What is the Indian government’s ONDC project all about?

An ambitious plan, the Open Network for Digital Commerce aims to provide access to businesses at a low cost for the Indian consumer

At the end of April this year, the Indian government’s wide-reaching and ambitious plan–Open Network for Digital Commerce (ONDC)–began its small-scale implementation with 150 retailers across five cities—New Delhi, Bengaluru, Coimbatore, Bhopal and Shillong. The idea was to test the functioning of the tech-enabled infrastructure.

With ONDC, the Indian government wants to initiate large-scale democratisation of digital commerce by providing a level-playing field to large and small merchants. This will also monitor the dominance of US-based players like Amazon and Walmart. The intent behind ONDC is to transform the e-commerce space in a manner similar to the Unified Payments Interface (UPI).

But what is the ONDC really about?

Open Network for Digital Commerce (ONDC) is a network based on open protocol for homegrown commerce across segments: retail, wholesale trade, mobility, groceries, food orders and deliveries, travel bookings and so on to be discovered and used by any network-enabled application by the Indian consumer at a low cost.

The platform’s intent is to curb digital monopolies by supporting micro, small and medium enterprises as well as small traders, helping them with e-commerce plans. But how will it actually work?

A pet project of Prime Minister Narendra Modi, ONDC is being spearheaded by the Department for Promotion of Industry and Internal Trade (DPIIT). It’s a private sector-led non-profit organisation that has received a fund infusion of ₹255 crore for the first stage of its project from several banks and financial institutions. ONDC aims to go beyond the current platform-centric model and empower traders, merchants and consumers by breaking bubbles to form a single network to drive scale and transform businesses.

Infosys non-executive chairman and the architect of Aadhaar, Nandan Nilekani, and National Health Authority Chief Executive Officer, R S Sharma, are among some experts working on the design, acceleration and adoption of the new project. Institutions like the Quality Council of India, National Bank for Agriculture and Rural Development, Small Industries Development Bank of India, State Bank of India and Punjab National Bank have invested in the network.

The pilot project

Eventually the pilot project intends to scale up its launch across 100 cities over a period of six months. “The pilot aims to test end-to-end transactions on the ONDC architecture across different platforms, including ordering, payment and delivery. This exercise will help in the creation of a robust playbook for further scaling up operations,” Department for Promotion of Industry and Internal Trade (DPIIT) Additional Secretary Anil Agarwal said in a news report.

The pilot also includes 150 retailers and five seller platforms—SellerApp, GrowthFalcons, Gofrugal, Digiit and eSamudaay—and has drawn in sellers/retailers on the ONDC-compliant app, giving them visibility. The buyer-side app, which is Paytm, is connected to the ONDC architecture. Consumers can use the Paytm app and place the order with the retailers currently participating in the pilot. Both the number of buyer-side apps and retailers are expected to increase as ONDC is scaled up. Government officials say it will take another 30 months for the ONDC to be fully launched.

The nuts and the bolts of it

The network will enable registered buyers and sellers to be visible and discoverable by adopting the ONDC architecture with the hope that it will result in rapid digitalisation of small businesses and consumers. ONDC will work on the principle of an open network, where a buyer and a seller don’t have to be on the same platform to conduct business with each other. Instead, ONDC is the interface that will make them digitally visible and transact, no matter what platform or application they use.

Think of ONDC as a common catalogue where the seller doesn’t need to follow a separate set of rules for different marketplaces. Consumers will be able to buy from all kinds of marketplaces from Amazon and Flip­kart to their neighbourhood kirana stores. For example, a consumer looking for wireless headphones or a new mobile phone will see results from all merchants through ONDC on various apps like Tata Neu, Flipkart or Amazon.

How will ONDC benefit the Indian consumer?

Sellers, especially kira­na store owners, are expected to get wid­er access to buyers. Officials say adopting ONDC will significantly increase the discoverability of their businesses, while lowering the cost of doing business, leading to better prices and profit margins in the long term. Consumers, meanwhile, will have a wider choice and better customer experience because of greater access to more sellers. While e-tailers such as Amazon and Flipkart, will also benefit via the ONDC architecture, adopting ONDC is currently voluntary.

Key features

ONDC wants to democratise digital commerce by moving it from a platform-centric model to an open network. Through ONDC, merchants will be able to save their data to build credit history and reach consumers. The platform will be compliant with the Information Technology Act, 2000 and designed for compliance with the emerging Personal Data Protection Bill.

The new framework wants to promote open networks developed on open-sourced methodology, using open specifications and open network protocols independent of any specific platform. Through ONDC, sellers and buyers will be digitally visible and can transact through an open network, regardless of what platform or application they use. It will also empower merchants and consumers by breaking silos to form a single network that drives innovation and scale, transforming all businesses from retail goods to food to mobility. ONDC is expected to digitise the entire value chain, standardise operations, promote inclusion of suppliers, derive efficiencies in logistics and enhance value for consumers.

The government has declared that ONDC will ensure confidentiality and privacy of data and shall not allow the sharing of transaction-level data by participants.

What is the aim?

ONDC wants to raise e-commerce penetration in the next two years to 25 per cent of India's consumer purchases, from nearly eight per cent now, in a country of 1.35 billion people. It wants to sign up 900 million buyers and 1.2 million sellers on the shared network within the next five years, while achieving a gross merchandise value (GMV) of $48 billion.

The government has estimated that India's e-commerce market is worth more than $55 billion in GMV in 2021 and will grow to $350 billion by the end of this decade. At the moment, Amazon and Flipkart (Walmart) control more than 60 per cent of the market.

How will ONDC benefit consumers?

Since existing platforms work in silos and are tightly controlled, they keep out many small players. ONDC is expected to increase competition and foster innovation by start-ups. The government also hopes to bring in more logistics firms who will work with sellers on deliveries. The focus would be on smaller merchants and rural consumers, with apps in Indian languages. ONDC officials have compared the network to a mall with 1,000 gates instead of two.

What are the challenges?

The network wants to tap millions of small businesses that often lack tech know-how and awareness. Education campaigns will have to be planned and executed in order to bring them on board. Moreover, smaller businesses with low volumes will have fewer resources to match the discounts offered by retail giants, so that will need to be countered in some manner.

In conclusion

ONDC’s success will of course depend on the government’s ability to stitch together a cohesive interface that keeps small retailers and consumers in mind at all times. The bigger retailers have their own platforms to keep themselves afloat in any case. The proof of the pudding will lie in monitoring the pilot project, adapting it, sharing the results in a transparent manner and persuading small retailers that this is the platform to be on.

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