Open

Network
for
Digital
Commerce
(ONDC)

A fight against foreign

e-commerce exploitation?
Or an attempt to protect
and fortify local businesses?
 From the desk of
D r. S a n d e e p G o y a l
Managing Director, Rediffusion

The Government of India is all set to launch the

pilot phase of the Open Network for Digital
Commerce (ONDC), a freely accessible online
system for traders and consumers, in five cities.
The open technology network, which will promote
an open platform for buying and selling of goods
and services, seeks to curb the dominance of
e-commerce giants like Amazon and
Walmart-owned Flipkart in the online retail space.

The initiative will first launch in Delhi NCR,

Bengaluru, Bhopal, Shillong and Coimbatore.

For those who came late to the party, ONDC is an

open-source network, which will help local
commerce across segments, such as mobility,
grocery, food order and delivery, hotel booking and
travel to reach and engage more people through a
network-enabled application.

Apart from enhancing the value and experience of

consumers, this initiative of the Department for
Promotion of Industry and Internal Trade (DPIIT)
seeks to digitise the entire value chain, standardise
operations and promote inclusion of suppliers.
02
ONDC is a step beyond the current platform-centric
e-commerce system where both the buyer and
seller have to use the same platform or application
to conduct a business transaction. Businesses and
consumers will be able to carry out transactions
over ONDC using any compatible application of
their choice. Even marketplaces such as Amazon,
Flipkart, BigBasket, Grofers and Zomato will have
to register on the platform that will be created by
DPIIT and QCI. This will give consumers the choice
to pick any seller, product or service by using any
compatible application or platform.

Small traders have for long been crying foul at the

unfair trade practices of e-tailers like Amazon and
Flipkart. The biggest challenge for the government-
backed network would be establishing the
technology. Giants like Amazon and Flipkart have
been able to lure merchants and buyers to their
platforms due to their tested technology. The
commerce ministry needs to build something
comparable, if not better, to outdo rivals.

Will ONDC scare Amazon or Flipkart? Maybe it is

too early to say. But the tremendous success of UPI
indicates rosy times ahead – an empowered Digital
India will take India to the forefront of global
competition.
03
 Change is
in the air
Retail in India is changing at a dynamic pace. The
past two years of the pandemic have accelerated
and crystallized the transformations that
characterised the change that defined the last
decade. Digital has become the new norm. It is
ubiquitous. Both big players and newer entrants
have made their mark in online shopping, food
delivery, local travel and more. In this brave new
world, where customers expect same-day or even
ten-minute delivery, retailers are reimagining and
rethinking the future of physical stores. Digital
building blocks like UPI have gained rapid
acceptance and e-commerce has been adopted
wholeheartedly in small towns.

The growth of the internet and e-commerce

sector in India has been further accelerated by the
shift in consumer behaviour due to the pandemic.
On the back of rising internet penetration and
increasing income, India’s consumer digital
economy is expected to be a US$800 billion
market in 2030, registering a ~10x growth from
2020. Technology is powering this future of digital
commerce. Retailers rely on AI to sift through data
to personalize customer experience, plan their
shelves, streamline inventory, forecast demand
and manage their supply chain. The first nine
months of 2021 alone saw a 260% increase in the
capital invested in small and mid-sized retail
technology companies.
04
While the customers are thronging to online
platforms, the ability of large e-commerce
companies to use their size, reach and access to
customer data to weaponize it and undercut their
rivals has come under scrutiny in several
countries.

To counter it, Government of India launched its

Open Network For Digital Commerce (ONDC) in
April as a prospective alternative to dominant
global giants Amazon.com and Walmart in its
fast-growing e-commerce market.

ONDC is a non-profit company whose network will

enable the display of products and services from
all participating e-commerce platforms in search
results across all apps on the network.

For example, if both Amazon and Walmart's

Flipkart integrate their platforms with ONDC, a
user searching for a Bluetooth headset on
Amazon would also see results from Flipkart on
the Amazon app.

Open Network for Digital Commerce christened

ONDC is a global first-of-its-kind initiative that
aims to democratise Digital Commerce, moving it
from a platform-centric model to an open
network.
05
 ONDC is expected to digitise the entire value chain,
THE
standardise operations, promote inclusion of
RED LAB
ANALYSIS suppliers, derive efficiency in logistics, and enhance
value for consumers.

