How Open Network for Digital Commerce could disrupt India’s e-commerce space?

Relevance: Important for understanding the impact of ONDC on India’s ecommerce sector.

Synopsis: Dominated by a few players, ecommerce presents a legitimate case for intervention. But government should proceed with caution as it comes with risks.

Background

The central government has recently set up an advisory council for Open Network for Digital Commerce (ONDC). This latest intervention is aimed at curbing digital monopolies in the e-commerce sector by making the e-commerce process open-source. This, will result in a platform that can be utilized by all online retailers.

Why government’s move is justified?

Following market conditions necessitated this move by the government:

• Market dominance by few players: The market is dominated by a few players who are facing investigations for unfair trade practices in many countries.
• Existence of multiple smaller players: The sector is characterised by many small players who individually do not have the capacity to have an equitable bargain with e-commerce companies.

Economists call this a “market failure”, and it presents a legitimate case for intervention.

However, in general, governments should intervene only when there is a clearly identifiable market failure or massive societal benefits from creating shared infrastructure.

Designing a system

A system should be designed such that it has the greatest chance of success.

The three “layers” of an open digital ecosystem — tech, governance and community — provide a useful conceptual framework in terms of both adoption and safeguards.

Tech layer

The “tech layer” should be designed for minimalism and decentralisation.

• A facilitating role for the govt: The government should restrict its role to facilitating standards and protocols that provide open access, and in getting them adopted organically.
• Privacy should be inbuilt: If built, the platform should be built on “privacy by design” principles. It should collect minimal amounts of data (especially personal data) and store it in a decentralised manner.
• Using blockchain: Tools like blockchain could be used to build technical safeguards that cannot be overridden without active consent.

Governance layer

The “governance layer” around this should alleviate business fears of excessive state intervention in e-commerce.

• 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 reins of the standards or platform to an independent society or non-profit.

Community layer

Finally, a “community layer” can cultivate a truly inclusive and participatory process.

• Ensuring inclusivity: This may be achieved by making civil society and the public active contributors. This can be done by, for example, making recordings or minutes of the meetings of this committee public, and seeking wide feedback on drafts of the proposal.
• Redressal of grievances: Once the framework is implemented, ensuring quick and time-bound redressal of grievances will help build trust in the system.

How to encourage adoption?

Creation of ONDC is just one aspect. Its adoption in a sector with dominant players is a difficult task. Here is a possible solution:

• Creating non-mandatory “reference applications”, and financial or non-financial incentives. For eg: The government supported the rollout of BHIM as a reference app, and offered financial rewards through a lottery scheme to drive early adoption.

Way forward

An infra-led approach will not be sufficient. We need to supplement infrastructure with tightly-tailored regulation. Many countries are exploring the concept of “interoperability”, that is, mandating that private digital platforms like e-commerce firms to enable their users and suppliers to seamlessly do business on other platforms.

Terms to know:

• Open Network for Digital Commerce (ONDC) 
• blockchain
• UPI