Policy Update
Vibha Sethi
Background and Evolution
The Indian e-commerce landscape has historically been dominated by a duopoly, where a few multinational aggregators controlled market access, search visibility, and supply chains. This platform-centric model created massive entry barriers for micro, small, and medium enterprises (MSMEs), limiting their reach and squeezing profit margins through steep commissions.
Recognizing these systemic distortions—which became acutely visible during the post-pandemic digital acceleration—the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India, conceptualized and launched the Open Network for Digital Commerce (ONDC).
Incorporated as a non-profit Section 8 company, ONDC is not a single application or software platform; rather, it is a unified set of open-source specifications designed to foster absolute interoperability across the digital commerce ecosystem. Inspired by the transformative success of the Unified Payments Interface (UPI) in fintech, ONDC unbundles the digital commerce value chain, cleanly separating buyer-side applications from seller-side interfaces and logistics networks.
To design this alternative, non-discriminatory infrastructure, the government instituted an advisory council comprising technology pioneers, public policy architects, and industry experts. This initiative drew heavily from the core philosophy of India’s Digital Public Infrastructure (DPI) model, asserting that critical marketplace transaction networks should function as accessible public goods rather than private monopolies. Consequently, ONDC re-engineers digital market dynamics by replacing centralized platform architectures with an open network protocol. By introducing standardized registries and uniform operational protocols, it eliminates the compulsion for merchants to build separate digital profiles on multiple standalone applications. This evolutionary leap drastically reduces capital overheads and operational complexities for small enterprises, transforming the digital marketplace from a closed destination into an expansive, democratized highway.
Network Architecture and Functioning
Unlike traditional closed-loop platforms where a single entity controls both the buyer experience and seller onboarding, ONDC operates on an open-protocol network. The functioning of this unbundled architecture relies on distinct operational nodes that interact seamlessly without proprietary restrictions:
- Buyer Applications: These are customer-facing interfaces, such as Paytm, PhonePe (Pincode), or Magicpin, where consumers can search for products, view listings, and initiate transactions across the entire network.
- Seller Applications: These applications onboard local merchants, kirana stores, and brands, digitizing their inventory and making their product catalogs visible to any buyer app connected to the network.
- Logistics Providers: Third-party delivery and supply chain networks, such as Delhivery, Shiprocket, and Dunzo, are integrated directly into the system to fulfill orders independently of the seller or buyer application.
- Gateway Nodes: These architectural components act as routing registries, ensuring that a search query initiated on any buyer app is instantly broadcasted to all relevant seller apps to fetch real-time price and inventory data.
- Open Registry: A centralized database maintained by ONDC that authenticates network participants, ensuring trust, security, protocol compliance, and operational standardization across all nodes.
- Reconciliation and Settlement Systems (RSP): These specialized backend protocols handle automated financial clearing between diverse buyer apps, seller apps, and logistics nodes, ensuring transparent, instantaneous transaction settlements across the entire network without requiring a centralized payment intermediary.
- Technology Service Providers (TSPs): Independent software vendors and tech enablers that provide ready-to-use plug-and-play network adapters, helping traditional businesses and small merchants easily convert their physical inventories into ONDC-compliant digital catalogs.
Performance
ONDC has witnessed exponential growth in transaction volumes, scaling rapidly from a pilot project into a mainstream digital infrastructure across urban and semi-urban centers. Initially focusing on food and grocery delivery, the network has successfully diversified into mobility, fashion, electronics, electronics repair, and business-to-business (B2B) wholesale trade. The growth trajectory is driven by lower operational costs, as ONDC slashes merchant commission rates from the traditional 25–30% charged by dominant platforms to just 3–5% on the open network.
The network’s operational metrics demonstrate an impressive scale, moving from a few hundred transactions during its launch phase to recording millions of monthly rides and orders. In metro cities, local auto-rickshaw and taxi driver unions have integrated seamlessly via open mobility applications, bypassing corporate aggregators to maximize their daily take-home earnings. Simultaneously, retail penetration has deep-rooted itself into Tier-2 and Tier-3 cities, where local grocery networks (kiranas) utilize the decentralized protocol to service neighborhoods without digital intermediation. This geographic expansion has been heavily supported by state-level administrative bodies hosting onboarding drives for traditional clusters.
