Report: Open Network for Digital Commerce in India

India's Commerce Ecosystem

This section provides an overview of India's digital commerce ecosystem and the opportunities for transformation.

World of Digital Commerce Impact

Digital commerce is globally reshaping business environments and fostering inclusive opportunities, especially for small businesses.

Digital Commerce in India Overview

India's digital commerce industry has gained significant momentum, but also faces critical shortcomings.

Fastest-Growing Economy

India has emerged as the fastest-growing economy globally, aspiring to be a top three economic power in 10-15 years.

Accelerated Digital Transformation

Digital transformation, connectivity, smartphone penetration, and startup investments are key growth factors.

COVID-19 Exposed Shortcomings

The pandemic revealed critical shortcomings in India's digital commerce, with many retail chains digitally absent.

Limited Digital Commerce Penetration

Digital commerce has a limited share in India's overall retail segment, indicating significant limitations.

Platform Growth Limitations

Rapid growth of integrated platforms limited competitiveness for new sellers and required significant investment.

Challenges of Current Market Structure

Sellers on multiple platforms face higher costs and limited flexibility due to separate infrastructure and terms.

Compounded Problems in India

India's large and diverse digital commerce ecosystem compounds these challenges, requiring a coordinated strategy.

Transformational Opportunity

The current challenges present a transformational opportunity to establish an alternative model for digital commerce.

Reimagining Digital Commerce on Open Network

This section explains the paradigm shift needed for digital commerce and the principles of an open network approach.

Platforms to Network Paradigm Shift

A new market structure is needed for broad-based participation in digital commerce, emphasizing trust.

Principles of Alternative Approach

Solutions for population-scale digital marketplaces must be built on inclusive principles.

Concept of Open Network

An Open Network goes beyond current platform-centric models by enabling transactions across interoperable platforms.

Constituents of an Open Network

Setting up an open network requires rethinking tech infrastructure to allow value flow and 'unbundling' the current system.

Genesis of ONDC

ONDC was envisioned after identifying bottlenecks in India's digital commerce and inspired by population-scale solutions.

Conceptualization of ONDC

ONDC is a globally first-of-its-kind initiative aiming to reimagine digital commerce in India based on open protocols.

Open Network Model

It will be an open network developed on open protocols with open-source specifications and established registries.

ONDC Objectives

ONDC is being set up with objectives to promote interoperability, scale, and innovation.

1Promote Interoperability→2Minimal Public Digital Infrastructure→3Population-Scale Adoption→4Small-Business Friendly Digital Commerce→5Unlock Innovation→6Rapid Digitalization of MSMEs and Consumers

ONDC Foundation Pillars

ONDC is based on three foundational pillars: Open Network, Public Digital Infrastructure, and Open Ecosystem.

Understanding ONDC Better

ONDC is a network enabling location-aware, local digital commerce, not an aggregator or hosting platform.

Voluntary Adoption for Apps

Existing digital commerce apps can voluntarily adopt and be part of the ONDC network.

Responsibility of Network-Enabled Apps

Network-enabled applications retain responsibility for onboarding sellers/buyers and managing the order lifecycle.

What ONDC Is and Is Not

ONDC is a market and community-led open network, not a government body or central intermediary.

Aspect	What ONDC Is	What ONDC Is Not
Initiative Type	Market and Community-led initiative	A Government Regulatory Body
Network/Platform	An open network	An application or a platform
Intermediary Role	Eliminates the need for a central intermediary	A central intermediary
Commerce Expansion	An enabler for massive digital commerce expansion	A medium to help digitize businesses
Innovation	An enabler for broad-based innovation	—

Democratization of Digital Commerce

ONDC will enable large-scale democratization of digital commerce, providing a level playing field for all app sizes.

Building Blocks of ONDC

ONDC's building blocks include technology components, network participants, policies, and data policy.

Technology Components

Key technology components include registry, gateway, buyer and seller applications, and adapter interfaces.

Network Participants (NP)

ONDC's decentralized network success depends on wide participation from buyers and merchants.

Network Policies

ONDC will adopt a minimalistic, non-restrictive policy framework to promote transparent, inclusive, and sustainable practices.

Data Policy

The data policy will comply with existing laws and emerging bills while balancing privacy with business needs.

IT Act and Personal Data Protection Bill Compliance

The data policy will comply with the Information Technology Act, 2000, and emerging Personal Data Protection Bill.

Evolvable Regulatory Design

ONDC strives to adopt an evolvable regulatory, institutional, and technology design for secure data sharing.

Key Principles of Data Privacy

ONDC adopts key principles for data privacy, ensuring secure and controlled data exchange.

1Data Exchange for Transactions→2Transaction Data Resides with Apps→3Consent-Based Data Exchange→4Data Security and Credibility→5PII and Seller Data Protection→6Anonymized Performance Metrics

Adoption of Data Empowerment Architecture

ONDC will learn and adopt initiatives from India's Data Empowerment and Protection Architecture for data privacy.

Enhancing Value for Ecosystem

ONDC will provide significant benefits across the digital commerce ecosystem, enhancing value for all stakeholders.

Increased Choices and Financial Gains

ONDC will offer increased choices to merchants/consumers, leading to strong financial gains through efficiency and reduced acquisition costs.

