Home / Opinion / Columns /  Politics must not determine ONDC architecture

The digital economy, unexplored for its full potential, has both governments and the private sector in its thrall. Yet, one critical lacuna contaminates government policy architecture for the digital economy—lagging regulatory frameworks. This chasm has come back to haunt one critical innovation in the digital economy and, going by the developments so far, is likely to dog another important innovation in the works.

The Open Network for Digital Commerce (ONDC) is being hailed as India’s next digital leap forward. It is expected to revolutionize e-commerce, much like what the Unified Payments Interface (UPI) did for Indian payments. Replying to an unstarred question in the Lok Sabha, minister of state in the ministry of commerce and industry Som Parkash defined ONDC as “an initiative aiming at promoting open networks for all aspects of exchange of goods and services over digital or electronic networks. ONDC is to be based on open-sourced methodology, using open specifications and open network protocols independent of any specific platform."

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In the true spirit of vendor-agnostic open networks, ONDC will allow any individual to place an order for goods or services in an app of their choice which will then elicit responses from not only sellers within that app but also from other competing apps or even elsewhere. The customer will have the freedom to choose any seller. The task before the ONDC team is to foster interoperability and introduce standardized processes. The platform will be managed by a company which had Quality Council of India and Protean (formerly NSDL e-Gov) as its founding shareholders, joined later by the two main stock exchanges, nine banks and two apex banks, among others. News reports suggest that the company has initiated beta tests.

ONDC’s true strength and its likelihood of becoming a global standard will emerge once digital trade actually commences on the platform. However, the compulsions behind the government’s decision to foster this digital platform will also determine its staying power and its success quotient. The government’s stated logic is that the pandemic exposed shortcomings in the existing platforms, when a large percentage of the domestic retail trade was found to be digitally excluded, leading to a supply chain break-down. Enthused by UPI’s success during the pandemic, the government now wants to create a similar “public good" for digital commerce.

But commonly held perceptions point to two other provocations for creating such a digital platform.

One is the notion that digital commerce in India is dominated by two foreign companies. This got further reinforced during the pandemic, which forced a greater reliance on e-commerce. Ongoing investigations against these two companies in the Competition Commission of India—promoting own brands in search results, using data to browbeat competing brands, predatory pricing, among other allegations—have further underpinned suspicions of ONDC being custom-built to emasculate Amazon and Flipkart.

The second reason, a bit political and hence somewhat cynical, is the feeling that ONDC will help the Bharatiya Janata Party (BJP) reinvigorate its traditional vote bank of small traders and shopkeepers. This segment has multiple reasons for discontent—demonetization, then the introduction of GST which complicated lives, and finally, the shift to digital trade during lockdowns which rendered them economically vulnerable. The optics of the government facilitating an equitable platform, where e-commerce giants might have reduced bargaining power, may have some appeal at the margin. The Confederation of All India Traders (CAIT), which claims membership of over 40-60 million Indian traders and had publicly proclaimed its support for the BJP in the 2019 general elections, has decided to launch its own e-commerce app (called Bharat e-Market) on ONDC. All three reasons bring problems in their wake.

The first relates to the government’s last two ostensible reasons for incubating ONDC. If these indeed are going to underpin ONDC’s birth, then they might end up investing a supposedly neutral platform with flawed structures and processes, helping neither the buyer nor seller. ONDC’s task should be generating trust that every player will be treated equally, that fair play will be the dominant rule, and that the government’s political agenda won’t bleed into the platform architecture.

The second stumbling block lies in the lack of a visible regulator, a nominally independent or autonomous body which will lay down the ground rules, monitor conduct on the platform and weed out any indications of dominance, bending of rules or insidious attempts by the platform operator to craft rules favouring a select few. Regulation cannot be left to the company managing ONDC. There are echoes of similar gnawing problems in the UPI space and the government’s dogged refusal to learn from those pitfalls: without any initial ground rules or pre-determined red lines, the two largest players in the UPI space—PhonePe and G-Pay—have ended up controlling over 80% of the market. A repeat performance of such dominance will rob ONDC of its implicit justification.

Finally, some unavoidable rhetorical questions need answers. What incentives exist for private players to shift their network of suppliers and buyers to ONDC and share it with the rest of the world? Or are there perverse incentives for joining ONDC?

Rajrishi Singhal is a policy consultant and journalist. His Twitter handle is @rajrishisinghal.

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