ONDC should exercise its gatekeeping privileges to a minimum

Transparency and accountability are paramount for the ONDC to build trust in the marketplace, and encouraging voluntary participation

The Open Network for Digital Commerce (ONDC) claims to be an inclusive ecosystem for e-commerce, attempting to break down the moats created by the dominant platforms. However, recent comments by the CEO of the ONDC and the commerce minister's hint at the ONDC playing an assertive gatekeeping role in evaluating the performance of network participants and removing companies that don’t onboard their leading platforms to the network. Such actions would be counterproductive. Transparency and accountability must be built into the structure and operating procedures of the ONDC to ensure that it lives up to its potential of an inclusive networked marketplace.

In the world of digital commerce, companies typically operate as two-sided platforms. These platforms bring together buyers, sellers, and logistics in a tightly integrated system that allows the company to control the user experience. This approach has the benefit of creating network effects, where a larger number of participants increases the platform's value for everyone involved. However, because of these network effects, these platforms wield significant power in the market. They have extensive knowledge of user preferences and behaviour, which can be used to improve their platform or favour their own products over those offered by other sellers. New platforms will find it increasingly difficult to break through the entry barriers and compete with established players.

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The ONDC is set to revolutionise the digital commerce landscape by unbundling the traditionally integrated buyer, seller, logistics and payments services, making them individually addressable by market participants. This means that an aggregator of restaurants, for instance, can offer their clients as a seller platform on the ONDC, which can then be accessed by customers of multiple buyer platforms registered with the ONDC. With each participant addressing only a part of the value chain, the market could see more competition, and customers could have more choices. According to a report by McKinsey, this innovative approach to digital commerce has the potential to increase India's digital consumption by a whopping five times, reaching $340 billion by 2030.

The recent comments that the performance and commitment of the participating platforms to the ONDC’s growth would be evaluated and the possibility of removal is detrimental to the idea of an open network. The primary goal of the ONDC is to create an open network that allows for easy and equal participation by multiple market players.

This means there should be no entry barriers or restrictions limiting who can join. The ONDC has massive gatekeeping powers in deciding who participates in the network. These powers might be necessary to restrict fraudulent participants from operating on the network. But indiscriminate use of these powers to promote participation on the platform defeats the idea of an open network.

An ideal open network could be conceptually like the Simple Mail Transfer Protocol (SMTP) used by email service providers. With the SMTP, anyone can subscribe to an email service from a big tech platform like Gmail or even run their own email server. If they speak the same language, they are interoperable. No gatekeeper decides who can or cannot use the SMTP; it simply works.

Other network participants can provide feedback mechanisms that address performance, reliability, and commitment concerns. For example, a buyer platform can choose to engage with seller platforms, logistics, and payment platforms that are highly rated by others. The ONDC should exercise its gatekeeping privileges to a minimum.

The ONDC frames the policies that govern the networked marketplace and maintains multiple critical components necessary for its operation. These components include the registry of buyers and sellers, the reputation ledger of network participants, and the gateways that connect the different network participants. For effective governance, author and consultant David Osborne recommends separating policymaking roles from service delivery and compliance roles. In other words, defining what is the right thing and doing things right must be separate roles. This separation can ensure that policymakers are not influenced by the day-to-day operations of service delivery and compliance roles, which can help improve the overall effectiveness of governance.

The ONDC is a Section 8 (non-profit) company and does not come under the ambit of the RTI. The Internet Freedom Foundation points out that this is a concern given its broad powers in framing policies for and running the networked marketplace. Grievance redress to consumers and network participants will also be important, especially as the network scales.

Given the critical roles that the ONDC must play, transparency and accountability are paramount. Addressing these concerns is crucial for building trust in the marketplace, and encouraging voluntary participation.

(Bharath Reddy is a researcher at Takshashila Institution.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.