Closer Look: Why ONDC Can Be For E-Commerce What UPI Is To Digital Payments

The Union Minister of Commerce and Industry, Piyush Goyal has presided over a meeting on 13 August to examine the Department for Promotion of Industry and Internal Trade's (DPIIT) Open Network for Digital Commerce (ONDC) programme, which could restrict the market dominance of e-commerce companies like Amazon and Flipkart.

As per a press release, Goyal discussed how the effort would democratise digital commerce and shift it from a platform-centric to an open-network paradigm with members of the advisory board and experts. The Minister stated that ONDC would work on everything, including services as well as products.

While reviewing the progress, he said: "Some guidelines or basic infrastructure, size, ethics and principles should be there… security and data privacy and confidentiality must be ensured." According to Goyal, this initiative will open up new possibilities and eliminate monopolistic situations.

ONDC, according to the Commerce Ministry, is a world-first effort that aspires to democratise digital commerce by pushing it away from a platform-centric approach and toward an open-network model. The Ministry said: "As UPI is to the digital payment domain, ONDC is to e-commerce in India."

Reports highlighted the fact that it will be much more difficult to create a similar open network for online commerce. It is straightforward to create a set of rules with the single goal of satisfying the central bank that the same monies aren't being spent twice.

Commerce, on the other hand, has significantly more ambiguous outcomes—"Did the consumer get the product she paid for? Did it arrive in one piece? Was the article genuine or a counterfeit? Was the returns policy enforceable?"

Furthermore, firms selling online must consider the creditworthiness of resellers as well as their capacity to manage complex distribution operations in a country with limited physical infrastructure.

If the ONDC gets mandated, all e-commerce businesses will be required to follow the same procedures. Smaller online shops and newcomers could benefit greatly from this.

The DPIIT noted that the ONDC aims at promoting open networks developed on open-sourced methodology, using open specifications and open network protocols, independent on any specific platform. ONDC is projected to digitise the entire value chain, standardise operations, promote supplier inclusion, improve logistical efficiency, and increase customer value.

Kumar Rajagopalan, CEO, Retailers Association of India told Financial Express: "When you are opting for e-commerce, you have to go to various platforms to trade as it is not seamless for you to shift from one marketplace to another and be visible to multiple people at the same time."

Rajagopalan, who is also a part of a nine-member advisory council constituted by the Ministry of Commerce to advise the government on how to design and adopt ONDC, added that "in some ways what UPI did to the banking capabilities for people as everybody uses the same protocol to seamlessly transact real-time, ONDC is a similar case as far as commerce is concerned. So we are trying to work on it so that one can trade with anybody and create visibility for his/her product".

While the e-commerce giants like Amazon and Flipkart are already facing a challenging situation in India and got involved in court battles, the ONDC would be an addition to their list of concerns.

The business practices of two dominant foreign-owned marketplaces—Amazon and Walmart's Flipkart—were contested by certain traders' associations as discriminatory. The situation became so intense that Amazon decided to end a joint venture with Indian billionaire Narayana Murthy. It was announced on 9 August that the 7-year-old joint venture Prione Business Services Pvt. will stop operations in mid-2022. This joint venture owns Cloudtail, which is the largest seller on Amazon's India website.

As per a report, the Indian conglomerate Tata Group, which is creating a marketplace ranging from fashion and lifestyle to electronics, maybe hampered if it is unable to sell a cup of Starbucks coffee on its website, given India's purposeful de-emphasis of the platform model.

According to the draft e-commerce guidelines, Starbucks' joint venture with Tata in India makes it a linked party that can't engage as a seller on the super-app. The same may be said about Walmart Inc.'s distinct wholesale division. It is possible that it won't be able to sell shirts on Flipkart because it's a subsidiary.

However, in the press release, the Ministry said: "ONDC shall initially give special attention to help onboard small and medium players."

"ONDC to plan for a well-developed Information, Education and Communication campaign to educate, encourage and address any apprehensions of various network participants. ONDC should evolve over time as a self-sustaining entity generating income for its operations and surplus for continuous investment in technology, processes and network development," the release continued.

It was also stated that "this [ONDC] is a very workable option considering the significant benefits it will extend to the ecosystem players".