Creating An Open Network for e-Commerce | 07 Jun 2022

The government’s Digital India initiative, the vibrancy of the information technology sector and the urgency highlighted by the pandemic make now an opportune time to establish and promote expansion to digital commerce by the digital enablement of a wide cross-section of businesses. The Open Network for Digital Commerce (ONDC) has the potential to usher in a disruptive change in this regard.

India and Digitalisation of Commerce

What is India’s Scenario of Digitisation?

• The fast-expanding digital economy has been one of the major supporting pillars for India in recent times. It has the world’s highest fintech adoption rate of 87%, as compared with the global average of 64%.
  • The e-commerce market in India has doubled between 2017 and 2020.
• Three of the largest public digital platforms in the world are from India: Aadhaar is the largest unique digital identity platform, Unified Payments Interface (UPI) is the largest digital payments ecosystem, and Co-Win is the largest vaccination platform.
• India has utilised a financial technology stack in which a unified, multi-layered set of public sector digital platforms combine to provide substantial benefits to the population, from promoting financial inclusion and increasing efficiency to enhancing financial stability.

How has It helped People?

• Aadhaar facilitated a surge in financial inclusion and digital payments, especially during the Covid-19 pandemic.
• India’s low-cost, population-scale digitalization has improved the ease of living for its citizens in all income categories.
• UPI has changed the dynamics of retail payment systems and is now being used country wide.
• These digital platforms are becoming an avenue for a new type of global diplomacy too. India’s identity and payments platforms are being looked at with interest across the world.
  • Recently, the Co-Win platform was offered by India to interested countries.
  • In July 2021, the Finance Minister of India along with her counterpart in Bhutan jointly launched BHIM-UPI in the country.

Open Network for Digital Commerce (ONDC)

What do we Understand by ONDC?

• ONDC is a globally first-of-its-kind initiative that aims to democratise digital commerce, moving it from a platform-centric model (where the buyer and seller must use the same platform or application to be digitally visible and do a business transaction) to an open network.
• It is based on open-sourced methodology, using open specifications and open network protocols, and is independent of any specific platform.

What is the Government of India’s ONDC Project?

• The Department for Promotion of Industry and Internal Trade (DPIIT) has issued orders appointing an advisory committee for its Open Network for Digital Commerce (ONDC) Project to curb “digital monopolies”.
  • This is in the direction of making e-commerce processes open source, thus creating a platform that can be utilised by all online retailers.
• Once ONDC gets implemented, all e-commerce companies and online businesses in India will have to operate using the same processes and standards.
  • According to reports, this could mean a complete revamp of systems for e-commerce players; they could end up losing control over their user interface, and, even more importantly, consumer behaviour insights.
    • This could be problematic for larger e-commerce companies, which have their own processes and technology deployed for these segments of operations.
    • However, this would also give a huge booster shot to smaller online retailers and new entrants.

What Possibilities does ONDC Offer?

• ONDC is expected to digitise the entire value chain, standardise operations (like cataloguing, inventory management, order management and order fulfilment), promote the inclusion of suppliers, derive efficiency in logistics, and enhance value for consumers.
• The platform envisages equal-opportunity participation and is expected to make e-commerce more inclusive and accessible for consumers as they can potentially discover any seller, product or service by using any compatible application/platform, thus increasing their freedom of choice.
• It will enable transactions of any denomination, thus making ONDC a truly ‘open network for democratic commerce’.
• ONDC would enable small businesses to use any ONDC-compatible applications instead of being governed by specific platform-centric policies.
  • It would also encourage easy adoption of digital means by those currently not on digital commerce networks.

What should be the Key Areas of Focus while Creating an ONDC Platform?

• Layers of Open Digital Ecosystem: There are three “layers” of an open digital ecosystem which provide a useful conceptual framework to think of both adoption and safeguards. These layers are:
  • Technology Layer: It should be designed for minimalism and decentralisation.
  • The ONDC platform should be built on “privacy by design” principles.
  • It should collect minimal amounts of data (especially personal) and store it in a decentralised manner so that there is no honeypot for hackers.
  • Data exchange protocols should be designed to minimise friction but be based on clear rules that protect the consumer interest.
  • Tools like blockchain could be used to build technical safeguards that cannot be overridden without active consent.
• Governance Layer: It should allay business’ fears of excessive state intervention in e-commerce.
  • Any deployment of standards or tech should be accompanied by law or regulation that lays out the scope of the project.
  • If collection of any personal data is envisaged, passing the data protection bill and creating an independent regulator should be a precondition.
  • To assure the industry of fairness, the government could hand over the stewardship of the standards or platform to an independent society or non-profit.
• Community Layer: It should foster a truly inclusive and participatory process. This may be achieved by making civil society and the public active contributors by seeking wide feedback on drafts of the proposal.
  • Also, ensuring quick and time-bound redressal of grievances will help build trust in the system.
• Encouraging rather than Compelling: In order to drive the adoption of an open e-commerce platform or standards in a sector with entrenched incumbents, compelling the suppliers or consumers to use it is inadvisable.
  • A viable solution would be creating non-mandatory “reference applications”, and financial or non-financial incentives.
    • Useful learnings can be drawn from the adoption of UPI: The government supported the rollout of BHIM as a reference app, and offered financial rewards through a lottery scheme to drive early adoption.
  • It is timely that India is exploring innovative ways to bridge the gaps in e-commerce markets. But the boldness of this vision must be matched by the thoughtfulness of the approach.