MSMEs in Tier II & III Cities Witness 20% Revenue Growth After Joining ONDC

Micro, Small, and Medium Enterprises (MSMEs) in India's Tier II and Tier III cities have reported an average 20% surge in revenue after onboarding onto the Open Network for Digital Commerce (ONDC). 

The findings underscore the transformative impact of ONDC’s decentralized e-commerce model on India’s regional business landscape—while also prompting important legal questions around data protection, anti-competitive conduct, and the scope of regulatory jurisdiction.

The Open Network for Digital Commerce, launched by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry, is a not-for-profit initiative aimed at democratizing digital commerce and reducing the dominance of large private platforms. It is designed to enable buyers and sellers to transact independently of platform-specific constraints, using an open protocol to facilitate e-commerce across sectors.

 

Tier II & III Cities: The Growth Epicenter for ONDC

While metro cities remain major e-commerce hubs, ONDC’s fastest growth trajectory is unfolding in India’s smaller towns. The report attributes this shift to increasing smartphone penetration, rising digital literacy, and localized onboarding efforts by network participants such as Paytm, Snapdeal, and PhonePe.

Over 60% of new sellers onboarded in the past six months were from Tier II and III locations. Among them, businesses in categories like fashion apparel, local groceries, home furnishings, and food delivery have witnessed the most dramatic impact.

For example, a home décor MSME based in Jabalpur reported a 25% spike in monthly sales after listing on ONDC, driven by increased visibility to consumers in nearby cities like Raipur and Nagpur. Similarly, a grocery seller in Mysuru expanded operations to deliver across four neighboring districts with support from ONDC-integrated logistics partners.

 

Revenue Surge Validated by Seller Metrics

Citing data from ONDC and early implementation partners such as SellerApp and eSamudaay, the report highlights that local sellers across cities like Indore, Surat, Madurai, and Patna have experienced measurable gains in order volume, geographic reach, and repeat business. Many vendors reported 15–30% revenue increases within three months of joining the network.

As of April 2024, ONDC had onboarded over 2.3 lakh sellers, more than 70% of whom are from non-metro areas, as per official figures. The network has crossed 7.6 million transactions, nearly 60% occurring in the retail and food & beverage segments.

This shift represents a crucial turning point for India’s MSME sector, which contributes nearly 30% to the national GDP and employs over 110 million workers, according to the Ministry of MSME's 2022–23 annual report.

 

Legal and Structural Advantages of ONDC

Unlike conventional digital marketplaces that operate under central ownership, ONDC's framework ensures legal parity between participants. The network allows MSMEs to interface with multiple buyer-side apps, logistics providers, and payment gateways—without being locked into exclusive commercial terms or platform commissions that may otherwise trigger concerns under the Competition Act of 2002.

 

Key legal features include:

• Non-exclusivity clauses: Sellers are not contractually bound to any single buyer or tech service provider.

• Neutral protocol access: All participants operate under a uniform technology specification, ensuring compliance with fair trade practices.

• Consent-based data sharing: In line with the provisions of the upcoming Digital Personal Data Protection Act, 2023, ONDC’s data exchange is architected on consent, purpose limitation, and traceability principles.

Legal analysts have also noted that ONDC could serve as a precedent for marketplace neutrality regulation in sectors like logistics and healthcare, where aggregators often dictate visibility and pricing terms.

 

Digital Onboarding and Financial Inclusion

MSMEs joining ONDC have gained access to digitally integrated services, including catalog management, inventory digitization, doorstep logistics, and UPI-based payment settlements. This tech enablement has facilitated financial inclusion and reduced compliance costs.

Public sector banks and fintech lenders are beginning to offer credit-linked incentives and invoice-based lending models for ONDC sellers. According to SIDBI, over ₹120 crore in MSME credit lines have been disbursed via ONDC-linked portfolios in pilot districts.

However, lawyers caution that lending based on platform-generated metrics must be aligned with Fair Credit Reporting Standards and RBI’s guidelines on digital lending to avoid systemic risk or exploitative practices.

 

Geographic Equity and Competition Benefits

The exponential growth of ONDC in smaller cities is helping bridge India's urban-rural digital divide. It also reinforces competitive neutrality principles and platform disintermediation, reducing reliance on duopolies in e-retail.

“In the absence of an open network, MSMEs were left to the mercy of dominant platforms whose opaque algorithms and steep commissions hurt their growth. ONDC restores legal parity and empowers businesses to scale on their own terms,” said Anil Bansal, a competition law expert and senior partner at Bansal Legal Associates.

The Competition Commission of India (CCI) has also welcomed ONDC's model as a market-corrective tool. It is monitoring its rollout for potential guidance in future antitrust cases involving platform abuse or entry barriers.

 

Challenges and Legal Safeguards Ahead

Despite the early wins, ONDC faces implementation challenges, especially around dispute resolution, buyer trust, and last-mile delivery standards.

• Dispute resolution framework: There is a need for a unified online grievance redressal mechanism across buyer and seller platforms, similar to the structure laid out in the Consumer Protection (E-Commerce) Rules, 2020.

• Data and cyber law compliance: As ONDC scales, real-time monitoring of cybersecurity, data breaches, and algorithmic transparency will become essential under the IT Rules 2021.

• IP and counterfeit risks: The open nature of the network may expose sellers to trademark misuse or unauthorized listing risks. IP registration and takedown protocols will need strengthening.

Legal experts have called for a statutory code of conduct for network participants, possibly under a new digital commerce bill or amendments to the Consumer Protection Act.

 

Government Push and Policy Implications

The government of India has projected ONDC to be part of its broader Digital Public Infrastructure (DPI) vision alongside UPI and Aadhaar. It aligns with the National Logistics Policy and Startup India initiatives to create a seamless, secure, and inclusive digital economy.

Policy think tanks like NITI Aayog and CUTS International have supported ONDC's open-access model and emphasized the need for outcome-based metrics and user education.

 

Key Takeaways

• MSMEs in Tier II and III cities saw a 20% average revenue increase post-ONDC onboarding.

• ONDC has crossed 2.3 lakh seller onboardings, with over 70% from non-metros.

• Legal benefits include non-exclusivity, transparent protocols, and data consent architecture.

• Financial enablement includes digital credit, lower onboarding costs, and logistics integration.

• Legal challenges include data protection, consumer disputes, and intellectual property risks.

• ONDC is a model for marketplace neutrality and digital inclusion in India’s e-commerce sector.

 

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