Abhinav Pahal, ONDC, Gateway to Progress | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Abhinav Pahal: ONDC - Gateway to Progress

Why in News?

• The Open Network for Digital Commerce (ONDC) has achieved a significant milestone by surpassing 15 million monthly transactions. This achievement is a testament to its role in empowering small businesses and promoting inclusive e-commerce.
• In May 2024, ONDC recorded an all-time high of 8.9 million transactions, reflecting a remarkable 23% month-on-month growth.

What is Open Network for Digital Commerce? 

About ONDC

• ONDC (Open Network for Digital Commerce) was launched in April 2022 by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce. Its goal is to democratize e-commerce in India.
• The platform is open-source and facilitates seamless transactions between buyers and sellers, shifting from a platform-centric model to an open-network approach.
• ONDC was established as a non-profit Section-8 company with contributions from public and private banks, with an authorized capital of ₹500 crore.

Objectives

• Reduce the dominance of major e-commerce platforms through interoperability and inclusivity.
• Empower small businesses, women-led enterprises, and SC/ST entrepreneurs with tools to access the digital marketplace.
• Lower customer acquisition costs and transaction processing expenses for businesses on the network.
• Bridge regional and linguistic divides, promoting participation from underserved markets.
• Ensure consumers have access to diverse sellers, competitive prices, and better-quality services.

Working Mechanism

• ONDC operates on a decentralized architecture using open protocols, allowing buyers and sellers across different platforms to transact via standardized APIs.
• Roles within the network are clearly defined into Buyer Apps, Seller Apps, Logistics Providers, and Technology Enablers to ensure efficiency and accountability.
• The network facilitates operations across 13 domains, including food, groceries, mobility, fashion, agriculture, and financial services.

Achievements So Far

• ONDC has expanded its reach to 616+ cities, significantly increasing geographical coverage and participation from sellers and buyers.
• Initially piloted in Bengaluru and Delhi, ONDC has expanded into various categories such as mobility, health, beauty, and agriculture.
• The MSME-TEAM scheme, active from 2024 to 2027, aims to onboard 5 lakh MSMEs, including 2.5 lakh women-owned enterprises. 
• ONDC has received multiple awards, including the "Start-up of the Year" at the 14th India Digital Awards and "Tech Disruptor" in 2024. 

What are the Benefits of ONDC? 

• Empowering Small Businesses and MSMEs: ONDC empowers Micro, Small and Medium Enterprises (MSMEs) by reducing their reliance on costly platform-specific policies and expanding their reach to a nationwide audience. MSMEs benefit from training programs aimed at enhancing digital skills and ONDC's interoperable protocols for efficient cataloging and order fulfillment. The MSME-TEAM initiative supports businesses with onboarding, catalog preparation, account management, and logistics, with a particular focus on women-led enterprises.
• Expanding Digital Commerce Inclusivity: ONDC fosters participation from local vendors, artisans, and rural entrepreneurs, promoting socio-economic inclusion and improving market accessibility. Initiatives like the ONDC Sahayak WhatsApp Bot, available in multiple languages, streamline platform onboarding for both sellers and buyers.
• Enhancing Consumer Experience and Competition: Buyers benefit from a wider selection of sellers, diverse product options, and competitive pricing, leading to increased consumer satisfaction. ONDC disrupts monopolistic practices by promoting competition among sellers, driving innovations and improving service quality.
• Economic Development and Job Creation: The initiative aids in the formalization of small businesses, creating digital records that enhance access to credit and financing. ONDC stimulates economic growth by generating employment opportunities in logistics, technology, packaging, and last-mile delivery, particularly in smaller cities.
• Pioneering Digital Commerce Innovation: ONDC’s open-source approach encourages technological innovation, allowing developers to create new solutions within the e-commerce framework. The platform’s expansion into sectors like health, mobility, and agriculture showcases its adaptability to meet India’s diverse digital commerce needs. 

What are the Challenges for ONDC? 

Complexity of Transition and Adoption:

• ONDC's decentralized system is more complex than simpler systems like UPI, requiring significant technological understanding, which can be challenging for small businesses.
• Consumers used to dominant platforms may struggle to switch to ONDC's open network without smooth onboarding processes.

Dispute Resolution and Accountability Issues:

• ONDC does not have a centralized system for resolving complaints, leading to uncertainty about who is responsible for issues such as late deliveries or product quality.
• Since ONDC acts only as a facilitator, disputes may increase, impacting user trust and overall adoption rates.

Competition from Established Platforms:

• Existing e-commerce giants have a stronghold with their large customer base, loyalty programs, and bundled services, making it tough for ONDC to attract users.
• Without effective strategies, ONDC may find it challenging to draw in sellers and buyers who are already part of established ecosystems.

Technological and Logistical Barriers:

• Integrating a diverse range of participants with different technological capabilities demands substantial resources, making it difficult to ensure consistent network efficiency.
• Providing reliable logistics and timely deliveries across over 616 cities, especially in rural areas, presents a significant challenge for the network.

Lack of Direct Price Control:

• ONDC's role as a facilitator restricts its ability to directly offer discounts or influence bulk pricing strategies.
• The lack of substantial cost advantages may discourage price-sensitive consumers from making the switch to ONDC.

Way Forward

• Investing in Digital Infrastructure: The government should focus on closing the digital gap by ensuring that rural areas have strong broadband and mobile connectivity. This is crucial for the smooth functioning of ONDC. Improving both physical and technological infrastructure will enable ONDC to scale up and be inclusive across the country.
• Promoting Digital Literacy and Ease of Use: There is a need for comprehensive education programs in regional languages, along with interactive tools, to help sellers and buyers navigate ONDC effectively. Simplifying user interfaces and offering step-by-step guidance will make it easier for non-tech-savvy users to get on board and participate.
• Strengthening Dispute Resolution Mechanisms: ONDC should set up a single-window system for resolving grievances to build trust in the ecosystem. It is important to define clear responsibilities for logistics, payments, and after-sales services to ensure smoother operations and higher user satisfaction.
• Collaborative Strategies and Incentives: ONDC needs to work with existing e-commerce players, startups, and industry bodies to boost adoption and expand its reach. Offering financial support for onboarding and creating tax incentives for early adopters will encourage participation from MSMEs and small businesses.
• Fostering Innovation through Technology: ONDC should utilize emerging technologies like AI for personalized shopping experiences and blockchain for secure transactions to improve efficiency. Encouraging private-sector innovations within the ONDC framework will foster competition and enhance consumer experiences.