as the successful onboarding of the existing digital commerce apps and platforms, the compatibility and interoperability of the existing platforms/applications of the buyers and seller and the technical capability of small and medium enterprises to be onboarded on the digital network. However, the strategy paper is silent on these issues and does not lay out a road map/strategy for addressing these issues,” the Committee noted.
- Local businesses might get squeezed in the long run: “Another issue is that the local business will find it extremely challenging to compete with the discounts, sales and other lucrative offers, being offered by prominent e-commerce players which may result in local business being squeezed out of the network in the long run,” the Committee remarked.
- Silent on liability for a bad product: “The strategy paper is silent on the issues regarding liability on the network in case consumer faced issues regarding transactions, delivery of substandard products and service,” the Committee noted.
- No clarity on how existing laws will apply: There is also a lack of clarity on the applicability of the existing e-commerce laws to the network, the Committee said.
What does the Committee recommend?
The Committee recommends the Department for Promotion of Industry and Internal Trade (DPIIT) formulate a concrete strategy to:
- onboard existing e-commerce platforms
- ensure a level playing field between local/small businesses and e-commerce giants
- provide technical support to small and local businesses to design a technical tool, compatible with ONDC protocol to achieve its intended goal of democratising e-commerce and digital onboarding of MSMEs
- provide clarity regarding the issue of liability on the network by assigning definite roles and responsibilities to all the participants, namely, e-commerce platforms, buyers and sellers
- clarify the extent of application of the e-commerce rules on the network
What does the ONDC Strategy Paper say?
The strategy paper, which the Parliamentary Committee criticised as lacking, talks about the problems ONDC plans to address as well as the various building blocks of the network, but the document is still a high-level presentation and lacks the necessary details, especially in the context of privacy and security safeguards in place for data exchange.
Problems ONDC plans to address:
- Limited competitiveness of new sellers
- Concentration risk giving platforms excessive power
- No portability of trust for sellers
- The difficulty faced by sellers who want to be on multiple platforms
To solve the problems laid out above, there needs to be “a paradigm shift from an operator-driven monolithic platform-centric model to a facilitator-driven, interoperable decentralized network,” the paper states. This idea is to connect buyers, suppliers, payment, and logistics providers through open-source specifications and protocols. This is better understood through the diagram below.
Source: ONDC Strategy Paper
The ONDC open network will be created by unbundling the current system, the paper explains.
“‘Unbundling’ refers to the breaking down of a complex system into granular activities or microservices which can be separately operated to orchestrate a whole transaction. After federating the individual items, different actors can take up these individual activities. […] The elements are non-exclusive and hence there can be multiple actors performing the same element. The market along with users will allow the best possible combination(s) to exist. For example, in a transaction, the seller, logistics, and buyer side activities can be unbundled and taken up by different entities.” – ONDC Strategy Paper
The unbundling is supposed to allow buyers and sellers to exercise their choice at every step, which theoretically should lead to interoperability between platforms, allowing buyers and sellers to transact irrespective of the platform used by them.
Building blocks of ONDC:
- Buyer and seller-side applications: These are the applications that would let end-users and sellers transact with each other.
- Gateway: This is the application to allow discoverability of all sellers in the network by multicasting the search request received from buyer applications to all seller applications.
- Adaptor interfaces: Adaptor interfaces, the open APIs developed based on the open-source interoperable protocol by Beckn, a non-profit entity working on developing open specifications for mobility and commerce, will enable the exchange of information among the various participants of the network.
- Registry: Application that maintains the list of participants who join ONDC.
- Network policies: These are the rules and code of conduct for various activities that are performed by the network participants and will cover areas like registration, transaction, payment, data transmission, etc.
- Data privacy policies: The data policy will be compliant with the Information Technology Act 2000 and there will be “efforts to comply with the emerging Personal Data Protection Bill,” as well, the paper states.
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