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Open Network for Digital Commerce – or “ONDC” – is an initiative of the Department for Promotion of Industry and Internal Trade (“DPIIT”) under the Ministry of Commerce and Industry. ONDC is proposed to be a network based on open protocol and will enable local commerce across segments, such as mobility, grocery, food order and delivery, hotel booking and travel, among others, to be discovered and engaged by any network-enabled application. DPIIT released a strategy paper on January 28, 2022, elucidating the objectives, framework, and functioning of ONDC. Consequently, on April 29, 2022, a pilot of ONDC was launched in six cities including Delhi-NCR, Shillong, Bhopal, Bangalore, and Coimbatoe.

Essentially Open Network for Digital Commerce intends to be a gateway that will be based on an open network protocol. Buyers and sellers will download different applications through which a particular seller can approach buyers that are used to logging into different e-commerce entities, without having to get listed on all these e-commerce platforms, and at the same time, the buyers will have the option to browse through various e-commerce platforms, through a single search bar. In addition to cutting down on dependence on big tech entities, ONDC intends to increase competition and innovating by bringing small brick and mortar stores on board, and connect them with various delivery and logistics partners, so that these stores can also approach the e-commerce consumer base already existing in India.

This framework is intended to be a clear departure from the closed network of e-commerce that is existent as of now, where a seller is required to get listed on various different e-commerce platforms, and the buyers have to browse through different e-commerce platforms, in the search of a single item. The various buyer and seller side applications, and various delivery and logistics partners, will be required to enlist/register themselves on ONDC voluntarily, and it would be dependent on these platforms’ discretion to be a part of ONDC or not.

Benefits & Objectives of ONDC

The strategy paper has envisaged the implementation of ONDC, to have many benefits. ONDC is proposed to encourage widespread participation, especially that of small and medium enterprises in the country. Moreover, it will help to address discoverability and trust across platforms, and will ideally promote economic development and livelihood creation opportunities across the digital commerce value chain i.e., logistics, packaging, delivery, etc. ONDC will also lead to unification of platforms, in order to overcome the challenges inherent in the platform model and it will also lead to enhanced autonomy to sellers and buyers.

Institutional Set-up of ONDC

As far as the institutional set-up of ONDC is concerned, an independent entity has been envisaged in such a way that it should be able to work without the need for day-to-day guidance and advisory from the shareholders/members. The management will be independent and will be empowered, to take quick and efficient business decisions. Accordingly, Open Network for Digital Commerce entity has been incorporated on December 31, 2021 under Section 8 of Companies Act, 2013, i.e. a company not made with the purpose of earning profits. This non-profit structure removes any incentive for the owners to drive for profit maximization to retain its purity of intent of establishing a public good. Interestingly enough, being a section 8 company, the company will not be listed on a stock exchange, however, the board composition, accountability, and transparency norms may be the same as prescribed for listed companies.

Governance Framework of ONDC

The strategy paper also emphasizes on the proposed governance framework of ONDC. ONDC as a network enabler, will help to establish the Network Code of Conduct by developing various policies for the network, primarily based on principles of consumer protection and fair trade. Moreover, ONDC as a network facilitating entity will provide a framework of mutually accepted policies that all network participants must be required to abide by. Further, ONDC also will establish a user council consisting of network participants, users, and subject matter experts.

Implementation Strategy of ONDC

The strategy paper also elaborates on the implementation strategy for ONDC, both at short-term as well as long-term level. The proposed short term implementation strategy is to provide user-friendly tools for easy integration in the short term. Moreover, technology tools like adapter interfaces and other building blocks are being developed for accelerated and efficient on-boarding of the network participants. Additionally, ONDC will focus on ecosystem expansion to make this a market-led community initiative.

At the same time, as ONDC’s long term implementation strategy, ONDC aspires to gradually strengthen its roles in development, network discipline, and service delivery. Additionally, ONDC ‘s uses and benefits can be extended across different sectors, domains, socio-economic strata, and geographic locations.

Proposed Data Policy

The Strategy Paper acknowledges that while functioning as a network facilitating entity, ONDC will be handling copious amounts of personal and transactional data, as digital commerce by design requires the exchange and transmission of data for transactions. For this exchange to be seamless, a data policy has been proposed to be adopted by ONDC. According to the proposed data policy, transaction data is proposed to only reside with the buyer and seller applications and will not be visible to ONDC. Moreover, ONDC will not, in any manner, be storing/viewing transaction data. Policies around the exchange of this data will be consent-based and will be bound by the limitation of purpose. Additionally, user’s personally identifiable information, as well as seller’s data that is critical to trade, is envisaged to be protected from third-party access.

Unanswered Questions

On its face, Open Network for Digital Commerce is an ambitious and revolutionary initiative and has the potential to categorically alter the e-commerce landscape in India. Having said that, there are few questions and few areas that are yet to be explored regarding the implementation of ONDC. For instance, as it is voluntary for various e-commerce platforms to get registered on ONDC, the success of ONDC will largely be dependent on whether or not sufficient number of e-commerce platforms agree to register. This becomes even more concerning, if the major e-commerce players do not register, and view ONDC, as a competition instead. 

Moreover, for various local vendors and small businesses to get themselves registered on ONDC, more awareness, and technical support is required to be provided to them. This issue is also coupled with a concern that many of these local business will find it extremely challenging to compete with the discounts, sales, and various lucrative offers, being offered by prominent e-commerce players. This could lead to the local businesses getting suffocated because of the competition on ONDC. Further, some payment related issues can also arise as different e-commerce platforms might not offer all kinds of payment methods, and this can frustrate a consumer even more, if he is employing a vendor and a logistics/delivery partner, for a single transaction through ONDC. Furthermore, the biggest concern of it all, is the issue of liability. 

In case of a consumer facing any issue regarding the transaction or the quality of products or services delivered, whose liability will it be. As it remains unclear as to how various e-commerce laws will apply to ONDC, and how ONDC fits into the entire legal landscape of e-commerce in India, the issue of liability of ONDC, remains open and unanswered.

As Open Network for Digital Commerce is effectively still an initiative in pipeline, we are yet to examine and analyse how it will be implemented, and how it will eventually affect the e-commerce landscape of India, and the various players and stakeholders involved in it.

Asim Abbas is a Partner at L&L Partners based in New Delhi with experience across a wide range of transactional and contentious mandates in the TMT field. 

Ananya Mishra is an associate at L&L Partners, who specializes in telecom, media & technology practice area, majorly focusing on telecom, e-commerce, health tech, and media laws.