To sustain this momentum, the network actively focuses on integrating specialized agricultural and handicraft clusters directly into national supply chains. By onboarding Farmer Producer Organizations (FPOs) and regional artisans, ONDC allows rural producers to bypass multiple layers of traditional middlemen and pitch products directly to urban consumer bases. The infrastructural push is accompanied by the deployment of regional language interfaces, ensuring that tech-driven market access is not limited by linguistic barriers. As institutional participants continue to deploy capital into building specialized nodes, the network’s overall market penetration is projected to challenge established e-commerce models over the next decade.
Impact Analysis and Market Dynamics
From an economic perspective, unbundling the digital commerce value chain fundamentally alters market contestability. Under traditional closed systems, platforms often leverage consumer search data to launch in-house private labels, systematically displacing the independent third-party merchants who originally built the market demand. ONDC neutralizes this asymmetric data advantage by ensuring that transaction ledgers and merchant reputations remain fully portable across the entire network architecture. Consequently, a merchant’s hard-earned positive reviews and historical performance data are no longer locked inside a single proprietary application, breaking artificial data monopolies.
The scale of this democratization is evident in recent network metrics: by early 2026, the ONDC network successfully crossed over 200 million cumulative transactions, scaling its infrastructure to support more than 760,000 onboarded merchants and service providers across 1,200+ Indian towns and cities. According to reports by the Press Information Bureau (PIB), over 206,000 distinct merchants have conducted live transactions on the network, reflecting deep digital penetration into regional MSME clusters via dedicated frameworks like the MSME TEAM Scheme.
Furthermore, decoupling logistics from retail transaction applications has spurred intense competition and innovation within the fulfillment sector. Independent delivery startups and regional courier networks can now bid dynamically for delivery contracts on a per-order basis, optimizing transit routes and reducing the carbon footprint of hyperlocal deliveries. This market-driven pricing mechanism forces down structural logistics costs, passing the financial benefits directly to the end-consumer and ecosystem stakeholders. The resulting framework fosters a collaborative environment where specialized micro-enterprises can thrive side-by-side with institutional players based on service efficiency rather than platform gatekeeping.
| Economic Parameter | Traditional Closed Platforms (Duopoly Model) | Open Network for Digital Commerce (ONDC Model) |
| Market Structure | Platform-centric, centralized digital silos | Network-centric, decentralized open ecosystem |
| Market Commision | High overhead fees ranging between 25% to 35% | Low operational costs restricted to 3% to 5% |
| Data Control & Ownership | Monopolized by the platform to lock in users | Shared ledger with portable merchant reputations |
| Entry Barriers for MSMEs | High capital requirement for search visibility | Low barriers with instant network-wide discovery |
| Logistic Integration | Tied directly to the platform’s in-house network | Decoupled, allowing selection of any logistics partner |
| Consumer Experience | Restricted choices within a single closed application | Cross-platform search across all registered sellers |
Source: Compiled by the author based on foundational framework guidelines from the Department for Promotion of Industry and Internal Trade (DPIIT) and Open Network for Digital Commerce (ONDC) white papers (2025-2026).
Emerging Regulatory and Operational Issues
Despite its rapid expansion, ONDC faces critical operational and regulatory challenges that could hinder its long-term viability as a market disruptor. A primary concern is the complexity of dispute resolution and liability allocation in an unbundled transaction; if an order is damaged, counterfeited, or delayed, assigning accountability between the independent buyer app, seller app, and logistics partner remains legally complex. Without a single centralized platform to absorb liability, consumers often face extended turnaround times when navigating multi-party grievance systems.