The best part about ONDC is that it will open doors

for everyone including the smallest of the sellers
located in the remotest parts of the country to ride
the e-commerce wave. There won’t be a barrier
anymore. Anyone can be a point on the crest of this
wave of progress, supporting and pushing the
economy even further.

Several operational aspects including onboarding of

sellers, vendor discovery, price discovery ,and
product cataloguing could be made open source
on the lines of the Unified Payments Interface (UPI).  
If mandated, this could create problems for larger
e-commerce companies, which have proprietary
processes and technology deployed for these
segments of operations.

06
 Inclusion and
Empowerment
As UPI is to the digital payment domain, ONDC is
going to be to  e-commerce in India. ONDC will
enable, buyers and sellers to be digitally visible
and transact through an open network no matter
what platform/application they use. ONDC will
empower merchants and consumers by breaking
silos to form a single network to drive innovation
and scale, transforming all businesses from retail
goods, food to mobility.

ONDC has been initiated by the Government of

India to provide an unparalleled monetary
framework, audience scale, and autonomy in the
e-commerce sector. Buyers can shop groceries
and food from a sea of sellers on everyday apps
like Paytm, Whatsapp, and more.

Sellers get the biggest possible buyer audience

without having to invest in digital marketing or
worrying about logistics management. Robust
cross-sectional transaction programming will lay
the foundations for the seamless integration of
buyers, retailers, and logistics.

Starting with the Retail and Restaurant sectors,

ONDC will soon host products and services in
Wholesale, Food Delivery, Mobility, Tourism,
Hospitality, Travel, etc. and get into more sectors
over time.
07
 With 30+players plugging in currently and
hundreds to join in soon, ONDC stands firm on
being democratic. ONDC will tune the network’s
management and regulate policies with the
long-term goals of developing and sustaining the
platform. Consumers and buyers on ONDC will
have the benefit of data privacy while choosing
ONDC over their current e-commerce choices.

THE The important thing that stands out is the

RED LAB democracy of the platform. Equal opportunity, equal
ANALYSIS access to markets, equal access to customers. This
effectively neutralises any disadvantage from
distance or location. The impact on the economy,
over the years, will be stunning, to say the least.

08
Confidentiality &

Privacy
ONDC shall take all measures to ensure
confidentiality & privacy of data in the network.

ONDC shall not mandate sharing of any

transaction-level data by participants with ONDC.

ONDC will work with its participants to publish

anonymised aggregate metrics on network
performance without compromising on
confidentiality and privacy.

ONDC will be compliant with the Information

Technology Act, 2000 and designed for compliance
with the emerging Personal Data Protection Bill.

ONDC provides a level playing field for small

THE
business owners and sellers. But data misuse,
RED LAB
anonymity and privacy could be an issue and would
ANALYSIS
have to be kept a check on.

The data available in the ecosystem can be misused

to optimise online stores, products and services as
well as to manipulate users for benefit by certain
players in the ecosystem. A strong need for
compliance with law and the fundamentals of privacy
would need to be paid attention to.

For digital agencies, though, it is time for hard work –

to understand and tame the algorithms and to use
them beneficially for their clients and brands.

09
 Regulatory Framework &

Equal
Opportunity
E-commerce has today gained substantial depth
in the Indian market; Amazon and Flipkart parcels
are a common sight at the post offices of Tier 2
and Tier 3 cities!

However, the manner of evolution of e-commerce

has triggered concerns around competition and
misuse of customer data.

Entry barriers to small entrepreneurs, white

labelling of products and preferential treatment to
certain brands make it exceptionally hard for
smaller, hyper-local brands to even stand a
chance to be discovered, let alone trade. And this
goes against the very foundational idea of
e-commerce as a phenomenon that would allow
multiple retailors to host their products on a single
platform, thus allowing consumers to select from a
range of options.

In addition to establishing ONDC to manage the

open network, the Government may consider
establishing an Independent Regulatory Authority
for eCommerce (such as SEBI for Capital Markets).

10
 There are three important considerations for ONDC:

Dynamic pricing

Inventory management

Optimisation of delivery cost

These will actually reduce the cost for doing

business for everybody.

THE The regulatory framework is paramount. Mis-use is

RED LAB already visible in domains like online gaming where
ANALYSIS malpractices abound. It is therefore all the more
necessary to put in place guard rails at the very
beginning, so that the very purpose of the project is
not undermined by a few.

