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ONDC AND COMPETITION LAW IN INDIA: EXAMINING LEGAL CONCERNS

INTRODUCTION

The digital economy’s emergence has transformed how businesses operate, consumers, interact and the market functions. The ONDC, introduced by the Government of India (on 31 December 2022), is designed to regulate and facilitate fair digital commerce practices. Simultaneously, competition law is vital in ensuring healthy market competition, preventing monopolistic practices and safeguarding consumer welfare. Open UPI-like architecture for the e-commerce sector is being promoted by the Open Network for Digital Commerce (ONDC), an initiative backed by the Indian government. Consider the possibility of a shopping app that displays items from vendors on several platforms in addition to those that sell on the app itself. What if, as a seller, there was an app that let you offer your items on more than just the one platform you signed up with? ONDC hopes to support the system by developing protocols and network regulations. The government wants ONDC to end the monopoly that a few foreign-funded companies (like Amazon and Flipkart) have over Indian e-commerce, which it says is harming vendors[1]. But whether ONDC would address these worries about competitiveness has yet to be thoroughly discussed.

WHAT IS ONDC?

The Open Network for Digital Commerce (ONDC) is a network built on an open protocol that enables local commerce across segments to be identified and engaged by any network-enabled application, including mobility, shopping, food order and delivery, hotel booking and travel. The platform promises to open new opportunities, break up digital monopolies, and let micro, small, and medium-sized businesses and independent merchants join online marketplaces.[2] It is a Ministry of Commerce and Industry’s Department for Promotion of Industry and Internal Trade (DPIIT) project.

The ONDC’s early phases aim to offer services for retail and wholesale transactions and some logistical solutions, such as dealings between retailers or wholesalers and logistics service providers to facilitate the delivery of items from the seller to the buyer. Along with other benefits, deploying logistical solutions is anticipated to increase the depth of supply chains. It’s also anticipated that the ONDC would be brought to industries including hospitality and tourism. The ONDC’s implementation is anticipated to include several operational features of an e-commerce platform, including[3]:

  • Vendor Discovery;
  • Pricing Discovery;
  • Product classification; and
  • Inventory management.

Section 8 of the 2013 Companies Act[4] provides for incorporating the ONDC as a “not-for-profit private company.” The ONDC is presently in its alpha and beta test phases, operating over 85 Indian cities (including tier-two towns). It will eventually have a state-wide footprint and be a single access point for all goods and services. While there might not be a transaction charge during the ONDC’s first phases, public news sources convey the impression that a consumer transaction fee would be assessed in the future to guarantee the ONDC’s survival.

ANTI-COMPETITIVE PRACTICES IN THE DIGITAL SPACE

In India’s quickly developing digital economy, anti-competitive practices in the digital sphere provide substantial issues for maintaining fair competition and consumer protection. Market participants are taking these activities to stifle competition, restrict customer options, and prevent innovation in the digital market. Following are the type of Anti-Competitive Practices in the digital space in India:

Exclusive Agreement: On e-commerce platforms, it is frequently seen that certain items from a particular corporate organisation are offered on particular websites. Some e-commerce websites may only accept a particular company’s products in a particular product line. Due to a complete understanding between two or more entities, all of these activities are possible. Exclusive agreements usually prevent users from purchasing goods from other platforms, regardless of price or availability, limiting their ability to buy the same interests on other websites. The victim of such a practice is the consumer.[5]

Predatory Pricing: One of the primary factors driving online purchases is the low cost of the items. However, these tendencies have completely upset the industry. Being at the top of the food chain, predatory pricing has demonstrated how simple it is to stifle competition by providing products and services at cheap rates, expanding their market share, and then taking advantage of the same market by raising the prices of the same goods and services. And the classic example of predatory pricing is how Jio captured the telecommunications market in 2016 by giving out free 4G services to its users.[6]

Self-Preferencing: It is common knowledge that businesses like Amazon and Flipkart favour their merchandise and certain suppliers over other vendors. The way they list their items appears to need more transparency; large corporations purchase the top positions, which hurts small manufacturers and merchants since it limits their ability to reach consumers. No matter how great their offering is, we get the intended clients.[7]

IS ONDC ANTI-COMPETITIVE ACCORDING TO THE COMPETITION ACT 2002

The primary purpose of ONDC is to address the competition concerns addressed above. And it will try to achieve that by increasing competition by reducing barriers to entry, reducing the value of the proposition of incumbents, breaking down network effects, and letting platforms compete on merits. The significant problem with the e-commerce market in India is the high commission charged by the platforms like Flipkart and Amazon. These platforms take up to 18 to 25 percent commission from the sellers; we have seen on the platforms like Swiggy and Zomato that the restaurants intentionally increase or usually double their listed price on the platform to earn some profit. ONDC, on the other hand, aims to keep these commissions just around 8 to 10 percent so buyers can get their desired products at a low price and the sellers can earn a good margin without increasing their listed price.[8]

