What is Open Network for Digital Commerce (ONDC)?

What’s in today’s article?

• Why in news?
• What is Open Network for Digital Commerce (ONDC)?
• What Led to the Creation of ONDC?
• How will the ONDC Work?
• What are the potential benefits of ONDC?
• Challenges faced by ONDC

 

Why in news?

• Recently, Centre directed the e-commerce companies and food delivery players to join the government-backed Open Network for Digital Commerce (ONDC).
• Some players like Flipkart and Zomato are trying to set up step down subsidiaries to join this network.
• However, some other big ones such as Amazon and Swiggy have chosen to stay away so far.

 

What is Open Network for Digital Commerce (ONDC)?

• About
  • ONDC is an initiative aimed at promoting open networks for all aspects of exchange of goods and services over digital or electronic networks.
  • It is to be based on open-sourced methodology, using open specifications and open network protocols independent of any specific platform.
    • Making a software or a process open-source means that the code or the steps of that process is made available freely for others to use, redistribute and modify.
  • It is developed as a counter to the current duopoly in the Indian e-commerce market which is largely dictated by Amazon and Walmart-owned Flipkart.
• Promoters
  • It is a private non-profit company established by the Department for Promotion of Industry and Internal Trade (DPIIT), Union Ministry of Commerce and Industry.
  • It was incorporated in 2021 with initial investment from Quality Council of India (QCI) and Protean eGov Technologies Limited (formerly NSDL e-Governance Infrastructure Limited).
• What is ONDC not?
  • ONDC is not an application, an intermediary, or software, but a set of specifications designed to foster open interchange and connections between shoppers, technology platforms, and retailers.
  • It should be noted that ONDC is not:
    • A government regulatory body
    • A super aggregator application or a platform
    • A central intermediary
    • A medium to help digitise business

 

What Led to the Creation of ONDC?

• Technological self-reliance
• Demand for level playing field mainly from small retailers
• Lower the barrier of entry and discovery online
• Adoption of open digital ecosystem across key sectors
• Fixing the non-competitive behaviour of big e-commerce firms like Amazon and Flipkart
• To capture the US$810 billion domestic retail market

 

How will the ONDC Work?

• The ONDC platform lies in the middle of the interfaces hosting the buyers and the sellers.
• Basically, ONDC ensures transition from platform-centric model to network-centric model.

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Image Caption: Working of ONDC

 

What are the potential benefits of ONDC?

• The strategy paper touts the following benefits of ONDC:
• For sellers:
  • Access to more buyers
  • Better discoverability of products and cost
  • Autonomy on terms because of multiple choices for being digitally visible
  • Lower cost of doing business
  • More options for value chain services like logistics and fulfilment
• For buyers:
  • Access to more sellers and therefore more choices
  • Better service and faster deliveries due to access to hyper-local retailers
  • Better customer experience
• For technology platforms:
  • New opportunities for start-ups to drive innovation in various parts of the network
  • Access to the growth of digital commerce through buyer and seller side applications
  • Reduced time-to-market and time-to-scale
  • Focus on niche aspects leaving other partners to focus on different aspects

 

Challenges faced by ONDC

• Awareness and information overload
  • A massive awareness campaign has to be organized because most small business owners lack the technical expertise to get involved in this program.
  • Another challenge is the sheer information overload that customers has to sift through.
• ONDC and UPI
  • ONDC is a far more complex system than UPI.
    • The UPI loop closes the moment a transaction is completed.
      • But in ONDC, the loop is much longer – you buy something, it has to be delivered offline.
      • There needs to be a mechanism for returns, grievance redressal.
  • Unlike UPI, which the government has consistently funded, ONDC stakeholders are banks and financial institutions.
  • Hence, ONDC is unlikely to receive similar financial or policy support.
• Viability
  • So far big players are reluctant to join the network.
  • Hence, it raises the question whether ONDC can be a success without the participation of the very entities whose hold over the e-commerce market it is vying to challenge.
    • There is a concerted attempt to onboard all competitions that ONDC set out to beat in the first place.
• Government’s own statements on how it wants to roll out ONDC
  • Initially, the Commerce Ministry said that ONDC will help small retailers from the onslaught of big tech companies.
  • Later, everyone – big and small, global or national – was invited to join the ONDC.
  • This has raised many questions about ONDC’s strategy. This is because, as long as big players compete with the smaller ones on the same platform, they are most likely to come out on top.

 

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Q1) What is Unified Payments Interface (UPI)?

UPI stands for Unified Payments Interface. It is a real-time payment system developed by the National Payments Corporation of India (NPCI) that facilitates instant money transfers between bank accounts through a mobile device. UPI allows users to send and receive money using a virtual payment address (VPA) or a mobile number linked to their bank account, without the need for bank account details or IFSC codes..

 

Q2) What is Quality Council of India (QCI)?

The Quality Council of India (QCI) is an autonomous organization that was established in 1997 to promote quality standards in various sectors of the Indian economy. It is jointly funded by the government of India and the Indian industry. QCI aims to develop and promote quality standards in various sectors, including healthcare, education, environment, and social sectors. It also provides training, certification, and accreditation services in the field of quality management.

 

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Source: As govt pushes ONDC as e-com’s UPI equivalent, industry not sure | Indian Express | SmartPrix | Et Retail