Piyush Chaubey and Anshika Gubrele

Open Network for Digital Commerce (ONDC), an initiative by the Department for Promotion of Industry and Internal Trade, seeks to democratise the e-commerce industry by carving a level playing field for the e-commerce giants and the small sellers (kiranas). However, the seamless implementation of this plan is hampered by some major challenges. This piece makes an effort to pinpoint these important issues and suggests ways to overcome the same.

‘Digital Commerce’ is constantly improving the global business environment by reducing the distance between businesses and consumers. During Covid-19, digital commerce flourished the most. The retail sector of digital commerce experienced tremendous growth worldwide in its share of total retail sales i.e., from 16% in 2019 to 19% in 2020. While several factors contributed to this growth, the sharp rise in business-to-consumer (“B2C”) sales was most impactful.

In the past few years, India has also seen a significant growth of its digital commerce industry. In 2020, there were 140 million e-retail shoppers, making it the third largest shoppers base globally. By 2030, this number is expected to grow exponentially, with the addition of 370 million people to the list. However, Covid-19 burst this bubble of expectations because Kiranas (hyperlocal grocery stores), the largest shareholder in the retail sector in India, collapsed and led to a breakdown of the national supply chain. The biggest contributor to this breakdown was the non-digitalisation of such stores. The Department for Promotion of Industry and Internal Trade (“DPIIT”), a unit of the Ministry of Commerce and Industry, in response to this breakdown, consulted various ministries. It was inspired by large-scale schemes such as UPI and IMAP, and envisioned the Open Network for Digital Commerce (“ONDC”). Recently, Microsoft became the first big tech company to join ONDC. In this piece, the author seeks to explain the concept of ONDC, examine its importance for the growth of the e-commerce market in India, the major challenges faced by it during its implementation, and propose ways to overcome these challenges.

Open Network for Digital Commerce (ONDC): The Concept

ONDC is an open-source network for digital commerce which intends to ‘democratise digital commerce’ by carving a level playing field for the e-commerce giants and the small sellers (Kiranas). It is considered the UPI for e-commerce, having the capability to fuel the growth of the e-commerce market in India. In the ONDC network, sellers can voluntarily choose to display their products and services throughout the platforms and apps which have joined the same.

It proposes a decentralised network model, an alternative to the existing platform-centric model. Presently, buyers and sellers must be on the same platform for a business transaction to occur. However, ONDC will enable the business transaction between a seller and a buyer on the platform or application of their choice. In order to appreciate how the ONDC is going to achieve this admirable feat, an understanding of its functions is necessary.

In a platform-centric model, the platform manages everything, right from customer onboarding, purchase of the order, delivery of the order, and its grievance redressal (i.e., return, replacement, etc.). ONDC would unpack this complex system into several micro-services, which shall be managed by different platforms or applications. These micro-services, including adaptor interface, seller-side applications, buyer-side applications, open registries, gateways, network participants, etc., shall be responsible for the smooth functioning of the network.

Thus, if one searched for a laptop on one application (buyer-side application), it will list all the sellers who sell the specific laptop and have listed their catalogue on the seller’s application. This model addresses the major concern of hyperlocal stores about price-predating by e-commerce giants. Further, the duopoly of these giants (i.e., Amazon and Flipkart) would reduce, providing opportunities for small sellers (kiranas) to go online. This would encourage greater competitiveness.

Is the ONDC Pragmatic?

In January 2022, a strategy paper was published with the title ‘Open Network for Digital Commerce-Democratising Digital Commerce in India’. It laid down the roadmap for the implementation of ONDC in the long and the short term. It focused on how different components of the network would function, but was silent on questions of the integration of existing platforms with the new model, fair competition, interoperability of the model, technological capability of MSMEs, and issuance of liability. These issues are roadblocks to the smooth implementation of the ONDC model.

Technological Capability of MSMEs & Fair Competition

While the MSME sector is considered to play the biggest role in the success of the model, is it technologically capable of onboarding the digital network? Even if it has the technological capability, how will it compete with steep discounts provided by significant e-commerce players? There were no concrete solutions regarding these issues in the strategy paper.

Issue of Liability

Payment, delivery, and complaint mechanism remain the core components of any e-commerce platform. Under the ONDC model, however, there is no clarity on the issue of liability among different micro-services. Consider the following: A ordered a smartwatch from a buyer-side application. When it was delivered to them, it was found that it had a dent in it. A lodged a complaint on the buyer-side application. Since no liability has been assigned to any party (i.e., buyer-side application, seller-side application, seller, and logistics partner), it would lead to an everlasting conflict between the platform, seller, and logistics partner. This issue was also raised by the Department Related Parliamentary Standing Committee on Commerce in its 172^nd report titled ‘Promotion and Regulation of E-Commerce in India’.

Interoperability of the Model

The e-commerce market has always been customer driven i.e., transaction data is used to determine the price list and inventory. In the case of ONDC, however, several micro-services are incorporated to carry out smooth transactions. The network policy of ONDC does not provide for sharing of such transaction data among micro-services, which would give rise to a scenario where the buyer-side application has transaction data while the seller-side application doesn’t. Here, the buyer-side application is not expected to influence the price list and inventory. Thus, ONDC, which should have been a customer-driven model, has instead become a seller-driven model. This is also because the sellers will have to adjust their prices according to prices offered by other sellers, including e-commerce giants. These giants would be able to influence the price of any product, which goes against the foundational principle of ONDC of ensuring fair competition. Without this data sharing between different micro-services, interoperability i.e., the ability of different platforms to communicate among themselves efficiently, cannot be achieved.

Way Forward

ONDC model is undoubtedly capable of transforming the entire digital commerce industry in India. However, first and foremost it needs to address the major issues that could prove fatal to its implementation. Firstly, a concrete strategy has to be developed for the integration of existing e-commerce platforms as well as existing buyers by offering certain lucrative incentives to both the platforms and consumers. Secondly, support should be provided to MSMEs for developing their technical capability for integration with the new model. The model should incorporate a single window system for registration and other technicalities, preferably through an application or website. Thirdly, fair competition should be maintained on the network for achieving its intended purpose. To ensure fair competition, the ONDC must devise its network policy to account for price-predating and other anti-competitive acts. Compliance with these network policies should be audited periodically and in case of any non-compliance, punishment should be levied in the form of heavy fines. Fourthly, the role undertaken by each micro-service must be defined for conflict prevention. A digital contract is issued whenever any transaction takes place between a buyer and a seller, the same contract could be made to define the roles of various stakeholders e.g. the logistics platform is made liable for any defect arising out of poor delivery, or the seller is made responsible for the quality of products. This would ensure that the liability is imposed on the platform that is responsible for causing losses. Fifthly, network policies should include a policy on transaction data sharing between micro-services in order to achieve true interoperability, and also to ensure that ONDC is a customer-driven model and not a seller-driven one.

Conclusion

E-commerce has become a default option for shopping in the majority of households in India. This posed a threat to hyperlocal stores (kiranas), which are primarily based on physical shopping. This threat was answered by introducing the concept of digital e-commerce i.e., Open Network Digital Commerce. In theory, ONDC seems like a dream come true for the hyperlocal seller (kiranas), but in practicality, there exists several major issues that must be resolved for its successful implementation. In sum, we propose that the ONDC would be a game changer for the e-commerce market in India to democratise the industry and liberate it from the duopoly of the big players via the digitalization of small sellers.

Piyush Chaubey is a 3rd year B.A.LL.B Hons student from NUSRL Ranchi and Anshika Gubrele is a 5th year BA LLB student from Bharati Vidyapeeth (Deemed to be University), New Law College, Pune.