The central government has recently set up an advisory council for Open Network for Digital Commerce (ONDC) to digitise e-commerce value chains, standardise operations, promote inclusion of suppliers, and derive efficiencies in logistics. This is another effort by the government to facilitate the creation of shared digital infrastructure, as it has previously done for identity (Aadhaar) and payments (Unified Payments Interface).
India’s approach of standardising the digital infrastructure layer, either as its creator or facilitator, is unique and offers learnings for other countries. When done well, this approach can level the playing field and create value for users. The e-commerce sector is ripe for such disruption. The market is dominated by a few players who are facing investigations for unfair trade practices in many countries. The sector is characterised by many small players who individually do not have the muscle to have an equitable bargain with e-commerce companies. Economists call this a “market failure”, and it presents a legitimate case for intervention. However, this approach also comes with risks and we should tread with caution. In general, governments should intervene in markets only when there is a clearly identifiable market failure or massive societal benefits from creating shared infrastructure. Moreover, we should design the system such that it has the greatest chance of success. The three “layers” of an open digital ecosystem — tech, governance and community — provide a useful conceptual framework to think of both adoption and safeguards.
The “tech layer” should be designed for minimalism and decentralisation. If possible, the government should restrict its role to facilitating standards and protocols that provide open access, and in getting them adopted organically. Building an entire tech platform should happen only if a standards-based approach doesn’t suffice. If built, the platform should be built on “privacy by design” principles. It should collect minimal amounts of data (especially personal data) and store it in a decentralised manner so that there is no honeypot for hackers. Data exchange protocols should be designed to minimise friction but be based on clear rules that protect the consumer interest. Tools like blockchain could be used to build technical safeguards that cannot be overridden without active consent.
The “governance layer” around this should allay business fears of excessive state intervention in e-commerce. Any deployment of standards or tech should be accompanied by law or regulation that lays out the scope of the project. If collection of any personal data is envisaged, passing the data protection bill and creating an independent regulator should be a precondition. To assure the industry of fairness, the government could hand over the stewardship of the standards or platform to an independent society or non-profit.
Finally, a “community layer” can foster a truly inclusive and participatory process. This may be achieved by making civil society and the public active contributors by, for example, making recordings or minutes of the meetings of this committee public, and seeking wide feedback on drafts of the proposal. Once the framework is implemented, ensuring quick and time-bound redressal of grievances will help build trust in the system. The government’s championing of open-source technology for digital commerce is commendable. It should also push the envelope on the other principles of the open-source movement — transparency, collaboration, release early and often, inclusive meritocracy, and community.
Even if we do all things right, an infrastructure-led approach may not be sufficient. For example, although UPI was set up to provide a level playing field, the top two service providers today process over 80 per cent of transactions. Therefore, we need to supplement infrastructure with tightly-tailored regulation. Many countries are exploring the concept of “interoperability”, that is, mandating that private digital platforms like e-commerce firms enable their users and suppliers to seamlessly solicit business on other platforms.
Lastly, one complex question for the makers of ONDC: How might we drive the adoption of an open e-commerce platform or standards in a sector with entrenched incumbents that have a dominant market share? In principle, compelling either suppliers or consumers to use it is inadvisable. Instead, the answer may lie either in creating non-mandatory “reference applications”, and financial or non-financial incentives. Useful learnings can be drawn from the adoption of UPI: The government supported the rollout of BHIM as a reference app, and offered financial rewards through a lottery scheme to drive early adoption.
It is timely that India is exploring innovative ways to bridge the gaps in e-commerce markets. But the boldness of this vision must be matched by the thoughtfulness of the approach.
This column first appeared in the print edition on July 23, 2021 under the title ‘E-commerce next steps’. The writers work at Omidyar Network India, an investment firm focused on social impact.