11
 Advantages
to the Rural
and Peri-Urban
Consumers

Riding on the Digital India juggernaut – the

impact of which has been seen in sectors such as
identity, payments and finance, retail and
service-delivery, healthcare and education –
ONDC is a pioneering idea to democratise digital
commerce in the country.

Prospects galore, but the real test of a platform

such as ONDC would be to see if it could truly link
the rural and peri-urban producers to the urban
market. Integration of ONDC with Village Level
Entrepreneurs (VLE) and CSC Grameen e-Stores
is already on the anvil.

The aim to thus host about 10-20% of India’s total

retail economy (i.e. about $100-200 billion) on its
platform should also subsume businesses
promoted through government schemes.

12
Pradhan Mantri Van
Dhan Yojana & ONDC
– A Case Study
PMVDY is a scheme for enhancing the livelihood
of forest-dependent tribes through aggregation,
processing and forward sales of forest produce.
The scheme has been operating since 2018 but a
bulk of sales still take place at local haat bazaars
or village mandis and is restricted to local traders.
The tribal communities neither enjoy the benefits
of price realisation nor do they get sufficiently
exposed to the market. By plugging in Van Dhan
Vikas Kendras (VDVKs) set up under this scheme,
ONDC can, however, provide them the reach on
scale enjoyed by any other big brand.

Such an integration would also add significant

value to customer choices gallivanting towards
healthy and sustainable options. Consumers have
become more conscious about the origins of the
products today than ever before.

The VDVKs products would also be able to create

a network effect through ONDC. Consider this: a
customer wanting to buy a kilogram of honey
today can choose from brands that cost him
anywhere between Rs 400 to Rs 5,000 with
quality as the single largest differentiating factor.

It is also possible that as VDVKs start hosting their

products online and getting exposed to consumer

13
 expectations; a format for processing, standard-setting,
packaging and labelling evolves organically.

Linkage of VDVK products to the value chain through

ONDC could be a big leap towards precipitating the ease
of doing business for one of the most deprived
communities in the country.

THE The power and the potential of the rural and

RED LAB peri-urban sellers still remains untapped and there’s
ANALYSIS a huge opportunity which through proper
implementation of ONDC could be tapped,
generating employment in the rural areas and thus
providing economic stability to the backbone of our
country - the villages. This will also take us one step
closer to pushing India towards becoming a
trillion-dollar economy.

14
ONDC - Present &

Future
The pilot phase of the ambitious Open Network
for Digital Commerce (ONDC) kicked off on April
29. Under the trial run, the platform went in five
cities – Delhi NCR, Bengaluru, Bhopal, Shillong
and Coimbatore.

According to the officials of the Ministry of

Commerce, 80 firms are currently working with
the platform and are at different stages of
integration. The officials further added that the
platform plans to add 150 retailers in five cities
during the pilot phase.

Speaking on the launch, Anil Agrawal, additional

secretary in the Department For Promotion of
Industry and Internal Trade (DPIIT), said, “With
this pilot phase, we want to learn as to how this
rolls out in the real life environment where you
actually make payments, do the deliveries, cancel
orders and get refunds. Once these lessons are
known, we would create a playbook, which will be
Anil Agrawal a set of standards.”

Through ONDC the government aims to bring

sellers, consumers and logistics providers
together on a single platform. 

15
Outlining ONDC’s future plans, Agrawal said,
“Going forward, the target of the ONDC is to
onboard 3 crore sellers and 1 crore retail
merchants online. In the next step, we want to
go to 100 cities in six months.”

ONDC aims to provide a seamless platform for

merchants to sell their products. It has already
received investments worth INR 255 crore from
public and private organisations, including from
lenders such as the State Bank of India, ICICI
Bank, and HDFC Bank.

16
ONDC - benefits
to India
 ONDC will bring together industry leaders & policymakers to
raise awareness of the benefits of doing business online in India
and how e-commerce can make a difference for the nation.

 One Nation, One Digital Commerce Campaign (ONDC) is the

way forward to help Indian start-ups and entrepreneurs grow
their businesses. By supporting them, 5 crore consumers and
30 crore citizens benefit from a larger market, increased scale
and better products.

 ONDC will connect thousands of sellers across India with

millions of customers who are ready to buy. By working with all
e-commerce players, the vision is to enable a single, seamless
and secure e-commerce experience for buyers and sellers.

 Merchants can start accepting card payments immediately

instead of waiting months for their bank-approved payment
gateway integrations. 

 Developers get access to an awesome set of tools they can use

when building new features or products that integrate with
e-commerce platforms like Shopify.

