India moves ahead with its vision for an open ecosystem for e-commerce

This story is part of GovInsider's Digital Government initiative, which aims to feature stories from digital government agencies around the world. Click here to view our interactive map and reach out to editorial@govinsider.asia if you wish to contribute. 

India’s Open Network for Digital Commerce (ONDC) is bringing the millions of neighbourhood grocery shops of the country, locally known as Kirana stores, online. 

ONDC’s Managing Director and Chief Executive Officer, Thampy Koshy, shares with GovInsider that the open network will enable these stores to sell to customers across the nation and not just to neighbourhood residents as they have traditionally done. 

From the buyer side, Koshy wants people to log on to ONDC through merchant or buyer apps linked to the platform and discover products they are searching for, buy them with digital payments, and have logistic partners deliver their purchases to their doorstep. 

Established as a private non-profit company in late 2022, ONDC's mission is to develop an open and inclusive ecosystem for e-commerce in the country, says Koshy. ONDC’s team aims to democratise digital commerce and uplift the livelihoods of small businesses in India, he shares. 

It is part of the country’s ambitious digital public infrastructure (DPI) drive. 

Since its inception, ONDC has registered 68 million transactions as of July 2024. It has more than 570,000 sellers, with 71 seller applications, 22 buyer applications, and 16 logistics service providers. 

Koshy admits that these numbers, while impressive, are still a fraction of the volume generated by the two top e-commerce players in India: Walmart-owned Flipkart, and Amazon India. 

E-commerce comprises around seven per cent of the total retail market in India currently. Less than three per cent of India’s sellers, be they retailers, micro, small and medium enterprises (MSMEs) or other segments, make their products or services available digitally.  

To subscribe to the GovInsider bulletin click here.

However, digital commerce has evolved and picked up significant momentum during the past few years. The Indian e-commerce market is expected to reach US$300 billion by 2030, showcasing a significant growth potential.  

Open protocol-based network to circumvent platform capture 

There is an important difference between how ONDC views e-commerce versus traditional players. 

ONDC goes beyond the current platform-centric model of e-commerce, where the buyer and seller must be a part of the same platform to transact, says Koshy.  

It is an open network, which means that as long as buyers and sellers operate on platforms that are interoperable with ONDC’s open protocol, they can transact, he says. 

“As the IMAP/SMTP are for emails, HTTP is for the World Wide Web, the open network idea has been conceived to transform digital commerce in India,” Koshy explains. 

He notes that when digital commerce evolved globally, it took the form of end-to-end integrated platforms built on proprietary technology.  

“The model of platforms built on proprietary technologies has an inherent problem... platforms that manage a decent scale of operation the fastest end up capturing most of the market in every domain, leading to market concentration,” Koshy observes. 

This is where the establishment of an open and interoperable digital network of platforms like ONDC “is a powerful idea to address the current market limitations and help wide-ranging reforms in regulating the digital market,” says Koshy. 

Different service providers 

Many top Indian retail brands have already established their presence on ONDC. Apart from this, various digital payment services have a presence on the platform. Logistics players have also come on board using a logistics-as-a-service model. 

Koshy notes that apart from the established players, there are many service providers like media houses, telcos, fintechs and banks who have a huge pool of digital consumers for their existing service and product offerings.  

They can now offer e-commerce services “to this large pool of consumers without having to worry about onboarding sellers and service providers”, he says. 

All they need to do is connect their digital catalogues or apps to the ONDC protocol and this will be available to consumers on the network, Koshy adds. 

SaaS and blockchain applications 

Critics of the network have pointed out that ONDC still faces a number of problems ranging from order fulfilment to a lack of reviews and a clear grievance redressal mechanism – things that are all available on closed platforms such as Amazon and Flipkart. 

Acknowledging that there are still teething problems, Koshy says there are a variety of initiatives being taken by big tech companies in collaboration with ONDC.  

To subscribe to the GovInsider bulletin click here.

“We ask them to create components like for example, software-as-a-service (SaaS) platforms on which local companies can plug in using the cloud and our protocol to make a service available,” he says.  

For instance, Google-backed SaaS company Plotch.ai has developed an artificial intelligence (AI) powered conversational commerce app which has multilingual, voice-enabled semantic search and image search capabilities for ONDC.  

Other SaaS solution providers like Kiko Live, which helps Kirana stores build their home delivery business, are helping these stores set up digital storefronts on the ONDC network.  

Building trust 

Koshy notes that trust is a major component that enables a transaction between a customer and a seller - be it for the product, the money flow, or handling any form of issue or grievance.  

In January this year, ONDC introduced a blockchain-powered solution Confidex to tackle this issue. The open-source solution has been developed with the help of a community based on the CORD blockchain network.  

While Confidex will have many applications, its primary use is to develop a network-level rating and score system whereby both buyers and sellers will be able to judge the reliability of a transaction. 

The solution works like a community notebook that ONDC says “revolutionises information management by harnessing the transformative potential of cryptography and designed for population scale”. 

Koshy adds that ONDC’s ambitions are not just limited to India and that international collaborations will be a key growth driver for the open e-commerce ecosystem. 

Singapore-based Proxtera, a global initiative by the Infocomm Media Development Authority (IMDA) and Monetary Authority of Singapore (MAS) to build an open global digital ecosystem of MSMEs with trusted credentials to enable global, cross-border trade, has tied up with ONDC to allow Indian businesses increased product visibility and access to newer markets digitally. 

Koshy is hopeful of striking similar deals with other international players to increase the reach of ONDC.