Budget 2023: How blockchain companies foresee growth and challenges ahead
By Nidhi Bhardwaj: As the budget session approaches, uncertainty is starting to emerge among startups and various organizations about what could be the potential fate of blockchain companies. This time, experts are eagerly awaiting the rationalized tax regime, along with financial support for crypto, digital assets and small-scale startups, compared to the government’s 2022 budget decision. But why should the 2023 budget focus on blockchain development?
By 2025, blockchain systems could hold 10 percent of global GDP, according to the World Economic Forum report. Experts believe that by eliminating the requirement for middlemen, blockchain technology could disrupt the global economy and almost any sector, for that matter.
Recent studies have confirmed the impactful effect of blockchain technology on various sectors, given its transparency, credibility, security, availability and effective costs, etc. Due to these factors, many significant organizations are shifting from centralized finance (CeFi) to decentralized finance (DeFi). Even the World Bank mentioned in one of its reports the growing global demand for blockchain to provide transparent and secure payment systems across banks and other financial institutions.
Economic potential for blockchain by industry sector
Source: McKinsey
According to a report by McKinsey, the potential value created by blockchain will vary by sector, with the public sector perhaps best positioned to benefit from the potential impact and feasibility of application.
Does the growing DeFi sector require government attention?
DeFi has just 1,000 developers managing smart contracts with assets worth more than $100 billion, the study by Electric Capital, a crypto asset management firm, revealed. This figure stated the lack of talent with its increasing demand in the blockchain companies. According to Statista, the demand for blockchain developers is increasing by 300-500 percent every year as more and more businesses implement smart contracts and build blockchain apps.
With the 2023 budget looming, co-founder and CEO Pratik Gauri of 5ire, layer1 blockchain company designed with economic and environmental sustainability at its core, perceived this lack of talent as a constraint for startups. He said: “I expect the government to establish training institutes to build blockchain skills development infrastructure to meet growing blockchain talent criteria.”
“There is a need for the government to create a Fund of Funds for Industry-oriented early-stage capital – just like PLI (production linked Incentive), early-stage financing in certain sectors of blockchain and Web3 to promote entrepreneurship and drive new investments in this ecosystem,” Gauri added.
Also, out of the 2 million IT-capable professionals, only 5,000 of them are blockchain professionals,” said Jagdish Mitra, Chief Growth & Strategy Officer, Tech Mahindra at the Business Today conclave in March 2022. “To glorify the future of blockchain. in India, hiring and developing talent is the most important raw material along with capital to exploit new opportunities, expressed Mitra.
What do experts think about GST rebates and tax in Budget 2023-24?
After the introduction of a 30 percent crypto tax in the last budget, regardless of the individual’s income tax rate, the market crashed for many blockchain enthusiasts.
In an interview with India Today, WazirX, an India-based exchange, revealed that “If we compare what we spent this year to date (January – July 2022) from the same period last year (January – July 2021), it is 88 percent decrease in expenses. Please note that expenses were reduced in the second half of last year and have been further cut since Q1 2022.”
“It is expected that the government will use corporate tax and GST rebates to subsidize businesses in the blockchain industry. This may include tax benefits for businesses engaged in the establishment and application of blockchain technology, as well as GST exclusions for transactions conducted using blockchain. The government may potentially offering financial support to entrepreneurs developing blockchain-based solutions as well as to blockchain research and development,” said Asif Kamal, CEO of ArtFi, a blockchain-based art company.
“The last Union Budget introduced a tax of 30 per cent with no set-off for losses against other virtual digital assets. This should now be changed to allow netting as it will build revenue in crypto trading volumes based on blockchain, Gauri said.
“Indian blockchain businesses expect the government to provide a clear and beneficial regulatory framework for the sector. This could include regulations for the use of blockchain technology across a range of industries, such as finance, healthcare and supply chain management,” Kamal said. in the discussion.
“It is expected that the government may provide tax incentives and rebates to encourage the growth and development of new industries, such as blockchain startups,” opined Sathvik Vishwanath, Co-Founder and CEO, Unocoin.
The government’s overall outlook for the blockchain industry from 2022
In the recent statement by RBI Governor Shaktiankta Das on January 12 at the Banking & Economy Summit in Mumbai, he clearly said to ban cryptocurrency, but at the same time said to support the blockchain technology, given its diverse needs for various applications. With such a statement, few experts actually felt overwhelmed as reported, but they are still speculating heavily on the upcoming 2023-24 budget.
Noticing the government’s interest in this sector, a recent pilot project launched by Niti Aayog in January 2023 was launched to work with the Himachal Pradesh government to push farm exports by integrating blockchain technology. On this, Ankit Wadhwa, co-founder and CEO of Rario said, “Government is adopting blockchain in the system and given the current step, this will give natural farming a technological boost.” He further said to welcome the same growing government blockchain interest in the banking, sports, gaming, agriculture and energy sectors.
“We hope India will be at the forefront of blockchain technology innovation during India’s G20 presidency,” Wadhwa said.
Some experts expect the upcoming budget to support the growth of ReFi or regenerative finance with an increase in start-ups and large technology companies shifting their attention to this technology supporting low-carbon technology.
ReFi has received enormous attention and adoption in the mainstream in recent years. It proved how blockchain has tangible real-world impacts and is accelerating the world towards a more sustainable low-carbon economy,” said Nikhil Goyal, CEO and Founder, Beyond Imagination Technologies. “The government should support ReFi blockchain startups or firms in the 2023 budget and provide at least an initial level of traction to the sector,” he opined.