Another pressing operational hurdle is the heavy reliance on network-wide promotional discounts and venture-backed subventions to artificially incentivize early user migration away from deeply entrenched legacy applications. This raises serious questions regarding organic user retention and network stability once these commercial incentives begin to taper off. Legacy marketplaces possess sophisticated consumer engagement algorithms and robust loyalty programs that create high switching costs for buyers, making it difficult for an open protocol to maintain user stickiness purely through ideological appeals of decentralization.
Way Forard and Policy Recommendations
To ensure sustained competition and operational resilience, ONDC must transition from a discount-driven acquisition model to a value-driven consumer ecosystem. The Quality Council of India (QCI) and DPIIT must collaborate to establish a robust, legally binding grievance redressal framework that automates dispute settlement among independent network participants using smart contracts. Implementing automated, blockchain-backed escrow systems can ensure that consumer compensation is fast and fair, thereby building institutional trust equivalent to legacy e-commerce platforms.
Efforts must be intensified to enhance the digital literacy, algorithmic cataloging capabilities, and inventory management practices of rural MSMEs through localized tech hubs. Public-private partnerships should be leveraged to create low-cost digital tools that allow local shopkeepers to manage dynamic pricing and live stock updates without technical expertise. Financial institutions can also introduce cash-flow-based landing instruments by analyzing verified transaction trails generated over the open registry, providing crucial working capital to credit-starved micro-merchants.
Finally, the Competition Commission of India (CCI) must continuously monitor the unbundled network architecture to prevent predatory pricing, algorithmic collusion, or anti-competitive behavior by large enterprise participants. Regulators must mandate strict data-sharing protocols to ensure that front-end buyer apps do not abuse cross-network transaction insights to replicate exploitative marketplace practices. By combining robust regulatory oversight with continuous infrastructural optimization, India can ensure that ONDC remains a democratic, fair, and truly open highway for digital commerce.
In conclusion, ONDC represents a paradigm shift from monopolistic gatekeeping to a collaborative, open-network economy. By democratizing access for MSMEs, unbundling logistics, and establishing transparent regulatory safeguards, the framework successfully re-engineers India’s digital marketplace. Ultimately, the long-term success of this initiative will depend on shifting consumer habits from discount dependency to value-driven trust, cementing India’s position as a global pioneer in scalable and inclusive digital public infrastructure.
References
- Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India. Open Network for Digital Commerce (ONDC) Architectural Framework and Vision Document. Available at: https://dpiit.gov.in
- Ministry of Commerce and Industry, Government of India. Democratizing E-Commerce in India: National Strategy on Open Protocols. Available at: https://commerce.gov.in
- Open Network for Digital Commerce (ONDC) Official Portal. Network Statistics, Participant Registry, and Developer Specifications. Available at: https://ondc.org
- Competition Commission of India (CCI). Market Study on E-Commerce in India: Policy Interventions and Fair Competition Dynamics. Available at: cci.gov.in
- Press Information Bureau. (2023). Expansion of ONDC across mobility, retail, and agritech sectors. Government of India. https://pib.gov.in
- NITI Aayog. (2023). Leveraging digital public infrastructure (DPI) for MSME growth and financial inclusion. https://niti.gov.in
- Reserve Bank of India. (2023). Report on digital payments integration with open network logistics and financial nodes. https://rbi.org.in
- NASSCOM Insights. (2023). The unbundling of e-commerce: Technoeconomic impact of ONDC on Indian retail startups. https://nasscom.in
- The Economic Times. (2024). ONDC scales new heights: Transaction volumes and network penetration report. https://economictimes.indiatimes.com
About the Contributor
Vibha Sethi is a researcher and policy enthusiast with interests in public policy, governance, international relations, trade frameworks, and strategic studies. Her work focuses on evidence-based policy analysis, geopolitical developments, and emerging global challenges, with particular attention to India’s strategic, economic, and developmental priorities. She is actively engaged in analytical writing, policy research, and academic discussions related to governance, security, and international affairs.
Acknowledgement
The author extends sincere gratitude to the IMPRI team for their expert guidance and constructive feedback throughout the process.
Reviewed by Lubina Dua and Kavin
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