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Open Network for Digital Commerce (ONDC)

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  • Difficulty Level : Expert
  • Last Updated : 29 Sep, 2022
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The Open Network for Digital Commerce (ONDC) is a government-sponsored initiative aiming to give local mom-and-pop shops and small businesses access to systems and tools generally used by major e-commerce platforms. It is a project aiming at fostering open networks for all aspects of exchanging goods and services across digital or electronic networks. Open specifications and open network protocols will be used by ONDC, which will be independent of any particular platform. The platform intends to provide new opportunities and reduce digital monopolies by aiding micro, small and medium firms, and small traders and helping them get on online platforms. It is a Ministry of Commerce and Industry’s Department for Promotion of Industry and Internal Trade (DPIIT) project. Microsoft is the first notable tech company to sign up for the subsidized Open Network for Digital Commerce. On December 31, 2021, ONDC was granted its certificate of formation as a nonprofit organization with private sector leadership. On April 29, 2022, the pilot phase began in New Delhi, Bengaluru, Bhopal, Shillong, and Coimbatore. Woolly Farms, situated in Bengaluru, received a purchase order from Paytm in April. On ONDC, this was the very first transaction. The Quality Council of India has been tasked with integrating e-commerce platforms through a network built on open-source technology. Basically, open source refers to a software application or platform with source code that is readily accessible and can be edited or enhanced by anybody. An application’s users can update the original code, improve the design, or fix broken links using open source access.

Importance of Open Network for Digital Commerce (ONDC):

  1. Freedom of Choice: It is anticipated that it will increase consumer access to and inclusion in e-commerce. By using any compatible application or platform, they might possibly find any seller, item, or service, expanding their range of options.
  2. Cost Savings for Sellers: Instead of being constrained by particular platform-centric regulations, ONDC would allow small firms to use any ONDC-compatible applications. This will provide small businesses several options for acquiring the tools they need to operate and be found on the network without having to pay aggregator platforms a hefty fee.
  3. Boost E-Commerce: It will assist in increasing both the volume and value of e-commerce transactions. With ONDC, this goal appears to be much more attainable. The ONDC anticipates adding 90 crore customers and 12 lac suppliers to the network during the following five years, enabling 730 crore more sales. 
  4. Encourages Competition: The government claims that because the current platforms operate in silos and are strictly regulated, many smaller businesses are shut out. Over 60% of the market is currently under the hands of Amazon and Walmart’s Flipkart. However, by displaying goods and services from all participating e-commerce platforms, ONDC will ratchet up competition and encourage innovation by start-ups. Additionally, it will restrict the chances for certain merchants to gain special treatment. Major e-commerce enterprises frequently face accusations of giving customers preferential treatment. Additionally, it will help put an end to predatory pricing, particularly for high-margin, high-value goods.
  5. Investment Attracting: Companies are anticipated to gain from clear regulations, easy investment, and lower startup costs. Additionally, it is anticipated that both the time to market and the time to scale would be significantly shortened. These will all help to entice additional investment into the e-commerce sector.
  6. Aid in Diplomacy: A new kind of international diplomacy is starting to take place on the internet platforms. Worldwide attention is focused on India’s identification and payment platforms. 

Features of Open Network for Digital Commerce (ONDC):

  • Modeled after UPI: It is built on the widely lauded Unified Payments Interface (UPI) project. The UPI initiative enables anyone to send or receive money, regardless of the payment systems on which they are enrolled. The ONDC will ensure that sellers and buyers conduct business online regardless of the platforms on which they are registered. Consequently, a customer with an Amazon account can buy something directly from a vendor who operates a Flipkart store.
  • Democratizes Online Trading: It is a first-of-its-kind global effort to democratize digital commerce by moving it from a platform-centric paradigm to an open network. Through an open network, buyers and sellers will be able to conduct business and be found online. whichever software or platform they use. It would empower businesses across all industries, from retail products, food, and mobility, by eradicating silos and establishing a single network to foster innovation and scalability.
  • A workable solution: Over time, ONDC should become a self-sufficient business that generates income for its operations and surplus for continuous investments in technology, procedures, and network expansion. This is a very viable solution given the significant benefits it will offer ecosystem players.
  • Confidentiality: All required measures must be taken to safeguard networked data’s privacy and confidentiality. Participants are not obligated to provide ONDC with any transaction-level data.

