Current Affairs

Open Network for Digital Commerce

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  • Published
    24th Jun, 2022
  • Context

    The government of India has announced the launch of the pilot phase of open network for digital e-commerce (ONDC) in five cities, with an aim to democratize the digital space for e-commerce.

  • Background

    • Digital e-commerce space is currently dominated by the two US headquartered firms Flipkart and Amazon.
    • Department for Promotion of Industry and Internal Trade (DPIIT) has conducted an outreach to understand the impact of pandemic on the small sellers and hyper local supply chain.
    • The outreach has clearly described a huge disconnect between the scale of online demand and the local retail ecosystem to participate.
    • With a vision to democratize and revolutionise the digital commerce in India, Government of India has launched the open network for the digital commerce.
  • Analysis

    What is an ‘Open Network’?

    • Open networking describes a network that uses open standards and commodity hardware.
    • In other words, open networking is the ability a computer system has to be open in terms of component compatibility -- in both hardware and software - expandability and extendibility.
  • What is ONDC?

    • Open Network for Digital Commerce (ONDC) is 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.
    • It is a not-for-profit organization that will offer a network to enable local digital commerce stores across industries to be discovered and engaged by any network-enabled application.
    • The foundations of ONDC are to be open protocols for all aspects in the entire chain of activities in exchange of goods and services, similar to hypertext transfer protocol for information exchange over internet, simple mail transfer protocol for exchange of emails and unified payments interface for payments.
  • What is the current status of ONDC?

    • Pilot stage: Presently the ONDC is applicable at pilot stage in five cities, with a target of onboarding around 150 retailers
    • Advisory council: Advisory council has been set up by the government to analyse the potential of the ONDC and advise the government on measures to accelerate its adoption.
    • Targets for next five years: ONDC is expected to bring on board 90 crore users and 12 lakh sellers on the network.
  • What are the benefits of the ONDC?

    • Democratises Digital Commerce
      • It is the first global program aimed at democratization Digital Commerce, moving from a mid-platform model to an open network.
      • It will allow buyers and sellers to digitally identify and trade through an open network regardless of the platform / application they use.
      • It will empower retailers and consumers by breaking down silos to build a single network to drive innovation and scale, transforming all businesses from retail, food to travel.

    • Complies with IT Law
      • It will also comply with the Information Technology Act, 2000 and is designed to comply with the resulting Personal Data Protection Bill.
    • Model around UPI
      • Model Unified Payments Interface (UPI) project which is considered by many to be a success.
      • The UPI project allows people to send or receive money regardless of the payment platforms in which they are registered.
      • Similarly, ONDC will ensure that buyers and sellers in the e-commerce market operate regardless of the platforms on which they are registered.
      • Therefore, a buyer registered with Amazon, can buy goods directly from a retailer that sells on Flipkart.
    • Active option
      • ONDC must evolve over time as a self-sustaining business that generates revenue for its operations and the residual investment in technology, processes and network development.
      • This is a very useful option when considering the significant benefits they will pass on to ecosystem players.
    • Confidentiality
      • It will take all necessary steps to ensure the privacy and confidentiality of data on the network.
      • It will not authorize the sharing of any activity level data with ONDC participants.
    • Independence of management: On the open network platform the entity or the sellers will have financial independency.
    • Digital Commerce
    • More Competitive Digital commerce market: Democratising process will further lead to more competitiveness in the e-commerce space.
  • Major challenges:

    • Safe and secure digital space: In order to fulfill the targets and optimal usage of the ONDC’s potential, safe and secure digital space is the prime requirement.
    • Digital divide: One of the major potential threats to the implementation of the ONDC is the digital divide, which can create further division in the accessibility of the open network.
    • Accessibility and affordability: The major concern over the ONDC is the accessible and affordable space for the entire sellers willing to register on the platform.
    • Digital literacy: The digital literacy in developing country like India, poses a potential barrier in the implementation of such space. Digital literacy is required for both demand (consumer) and supply side (Sellers) of the market to get a base for the sustenance.
  • Conclusion

    ONDC is expected to make e-Commerce more inclusive and accessible for consumers. Consumers can potentially discover any seller, product or service by using any compatible application or platform, thus increasing freedom of choice for consumers. It will enable the consumers to match demand with the nearest available supply. This would also give consumers the liberty to choose their preferred local businesses. Thus, ONDC would standardize operations, promote inclusion of local suppliers, drive efficiencies in logistics and lead to enhancement of value for consumers.

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