By Dhiren Gupta*

An Overview

E-commerce in India is largely dominated by two major players: Amazon and Flipkart. Together, they control 60% of the Indian E-commerce sector, leaving small and medium-sized businesses (SMBs) in the dust. SMBs are a vital part of the Indian economy, providing jobs, income, and other economic benefits. However, with the rise of digital commerce and a tech-forward economy, these SMBs are struggling to keep up. Despite a large number of internet users, SMBs have not been able to take advantage of digital adoption and have to rely on aggregators for logistical support. Initially, these aggregators provided customer support and acquisition, and SMBs welcomed the change. But after a few years, it became clear that SMBs had made a bad deal. In exchange for technical and logistical support, SMBs had to give up control over branding and pricing while also paying hefty commissions to the aggregators, resulting in lower profit margins.

What Is ONDC?

The Department of Promotion of Industry and Internal Trade (DPIIT) of the Ministry of Commerce and Industry has launched the Open Network for Digital Commerce (ONDC) to revolutionize the status quo and empower small and medium-sized businesses (SMBs). Much like the Unified Payment Interface (UPI) did for payments, ONDC’s network-centric model will enable retailers and consumers to transact for goods and services through an open network, regardless of the platform or application they use. This initiative seeks to democratize the E-commerce sector and provide equal opportunities to SMBs and up-and-coming businesses while challenging the monolithic platforms that operate on closed systems.

ONDC has been established as a non-profit company, similar to the National Payments Corporation of India (NPCI). It is a set of specifications designed to facilitate open exchange and linkages between shoppers, technological platforms, and retailers, rather than an application, intermediary, or software. DPIIT has defined it as an open network market and community-led initiative that eliminates the need for a central intermediary and acts as an enabler for e-commerce expansion and broad-based innovation.

Challenges to ONDC

Setting up the Online National Digital Commerce (ONDC) platform in India’s $55 billion e-commerce industry is a complex undertaking. There are several obstacles that need to be addressed, such as technological expertise, complaint redressal mechanisms, and predatory pricing. To ensure the success of this venture, the government must launch extensive awareness campaigns and organize workshops to help retailers understand the technical aspects of the platform and maximize its potential. Additionally, fair broadcasting of search requests must be promoted by restricting the participation of big-promotional sellers who pay extra to display their products on priority searches, allowing small and medium businesses (SMBs) to compete despite their limited advertising and branding budgets.

Grievance redress mechanisms are an essential component of any successful administration. Without a reliable and effective complaint resolution process, ONDC cannot claim to be responsive, accountable, or user-friendly. In fact, a company’s complaint resolution process serves as a benchmark for evaluating its effectiveness and efficiency, as it provides valuable insight into the performance of the administration. To ensure fairness and justice, a proper mechanism for complaint redressal must be designed in such a way that both consumers and retailers can bring their issues forward and receive appropriate solutions.

What New Does It Bring To The Table?

Trust portability and digital visibility are two of the most advantageous features of ONDC. Smaller companies with excellent services but limited digital visibility can establish themselves as reputable brands and increase their trust portability factor. For instance, a taxi service that operates locally with trusted customers can leverage ONDC to expand their reach to a different region and customer base. The trust of their existing customers will provide them with positive and transparent feedback, which will result in improved digital visibility and reduced costs for advertising and branding, and this trust will be transferred to the new customer.

ONDC will act as a platform for these services rather than a middleman. ONDC will reduce the role of the middleman, who acts as a barrier between retailers and consumers, and improve interoperability. It also plans to operate in at least 100 cities and focus on apps in local languages to increase accessibility and bring both the buyer and seller ends of the transaction onto a transparent medium of trade. SMBs will experience a significant boost in their business due to expanded access to demand, lower acquisition costs, and greater transparency in feedback and reputation management.

ONDC’s Transaction Structure

The rules of the sale must be strictly adhered to in every transaction, and the invoice serves as the document that transfers ownership of the products from the seller to the buyer. Both the buyer and the seller are in a continuous legal relationship with their respective applications (the buyer app and the seller app). However, the buyer and seller apps have no direct connection to one another. Through the Network Participant Agreement and ONDC Network Policy, the buyer and seller apps are only permanently bound by ONDC. These two applications are legally distinct from one another. To facilitate a transaction between a buyer and seller, a transaction-level contract is established between them, creating an immediate legal connection.

ONDC’s Current Position

ONDC is currently running a hyperlocal service trial and has a presence in two modes: Alpha mode, which is present in 83 cities, and Beta mode, which is present in 2 cities. It aims to extend to at least 100 cities in the future, with a gross merchandise value of $48 billion. ONDC has been successful in capturing the interest of 25 network partners, which includes companies like Microsoft and PayTM, who have joined the network as buyers; eSamudaay and GoFrugal as sellers; Grab and Dunzo as logistic support partners; and financial institutions such as the State Bank of India, Axis Bank, and Kotak Bank, which have purchased stakes in the platform.

Conclusion

To conclude, a system such as ONDC can be successful in India due to its ability to promote a transparent trade between the consumer and the retailer or SMBs, as well as providing the benefit of self-reliance. In times of conflict, such as the current situation between Russia and Ukraine, where economic sanctions are the primary form of attack, having an indigenous system in place will protect our e-commerce from collapse, just as UPI does for our payments. By integrating SMBs into the digital sector, businesses can benefit from improved services from smaller companies, rather than generic services from large conglomerates.

*Dhiren Gupta is a freshman at the Rajiv Gandhi National Law University, Patiala. He has a strong interest in the field of commercial law, particularly in the areas of competition and antitrust, intellectual property, and information technology laws. He has a passion for learning and a drive to stay ahead of the latest developments and trends in commercial law.