Evangelist for Technology Platforms

ONDC will act as an evangelist for technology platforms, helping them socialize solutions and experiment with new business models.

ONDC Value Proposition for Stakeholders

ONDC offers distinct value propositions for sellers, buyers, and technology platforms.

Benefits for Sellers

Sellers gain access to more buyers, higher discoverability, autonomy, and lower business costs.

Benefits for Buyers

Buyers experience more choices, enhanced service levels, and better customer experiences.

Benefits for Technology Platforms

Technology platforms gain growth access, reduced time-to-market, and new innovation opportunities.

Evangelizing Digital Commerce in India

ONDC supports the transformation of India's digital commerce market through large-scale participation and significant growth.

Market Transformation Support

ONDC supports the transformation of the ₹2.85 Lakh Crores (USD 38 Billion) Indian digital commerce market.

Envisioned Aspirations of ONDC

ONDC's aspirations include enabling local retail, expanding coverage, formalizing businesses, and enhancing efficiencies.

1Local Retail Ecosystem Access→2Easy Business Participation→3Expand Digital Commerce Landscape→4Formalize Businesses→5Economic Development and Livelihood Creation→6Enhance Business Efficiencies→7Increase Local Goods Trade

Potential Market Transformation Opportunity

ONDC is expected to fuel significant growth in retail digital commerce over the next 5 years.

Implementing ONDC

ONDC implementation focuses on institutional setup, roles, governance, and a phased strategy for population-scale adoption.

Institutional Setup

ONDC must be structured to make quick decisions, build technology, and respond to business needs.

Role of ONDC Entity

The ONDC entity is responsible for developmental, network facilitation, and service delivery roles.

Governance

ONDC functions under existing regulatory oversight and collaboratively develops a Network Code of Conduct.

Implementation Strategy

Implementing ONDC at a population scale is a long-term plan, designed to address challenges in trust-building.

Trust-Building Challenges

ONDC will face challenges building trust among small and large digital commerce companies and managing user expectations.

Focus Areas for Execution

The implementation strategy focuses on three key aspects: technology, business, and institution building.

Short Term Implementation Strategy

The short-term strategy focuses on rapid rollout, technology development, and ecosystem expansion.

1QCI Project Mode Implementation→2Technology Development for Launch→3Ecosystem Expansion and Onboarding→4In-House Capability Development

Long Term Implementation Strategy

The long-term strategy involves strengthening ONDC's roles, fostering innovation, and continuous expansion.

1Strengthen Roles→2Innovative Solutions Collaboration→3Refine Rules and Compliance→4Scale Foundational Services→5Expand Across Dimensions→6Develop Communication and Business Models

Appendix

The appendix provides information on the ONDC Advisory Council, supporters, and an invitation for feedback.

ONDC aims to democratize digital commerce in India through an open network built on open protocols.

India's Commerce Ecosystem

World of Digital Commerce Impact

COVID-19 fueled global growth

Retail Digital Commerce Growth 2019-2020

B2C Sales Spike

B2B Digital Commerce Increase

Digital Commerce in India Overview

Fastest-Growing Economy

Q1 FY22 GDP at Current Prices

Accelerated Digital Transformation

Online Shopper Base

Generation-Z Consumer Growth

COVID-19 Exposed Shortcomings

Supply Chain Breakdown

Kiranas Digital Exclusion

MSMEs Digital Exclusion

Online Shoppers Portion

Limited Digital Commerce Penetration

Digital Commerce GMV in 2020

GMV as Percentage of Total Retail

Projected Digital Commerce Growth by 2026

Platform Growth Limitations

Concentration Risk from Platforms

Platforms as 'Operators'

Lack of Trust Portability

Challenges of Current Market Structure

Limited Choice and Discoverability

Compounded Problems in India

Transformational Opportunity

Shift to 'What Works at Scale'

Opportune Time for Alternative Model

India's History of Population-Scale Initiatives

Reimagining Digital Commerce on Open Network

Platforms to Network Paradigm Shift

Shift to Decentralized Network

Principles of Alternative Approach

Facilitator, not an Operator

Decentralized Technology

Open Building Blocks

Interoperable Network

Minimalistic Governance

Participant-Centric Ecosystem

Evolving Model

Energize Innovation

Government Encouragement

Concept of Open Network

Location-Aware Local Commerce

Examples of Open Protocols

Core Concepts

Technology Adoption

Supply Chain Unbundling

Broad Application

Constituents of an Open Network

'Unbundling' Complex Systems

Innovation Opportunities

Need for Common Open Protocol

Interoperability via Open Protocol

Genesis of ONDC

DPIIT Outreach and Findings

Inspiration from Population-Scale Solutions

Steering Committee Formation

Project Management Unit (PMU)

Advisory Council Constitution

QCI Mandated for Implementation

Conceptualization of ONDC

Open Network Model

ONDC Objectives

Promote Interoperability

Minimal Public Digital Infrastructure

Population-Scale Adoption

Small-Business Friendly Digital Commerce

Unlock Innovation

Rapid Digitalization of MSMEs and Consumers

ONDC Foundation Pillars

Open Network Pillar

Public Digital Infrastructure Pillar

Open Ecosystem Pillar

Understanding ONDC Better

Voluntary Adoption for Apps