E-com competition as a worthy policy response

News: The commerce ministry’s Open Network for Digital Commerce (ONDC) project is reportedly getting final touches for an online debut within a few months.

While India’s experience of state market ventures is bad, this project is indeed a worthy move.

Why state’s interference in the e-com market via ONDC project is needed and why it’s the right move?

In general, the state must not interfere in a functional market. The role of a government should be to frame policies that allow for market forces to operate freely, and it should refrain from pursuits better left to private enterprise.

But, due to the following factors, the state’s interference in the present case is justified:

– Network effects and the internet’s low-cost reach have given e-com majors a major hold over a growing sector. This clearly requires the Centre to intervene against potential abuses of dominance.

– Unfair practices by big players: Shopkeeper lobbies and seller collectives have accused big e-com businesses of unfair practices that threaten their survival.

Why ONDC is the right move?: Moreover, as the biggest platforms (websites) are privately run, they deserve the liberty to operate without being stifled by over-regulation.

Hence, the ideal policy response, therefore, would be to set up an optional platform that can challenge private players. As the principal aim is to counter a concentration of market power, the creation of a competitor is the best way out.

How ONDC can achieve its objective?

Brand name: It will need a brand name that signals what differentiates it. As ONDC draws inspiration from the UPI, the value of openness could be pitched at people by a mass campaign.

Platform design, operational efficiency and other factors need to be taken care of.

ONDC must not drain investor funds on loss-leader discounts.

Govt’s policy must not be abused to tip the e-com market’s scales in this initiative’s favour. An open network should attract customers like any other venture.

Source: This post is based on the article “E-com competition as a worthy policy response” published in Livemint on 29^th Dec 2021.