Benefits of Open Network for Digital Commerce (ONDC):

  • The ONDC is eager to open up the country’s Micro, Small, and Medium Enterprises (MSMEs) and small traders’ access to the digital market and level the playing field for e-commerce operators.
  • Delivering discover ability, interoperability, and inclusive, it will also benefit new entrants.
  • An ecosystem that is Competitive and Innovative: Current e-commerce platforms are compartmentalized and tightly controlled.
  • By ending the monopoly of massive platforms, ONDC will give suppliers and customers more leverage. This will spur innovation and alter industries like retail, food, and mobility.
  • Customers’ freedom of choice will increase since they may find any seller, item, or service on a shared platform
  • The consumers will be able to match demand with the closest supply. Additionally, this would allow customers to select the neighborhood businesses they like.
  • It will establish open-source protocols for vendor matching, price discovery, and cataloging, similar to the Unified Payments Interface (UPI).

How does Open Network for Digital Commerce function?

  • By assisting micro, small, and medium firms and independent merchants in joining online marketplaces, the project seeks to expand opportunities and break up digital monopolies. 
  • The Ministry of Commerce and Industry’s Department for Promotion of Industry and Internal Trade is responsible for the effort. 
  • Major companies like Flipkart and Amazon have indicated a willingness to assist the scheme. By doing this, they will lose their monopoly and be able to source items from the ONDC’s seller side.
  • This would allow platforms with sizable business-to-business verticals to get into the seller side of the ONDC network to offer items in addition to tapping into new consumers.

Challenges of Open Network for Digital Commerce (ONDC):

  • Unlike UPI, ONDC requires a complex ecosystem to implement.
  • It will be challenging to convince clients to leave the incumbents, who are providing a good service.
  • Initially, network players might not make large market development investments.
  • Expanding the seller base will not always result in a better user experience for network users.
  • The network’s monetization is not entirely evident.
  • Previous attempts to scale up similar models have been unsuccessful.
  • Given the divide between the buyer and seller sides, reaching critical mass will be challenging.
  • There is a lack of accountability, particularly when handling returns and client complaints.
  • It can take a while for the network effect to really take off.
  • Local businesses may eventually be forced out of the network because they will find it incredibly difficult to compete with the discounts, specials, and other tempting offers being made by well-known e-commerce giants.
  • The strategy paper makes no mention of the challenges around network liability in the event that customers experienced problems with transactions, the delivery of subpar goods, or poor service.

Future of Open Network for Digital Commerce (ONDC):

  • With 1.35 billion people living in India, the ONDC wants to increase the country’s e-commerce penetration to 25% of consumer purchases within the next two years from just under 8% at the moment.
  • Within the next five years, it wants to sign up 900 million buyers and 1.2 million sellers on the shared network and reach a gross merchandise value of $48 billion.
  • It aspires to involve logistics companies and other parties who can work with vendors to deliver goods to clients.
    In order to reach the millions of small businesses that ONDC primarily targets—many of whom frequently lack technological expertise—the government will need to launch a significant awareness campaign.
  • Since smaller companies with limited volume lack the capacity to match the discounts offered by market leaders like Amazon and Flipkart, the Competition Commission of India (CCI) will play a critical role in the success of ONDC. They could only be integrated and maintained if major actors were effectively restrained from engaging in anti-competitive behavior.
  • Additionally, the government must ensure that ONDC abides by the Information Technology Act and other relevant legislation.


The ONDC will aid in reducing the monopoly of significant firms and expanding the market for small business owners. Additionally, it will assist in increasing the number of buyers’ access to all of the network’s vendors. In this manner, the project will benefit both current and potential customers. With the aid of several government initiatives promoting digital literacy, the dearth of digital education must be addressed first. It is crucial for both buyers and sellers to support several languages and user-friendly interfaces. To realize India’s objectives of becoming a middle-income country with a connected and tech-savvy economy, ONDC offers a technical platform. It provides a crucial worldwide model for utilizing technology for and as a public good at a large scale fairly and inclusively. The project should be promoted more widely to incorporate more small-time vendors and improve their lives. 

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