 The e-commerce through Amazon and Flipkart on their

websites, which are offering a wide range of products, have
taken over the whole sector in terms of sales. ONDC aims to
help every e-commerce seller realize their potential.

 Big businesses and small start-ups will both benefit from this
important decision, which will spur progress and job growth in
the private sector.

17
THE The explosion of e-commerce has been brutal for
RED LAB Indian mom-and-pop retailers in the last decade
ANALYSIS with the proliferation of Amazon and
Walmart-owned Flipkart. As internet penetration
grew, Indians started using their smartphones for
other services including ordering groceries. While
this slowly chipped away at the businesses of local
stores, it was the launch of the new category of
instant grocery delivery — within 10 to 20 minutes
— that further aggravated the situation.

The instant grocery delivery market sprang up in

India less than a year ago and is already at over
$700 million, with estimates to grow almost 15
times its current size, to $5.5 billion by 2025. That
would put it ahead of China and the EU in terms of
adoption of these services, according to local
research and consulting firm RedSeer. Ultra-fast
online grocery delivery has taken hold in the U.S.,
and Europe, too, growing during the pandemic
when many affluent people stayed indoors. Major
players include Glovo in Spain, Gorillas in Germany,
Cajoo in France, Zapp in London and Getir in Turkey.

In India, as in other countries, apps are causing side

effects: more delivery workers on the streets (and at
risk of accidents) and more small shop owners
losing customers. But there is one thing that’s
different in India: scale.

18
Impact on
small
Retailers
Digital commerce is revolutionizing
India’s retail industry. The use of mobile
wallets and digital transactions
(particularly for low-cost items and
grocery delivery) is having an outsized
effect on small retailers in India. Research
shows that an open network for digital
commerce has the potential to bring
$35.03 billion to small retailers in India.

As a small retailer, you can now accept

payments from customers anywhere in
India. ONDC will enable you to accept
multi-modal payments: credit cards,
debit cards and digital wallets.
We can now enable offline merchants to
accept digital payments at scale – this
means more consumers will be able to
make purchases from their favorite
retailers without having a bank account
or even an internet connection.

19
Leveraging ONDC
for e-commerce
Any ecommerce firm can avail the benefits of
Open Network for Digital Commerce. However,
one should note that ONDC is a payment system,
not a payment gateway. Thus, all e-commerce
players need to develop their own app for
accepting payments via ONDC. A few apps are
already available in the market like UPI for all
banks (Axis Bank), BHIM UPI app from NPCI and
Quickpay by ICICI bank to name a few. In future it
can use QR code, phone number or tokenized UPI
to make payment flow simpler.

20
Meeting the
Tech Gap

Now that the basic guidelines are in place, the ONDC

organised a hackathon where 64 teams took part to create
innovative solutions to meet 11 key challenges. These
included digitisation of catalogues, Indic language support,
conversational interface, intelligent text parsing, dynamic
pricing, inventory management and more.

According to Adil Zainulbhai, chairman of the QCI, open

technology has energised the startup ecosystem to come up
with many solutions in various sectors.

What Ayushman Bharat is doing for healthcare and the

National Skill Development Corporation is doing for skilling,
the ONDC is doing for digital commerce. It is by the markets,
for the markets, where all parts of the value chain will be able
to participate, he added.
21
Why India Needs
A Different
E-commerce Model

As ecommerce in its various formats has emerged

as the next big thing of Indian retail, the Bharat
consumers (shoppers beyond Tier 1 cities) are
getting comfortable shopping on Amazon and
Flipkart. But it is no longer a veritable duopoly,
thanks to the super-app ambitions of desi but
deep-pocketed aspirants like Reliance Industries,
the Tata group, Paytm and others.

A similar spread is also seen globally, be it in China

or the US, where a handful of players like the
Alibaba Group, JD.com, Amazon and Walmart rule
the digital market. In fact, very few economies are
promoting digital market inclusivity via an ‘open
source’ model or focussing on on-boarding
medium and micro-businesses.

Mr. Nandan Nilekani, who is part of the policy

group, in his submission, stressed the need for a
new format for several reasons. He argued that
India’s internet economy is different from what it is
in the US. For instance, the Western model is
advertising-led internet, while the Indian model is
Mr. Nandan Nilekani transaction-based.

22
For the last 20 years, the rise of the internet in the
West has been fuelled by digital advertising. That
is how big players like Google and Facebook
make money.

