The Open Network for Digital Commerce (ONDC) is a transformative initiative by the Government of India aimed at revolutionizing the e-commerce landscape by promoting inclusivity, competition, and innovation. Launched under the Department for Promotion of Industry and Internal Trade (DPIIT), ONDC seeks to democratize digital commerce by creating an open, interoperable network that connects buyers, sellers, and service providers across various platforms.
What is ONDC?
ONDC is not a single application or platform but a set of open protocols and specifications designed to facilitate seamless interactions between buyers, sellers, and logistics providers, regardless of the platforms they use. It aims to shift India’s e-commerce from a platform-centric model, dominated by giants like Amazon and Flipkart, to a decentralized, inclusive network that empowers small and medium-sized enterprises (MSMEs), local retailers, and consumers.
Similar to the Unified Payments Interface (UPI) for digital payments, ONDC provides a standardized framework that enables interoperability across e-commerce platforms, ensuring equitable access and reducing the monopoly of large players. It was incorporated as a private, non-profit Section 8 company on December 31, 2021, with initial investments from organizations like the Quality Council of India and Protean eGov Technologies.
How ONDC Works
ONDC operates as a network-centric model, connecting various stakeholders in the e-commerce ecosystem through open protocols based on the Beckn Protocol. Here’s a breakdown of its operational framework:
1. Network Participants
ONDC comprises three main types of participants:
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Buyer-Side Applications: These are platforms or apps (e.g., Paytm, PhonePe’s Pincode) where consumers search for and purchase products or services. These apps connect to the ONDC network to display products from various sellers.
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Seller-Side Applications: These enable merchants, including MSMEs and kirana stores, to list their products or services. Sellers can onboard through ONDC-compliant apps (e.g., Mystore, Webkul) without needing to build their own e-commerce infrastructure.
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Logistics Partners: These handle the delivery of goods, offering real-time tracking and optimized routes. ONDC unbundles logistics, allowing consumers to choose their preferred logistics provider.
2. Open Protocols and Interoperability
ONDC uses the Beckn Protocol, a set of open-source standards that ensures seamless data exchange and process integration across platforms. This allows:
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A buyer on one app (e.g., Paytm) to discover products from sellers on different platforms without needing multiple accounts.
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Standardized processes for cataloguing, inventory management, order fulfillment, and payment processing, reducing compatibility issues.
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APIs that enable third-party developers to create apps and services integrated with ONDC, fostering innovation.
3. Transaction Process
The transaction process on ONDC is decentralized and involves multiple entities:
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Discovery: A buyer searches for a product on a buyer-side app, which queries the ONDC network to fetch listings from various seller apps.
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Order Placement: The buyer selects a product, and the order is routed through the ONDC network to the relevant seller.
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Fulfillment: The seller prepares the order, and a logistics partner (chosen by the buyer or seller) handles delivery.
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Payment: Payments are processed through secure, centralized gateways, often integrated with UPI, ensuring transparency and security.
4. Key Components
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Unified Shopping Experience: ONDC provides a unified shopping cart and checkout process across platforms, reducing the need for multiple accounts.
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Centralized Consumer Database: Sellers gain access to consumer data (with compliance to data protection regulations) to make informed business decisions.
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Standardized Digital Contracts: These outline rights and responsibilities, reducing issues like fraud, fake products, or delivery disputes.
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Technology Service Providers (TSPs): TSPs offer tools for payments, analytics, and security, enabling small businesses to participate without in-house tech expertise.
Impact on India's E-commerce Industry
ONDC is reshaping India’s e-commerce sector, which is projected to reach USD 350-400 billion by 2030, by addressing key challenges and fostering inclusivity.
1. Empowering MSMEs and Small Retailers
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ONDC enables small businesses, including 12 million kirana stores, to establish an online presence without building their own platforms.
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It reduces dependency on large platforms, which often charge high commissions (20-28%). ONDC’s model lowers transaction costs to 2-4%, making it sustainable for small sellers.
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By onboarding 36,000+ merchants across 236 cities (as of May 2023), ONDC has expanded market access for local retailers.
2. Breaking Digital Monopolies
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ONDC counters the dominance of Amazon and Flipkart, which control nearly 60% of India’s e-commerce market, by allowing sellers to be visible across multiple platforms.
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It promotes fair competition by eliminating practices like self-preferencing and data monopolization, ensuring a level playing field.
3. Enhancing Consumer Choice
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Consumers can compare prices and products across platforms within a single app, improving price discovery and access to local products.
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ONDC’s network spans diverse sectors like grocery, food, fashion, electronics, and mobility, offering a wider range of products and services.
4. Driving Rural E-commerce Penetration
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With only 4.3% e-retail penetration in India compared to 25% in China, ONDC targets tier-2, tier-3, and rural areas, onboarding sellers from 1,000+ cities.
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Partnerships like CSC and ONDC (February 2024) integrate rural retailers through apps like e-Grameen, fostering digital inclusion.
5. Boosting Innovation and Scalability
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ONDC encourages startups and tech providers to develop innovative solutions, such as Nazara Technologies’ “gCommerce” for in-game shopping.
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Major companies like Microsoft, Amazon, and Flipkart are integrating with ONDC, enhancing its scalability and technological robustness.
6. Economic and Employment Growth
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ONDC is expected to generate USD 48 billion in gross merchandise value and onboard 900 million buyers and 1.2 million sellers in the next four years.
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It creates opportunities in logistics, packaging, and last-mile delivery, boosting employment and local economies.
