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Open Network for Digital Commerce (ONDC): Breaking down barriers and empowering small businesses

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Digital commerce has immense potential to fuel economic growth in the country by empowering small businesses, creating jobs for the youth, enhancing choice for every kind of consumer, and including deserving but underserved segments of the country. And yet digital commerce in India is just 7 percent of the overall market, constrained by various barriers.

Against this backdrop, Open Network for Digital Commerce (ONDC) is working to create a new paradigm for digital commerce that eliminates many of these barriers. It is determined to democratise online commerce with an open network that, as the name suggests, has room for every seller, large or small.

ONDC is a Section 8 company, with a dedicated leadership team and an Advisory Council comprising senior leaders from the public and private spheres. Since its inception in August 2020, ONDC has been working to digitalise and support grassroots-level entrepreneurs and local retailers to include them in the digital commerce universe on an equal footing with larger, more market-savvy, and digitally enabled sellers.

ONDC protocols would standardize operations like cataloguing, inventory management, order management and order fulfilment. Thus, small businesses would be able to use any ONDC compatible applications instead of being governed by specific platform centric policies. This will provide multiple options to small businesses to be discoverable over network and conduct business. It would also encourage easy adoption of digital means by those currently not on digital commerce networks. 

ONDC is expected to make e-Commerce more inclusive and accessible for consumers. Consumers can potentially discover any seller, product or service by using any compatible application or platform, thus increasing freedom of choice for consumers. It will enable the consumers to match demand with the nearest available supply. This would also give consumers the liberty to choose their preferred local businesses. Thus, ONDC would standardize operations, promote inclusion of local suppliers, drive efficiencies in logistics and lead to enhancement of value for consumers.

A glance at the network:

a) Imagine ONDC as a set of gears that swing into action the moment the consumer launches an item search through their preferred buyer app, such as Pincode or Paytm.

b) The buyer app relays this search query to a gateway, which searches the ONDC registry. The gateway identifies relevant sellers and multicasts the search query to all seller apps. The apps then fetch product availability from their respective sellers and relay the information to the buyer app, which sorts and displays the most relevant results to the buyer.

c) While the buyer app can define the subset of products and services it wants to be known for (e.g., hyperlocal grocery and online food delivery services), it will need to make public its rules for listing and sorting search results. This is in keeping with network policies to ensure a truly democratic marketplace.

d) The seller might fulfil the order on its own or use a logistics service discovered via the network. Depending on the option, the delivery time and cost are transparently shown, allowing the buyer to make an informed choice. At the back end, a set of network services keeps ONDC running smoothly, from registries or applications that maintain the list of participants to scoring and badging services that uphold sustainable and transparent practices on the network. Together, all these gears interlock for a tailored outcome based on the consumer’s references.

By virtue of being interoperable, unbundled, and decentralised, ONDC splits a complex system into discrete microservices that different players can offer separately, with positive outcomes for all. This could be an alternative to the existing platform-centricmodel, in which the platform controls the buyer and seller journeys end to end, from provider onboarding, customer acquisition, and order fulfilment to payments and complaint resolution.

Advantages:

1.With the reduced buyer and seller app fees, sellers could find it financially attractive to build up D2C brands. Big brands might rethink their innovation to reach microsegments directly, and small businesses (for example, Kanchipuram saree weavers) could find a national market.

2. Self-employed people could promote themselves on the open, inclusive marketplace, attracting attention and business from newer consumers. It could be an advantage for skilled workers (e.g., lawyers, accountants, and doctors) and blue-collar workers. ONDC could bring workers from the unorganised sector online, connecting them with demand.

3. Retailers (such as grocery stores and pharmacies) could access a wider distribution

network, saving time and costs. Direct linages between retailers and manufacturers would be likely to cut prices, improving margins in sectors such as agriculture and construction.

4. Digital channels would take the neighbourhood market (kirana stores, stationery shops, electronics goods) online to serve hyperlocal demand, while omnichannel availability could make it easy to order from home after checking out a product at a physical touchpoint (such as an electronics or clothing store).

5. Consumers could seek and find a range of services online, from tailoring to plumbing to transport.

6. Without traditional financial records, businesses and consumers struggle to secure credit or qualify for insurance coverage.ONDC’s transaction-based data could support innovative new offerings. For example, banks could track nontraditional metrics to offer sellers milestone and flow-based financing.Greater access to credit could address a range of needs for businesses, including working capital in B2B (agriculture and construction, for instance) and supply chain financing for retailers and wholesalers (for example, in electronics and fashion).

7. The decentralised platform would eliminate the need for a middleman between consumer and provider for peer-to-peer commerce.Inspired by influencers, consumers could be excited and inspired to shop through social media. Peer sellers could offer attractive purchase options by easily showcasing their goods and services at negligible cost. Self-employed professionals such as home chefs and homestay hosts could easily find individual consumers for their services.

8.More learners and workers could access a skills-based education, vocational training, career counselling, and knowledge of career opportunities. Allowing for more equity and inclusion, this shift could engender a more equitable, skills-driven labour market in India, with the ability to upskill and seek employment available to all on an open network.

9. Once digitalised, the entire supply chain could improve price visibility, including for shippers, fleet owners, and operators across rural and urban India. Higher delivery volumes could bring down logistics costs with batching and multimodal deliveries through multiple provider options at each stage.

10. India’s vibrant internal trade could also ramp up globally. The digital commerce infrastructure could promote cross-border trade via marketplaces, particularly helping MSMEs become discoverable by global consumers and businesses.

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