“But in India, the digital advertising market is very

small. It is around $2-3 bn of the total $10 bn
advertising revenue. Therefore, India will be a
transaction-led economy for the internet. And
technologies like the UPI, which is very high
volume, zero-cost and very simple to use will
drive that. We have to take advantage of the fact
that India will be a transaction-led internet
economy. And that is also part of the trend that
the ONDC will play on,” added Mr. Nilekani.

Besides, most department stores are extending

home delivery services nowadays. And the
neighbourhood kirana stores also fall under that
category. This way, groceries and other goods will
be delivered fast, without a hitch.

India needs a digital infrastructure that can

include all these existing formats instead of
forcing small businesses to register on third-party
marketplaces that require 20% or more in
commissions and other fees for the ease of doing
business. The better option is to adopt a
cost-effective ‘open’ solution that will help drive
digital growth.

23
Amazon
on ONDC

Amazon is "excited" about the prospects of Open

Network for Digital Commerce in India's
still-nascent e-commerce market, its Country
Manager for India Consumer Business Manish
Tiwary has said, describing the network as a
fascinating idea.

Manish Tiwary Asked about his views on ONDC, Tiwary said

the company is looking forward to innovations,
which will lift all boats in the ecosystem and bring
more buyers and sellers online, as it focuses on
serving the next 500 million customers.

“If you look at categories like grocery, fashion...I

mean groceries is like 50 per cent of shoppers'
basket... e-commerce would not even be in single
digits... in terms of penetration," Tiwary said. The
question of threat comes where penetration levels
are far higher, he added.

“So things threaten you when you have, say,

90 per cent penetration and everyone is using it...
at this point of time, just think about any industry
at infancy...the more the innovation, the more the
players, the he faster is the acceleration of the
industry," Tiwary said.

24
”At this stage, we are engaging very closely with
the ONDC group, and we are quite committed to
what the government is wanting to do, which is to
digitise kiranas, local stores... I spoke about some
of our initiatives, which are preceding even
ONDC... So yes, excited by what it can do. It's a
nascent industry, we will work closely with the
government," he said. Amazon comes with a deep
understanding of technology, and sellers which it
will leverage, the official added.

In May this year, Amazon announced that it has

cumulatively created more than 11.6 lakh direct
and indirect jobs, enabled nearly USD 5 billion in
cumulative exports, and digitised over
40 lakh MSMEs in India.

In January 2020, the US-based e-commerce giant

pledged to digitise 1 crore MSMEs, enable USD 10
billion in cumulative exports and create 20 lakh
jobs in India by 2025. Amazon had said it is well on
track to fulfil these pledges, while in fact doubling
its export pledge from India, to now enable USD
20 billion in cumulative exports from the country
by 2025.

25
In Conclusion

 India’s e-commerce industry will be served by its

own network, the ONDC – a new payment network
that will be created by the Reserve Bank of India to
help in the growth of e-commerce in India. The
ONDC will be the backbone of India’s e-commerce
industry, serving as a platform for digital payments,
commerce and transactions. It will also be a platform
for digital data and content.

 This means that Indian e-commerce firms can use

the network to accept payments in real time across
all platforms including smartphones and mobile
wallets. The ONDC will help Indian e-commerce
firms grow their businesses by allowing them to build
new products and services while maintaining high
levels of security that protect customers’ personal
information.

 The new network is expected to bring a whole set of

new features and have a positive impact on the
e-commerce industry. Hopefully, it will help solve
some of the problems faced by small retailers during
the COVID-19 crisis.
26
THE With an average age of 29 and the second-highest
RED LAB population in the world, India has one of the
ANALYSIS youngest populations — with high levels of
disposable income and no time to shop because of
high-pressure jobs. That, combined with the steady
rise of the Indian middle class, has meant more
Indians are using the growing number of online
delivery services in the country.

Many of these startups that users rely on are backed

by venture-capital money from Western countries,
including Accel Partners-backed Swiggy Instamart,
Y Combinator-backed Zepto, Google-backed
Dunzo and SoftBank-backed Blinkit. India has
around 10 such services. Together these companies
have carved out over $1 billion towards instant
grocery delivery.

But the ONDC protocol can help tip the scale in the
favor of offline sellers, who will now have a platform
to compete with deep-pocketed startups. ONDC
will help a seller succeed on the basis of what they
can offer and the specialization they have, rather
than the scale that venture capital money helps
many achieve.

27
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