The problem arises here; companies like Zomato and Swiggy cannot reduce their margins like ONDC, as it is a government initiative; it can afford to take a very low margin, but these private companies cannot without incurring losses. To explain this better, I would like to provide a scenario wherein Zomato complaints against ONDC in the Competition Commission of India (CCI), considered the primary legislation governing competition law in India under The Competition Act of 2002[9]. Zomato brings up the provision of section 4 of the Competition Act of 2002[10], which basically talks about an act by a dominating party that harms Indian competition and is referred to as anti-competitive (practices like predatory pricing, where prices are set below costs are one among them), and is thus void. So will the ruling of CCI be in favour of Zomato, and the answer to the question is NO, it won’t be. Section 4 of the Competition Act 2002[11] states that it ‘uses its dominant position in one relevant market to enter into, or protect, other relevant markets[12].’

The relevant market under section 4[13] can be better understood by the case of Bharti Airtel Ltd. v Reliance Industries Ltd. & Anr[14], and Airtel had alleged that Reliance Industries Ltd had violated section 4(2)(a)(ii) of the Competition Act of 2002[15] but CCI after their investigation had concluded that relevant market in this scenario is market providing telecommunications services, CCI also concluded that Reliance Industries Ltd did not indulge in predatory pricing and as they don’t belong to the relevant market. As dominance was not established, the issue of the abuse of predatory pricing or dominance was deemed invalid. And Reliance Industries Ltd & Anr was freed of all allegations.

Zomato, in the given scenario, cannot prove dominance and predatory pricing by ONDC, which is the major limitation of section 4 of The Competition Act 2002[16]; it doesn’t penalise ‘dominance’ per se. This means that any business or organisation is well within its rights to gain market dominance, including by engaging in anti-competitive behaviour, up to the moment at which it becomes “dominant’ also, there is no sector-specific regulation of dominance under the Act.

CONCLUSION

The ambitious and innovative ONDC project has the ability to change India’s e-commerce environment fundamentally. This initiative would be most helpful for small businesses, micro, small and medium enterprises, and other “home-grown” entities (including social enterprises and not-for-profit organisations) looking for growth opportunities and scaling their operations through digital commerce, particularly in a post-pandemic economy. Its primary goals are to level the playing field for e-commerce stakeholders and increase market access. It is, overall, in the end, not just good for the sellers but also for the buyers. Still, we have yet to look into and evaluate how ONDC will be implemented and how it will ultimately affect the Indian e-commerce scene and the many businesses and stakeholders involved because it is still an initiative in the planning stages. It can address many anti-competitive practices in India and break the duopoly of companies like Amazon, Flipkart, Zomato and Swiggy in their respective sectors. Its success still depends on how many businesses and stakeholders get involved and how the government implements it.

 Author(s) Name: Navaneeth P Nair  (Indian Institute of Management Rohtak)

Reference(s):

[1] ‘Govt launches ONDC, an alternative to Flipkart & Amazon, in Bengaluru’ The Economic Times (Bengaluru, 30 September 2022)

[2] ‘ONDC Project’ Press Information Bureau Government of India (New Delhi, 06 APR 2022)

[3] Abhilash Ramachandran, ‘India launches Open Network for Digital Commerce (ONDC)’ (LinkedIn, 13 May 2023) <https://www.linkedin.com/pulse/india-launches-open-network-digital-commerce-ondc-ramachandran/> accessed 18 May 2023

[4] The Companies Act 2013, S 8

[5] ANDREW BLOOMENTHAL, ‘E-commerce Defined: Types, History, and Examples’ (Investopedia, 23 May 2023) <https://www.investopedia.com/terms/e/ecommerce.asp> accessed 24 May 2023

[6] Milind Rajratnam and Anusha Maurya, ‘The Hoodwink of Discounts: Predatory Pricing and E-Commerce’ (CBCL) <https://cbcl.nliu.ac.in/uncategorized/the-hoodwink-of-discounts-predatory-pricing-and-e-commerce/> accessed 18 May 2023

[7] Aditya Kalra And Steve Stecklow, ‘Amazon copied products and rigged search results to promote its own brands, documents show’ (Reuters Show, 13 October 2021) <https://www.reuters.com/investigates/special-report/amazon-india-rigging/> accessed 17 May 2023

[8] ‘Govt Asks E-Comm Firms To Create A Self-Regulatory Framework To End ‘Dark Patterns’ Outlook (14 May 2023)

[9] The Competition Act 2002

[10] The Competition Act 2002, s 4

[11] Ibid

[12] Ibid

[13] Ibid

[14] Bharti Airtel Ltd. v Reliance Industries Ltd. & Anr (2017) CCI Case No 03/2017

[15] The Competition Act 2002, s 4(2)(a)(ii)

[16] The Competition Act 2002, s 4