What is ONDC, and why is everyone talking about it?

Its backers expect that over the next five years, ONDC, with its network-centric approach and inclusive governance framework, will transform the digital commerce landscape in India and serve as an important reference point for a forward-looking Digital Public Infrastructure (DPI) governance framework.

What is ONDC, and how does it work?

ONDC is an interoperable network based on the BeckN protocol that anyone can piggyback on. It seeks to break down silos in digital commerce by enabling platforms of varying configurations (big or small) to connect and operate seamlessly on it.

It comprises different entities called ‘Network Participants’, including Buyer Applications, Seller Applications, and Gateways that perform the search and discovery function. Imagine a scenario where all the large e-commerce platforms, from food delivery to clothing and fashion to conveyance, are accessible in one place, along with your neighbourhood start-ups, shops, and kirana stores.

How does this help, and why is it significant?

By moving the exchange of goods and services from a platform-centric approach to a network-centric approach, ONDC eliminates the need for buyers and sellers to use the same application, and promotes the discoverability of local digital stores across industries.

This paradigm shift from “store of value” to “flow of value” brings with it a multitude of benefits.

From the buyer’s perspective, ONDC offers greater freedom of choice, reducing the overwhelming reliance on a single platform.

Sellers also stand to benefit greatly: the network-centric approach of ONDC reduces the skewed bargaining power in favour of the platforms, which often results in higher entry barriers and lower margins for sellers.

For instance, if a seller wanted to be on multiple platforms, they would have to maintain a separate infrastructure for each, increasing the cost and limiting participation. ONDC’s network-centric approach levels the playing field by making goods and services equitably accessible to all and benefiting all participants in the ecosystem.

What is ONDC’s inclusive governance approach?

The ONDC entity, a not-for-profit company incorporated under Section 8 of the Companies Act 2013, manages and operates the ONDC Network.

It is responsible for building and maintaining the underlying infrastructure (common registries and protocols) as well as defining the rules of engagement and code of conduct for the Network Participants through the ONDC Network Policy and the ONDC Network Participant Agreement.

Moving a step forward from previous Digital Public Infrastructure (DPI) governance models such as those of Aadhaar and UPI, ONDC takes a more representative and multistakeholder approach to the governance that prioritises the evolving needs of its users.

How will the system be funded?

The ONDC entity was initially promoted by the Quality Council of India and Protean e-Gov Technologies Limited in December 2021, and has since raised more than Rs 180 crore from multiple investors including private and public sector banks, depositories, development banks, and other financial institutions.

While initial funding was obtained through share allotments, the ONDC entity aims to develop a self-sustaining financial model in the future.

One potential revenue stream could include charging a small fee from platforms to fund ongoing and expansion-related activities independently. This approach draws on lessons learned from the limitations of UPI, which was heavily reliant on government subsidies as a revenue stream.

To what extent will the government be involved in ONDC?

ONDC has been endorsed by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Union Ministry of Commerce and Industry. DPIIT is not involved in ONDC’s funding, but is at the forefront of its evangelisation through light-touch governmental oversight.

To ensure a market+community driven approach to decision-making, the board includes representatives from banks, the government, and independent industry and civil society members.

It will establish a User Council, comprising representatives from Network Participants and civil society. The User Council will provide regular guidance on various aspects of the network’s functioning and governance, serving as a liaison between Network Participants, Consumers, and the network.

(Manvi Khanna is a Research Fellow for the Law, Finance and Development vertical at the Vidhi Centre for Legal Policy, New Delhi)