View | Democratising digital markets, the ONDC way

In the rapidly digitising world, novel business models are evolving in the digital ecosystem. The widespread adoption of Information and Communication Technology (ICT), along with the growth of multitudes of digital companies, has led to distinct digital markets comprising millions of interacting participants, who/which are often interconnected across the ecosystem. These digital markets are present across the national and global economy in most sectors, from healthcare to finance, from transportation services to education, as per the House Panel Report on Big Tech, 2022.

In this evolving business paradigm, it is imperative that digital markets remain open, decentralised and democratised. To ensure this, we need not only public policy solutions but also technological approaches to diffuse market power and concentration. Open Network for Digital Commerce (ONDC) is one such powerful idea which has the potential to transform the digital ecosystem into a level playing field for all stakeholders.

Digital prominence and electronic commerce in its different verticals go hand-in-hand. It is widely documented that electronic commerce offers different avenues for multiple stakeholders to derive value. For instance, a scenario where a customer wishes to purchase a product through a popular Business to Consumer (B2C) platform, it is imperative that both the buyer and seller be visible and engage in transaction through the same platform which acts as intermediary for both. In this ecosystem, the platform has the autonomy and there is a platform-centric model of B2C electronic commerce where concentration and command are in favour and control of platforms as intermediaries.

However, if small businesses (sellers) independently want to be able to reach a broad consumer base regardless of the consumer being on the same platform, therein lies the importance of the ONDC. To truly appreciate the nuances of the same, it is important to highlight internet related technology concepts.

Internet usage has evolved from passive readable information to active interaction by all stakeholders including buyers and sellers, thereby leading to a more holistic participation in the internet, broadly classified as Web 1.0 and Web 2.0, respectively. In the spirit of this development, Web3 (or Web 3.0) is the third generation of the World Wide Web relying upon principles such as decentralisation (dispersed and wide active participation by all stakeholders on the internet), interoperability (ability of different functional networks or devices to function in complete synchronization with each other), encrypted communication secured through cryptography and an open platform for the internet. The foundation of Web3 is blockchain technology, an immutable digital ledger which facilitates and records information and transactions through cryptography.

The central idea of the aforesaid is to ensure all participants across the internet spectrum have meaningful and value-adding interactions rather than centralised, hierarchy-based platforms where transactions must rely upon their functionalities to go through. It is in this context that the ONDC must be appreciated.

ONDC is a not-for-profit company created under Section 8 of the Companies Act, 2013, by the Department for Promotion of Industry and Internal Trade (DPIIT), which shall function upon open network of protocols, decentralisation and interoperability to facilitate smooth exchange of data-based information, and execution of electronic commerce transactions in a manner where any seller and buyer, regardless of the platform, can discover each other. This has implications for different verticals of electronic commerce such as Business to Business (B2B), B2C, Business to Government (B2G), among others.

To understand the scope of value addition by ONDC and its relevance in terms of big technology companies, it is imperative to understand its transformative role through a simple illustration.

For instance, an entrepreneur who has launched a B2C platform which lists products from nearby grocery stores and ensures seamless and timely delivery of products to nearby consumers. These local grocery stores, which also have inventory of local brands, can now list such products on this local platform. Such products wouldn't otherwise find their way onto B2C platforms run by big technology companies, either due to the difficulty in listing on such platforms or due to the asymmetry created through self-preferencing. Further, in an era of cashless payments, as most end-consumers are on mobile payment applications, ONDC, in order to increase its reach, has also listed its products on leading mobile payment applications. As a result, even if many customers may not have come across local B2C platform, because of their usage of leading mobile payment applications, consumers got a wider choice to buy from local brands as well.

At this juncture, it is important to mention that the seamless integration of this local platform with leading mobile payment applications is contingent upon their functional compatibility. Here, on account of interoperability, decentralised user base, and secure open networks through blockchain, ONDC would be crucial to encourage small-scale businesses to sell products at scale, help them find a large consumer base, encourage further adoption of digital payments and lastly, steer ordinary consumers’ dependence on big technology platforms.

This is therefore poised to impact the market power of the big technology platform-centric electronic commerce model in pro-competitive ways. At present, B2C electronic commerce platforms have incentives and ability to engage in self-preferencing behavior (preferring their own products and services over third party providers), predatory pricing (pricing below cost to drive out competitors and recouping prices subsequently), data-sharing with third parties; all on account of their centralised nature. Through ONDC’s adoption, the government is pushing towards a more equitable, transparent and holistic digital commerce across the Indian economy.

As ONDC would operate on open network protocols, there needs to be adequate standardisation for acceptance by all stakeholders concerned.

Harnessing technology to democratise digital markets is crucial to ensure a fair and equal digital economy. By incorporating decentralised systems and creating inclusive platforms, we can empower individuals and businesses to participate in the digital marketplace on an equal footing.

The ONDC initiative is indeed laudable as it has a noble agenda to integrate more stakeholders into India’s electronic commerce push at a time when the market has grown exponentially and will continue to grow on account of ease of access to internet and smartphones by consumers.

It is indeed pragmatic that, to counter the market concentration induced by the platform centric electronic commerce model, a technological solution has been proposed which can streamline market competition in this industry. There is an imperative need to construct a techno-legal narrative to keep digital markets open and democratised to ensure seamless adoption of ONDC as an imminent benchmark of healthy market competition.