How India is shaping the blockchain ecosystem for the world as a leader

By Amanjot Malhotra

For decades, India has been at the forefront of technological innovation. In 2015, the country was ranked as the world’s third largest startup ecosystem with more than 100 accelerators, 200 active angels, 150 venture capitalists and more than 4,200 startups in the region. Additionally, with over 300 million people accessing the internet globally, India is the second most connected nation in the world behind China.

Despite its vibrant tech industry, India has so far struggled to remain at the forefront of blockchain innovation globally.

Blockchain technology has proven to be a hot topic in the past couple of years, driving value creation and innovation across the world, especially in relation to cryptocurrencies. Although the technology has many applications beyond cryptocurrency, it has become known for its ability to increase trust between two parties – even those who may not know each other. In economies with low counterparty trust, this is a particularly useful feature.

In India, more than 80% of the population work in an informal economy, which relies on interpersonal trust rather than formal contracts. This makes the vast majority of citizens extremely vulnerable to fraud. The country was ranked as the most corrupt nation in Asia in 2017 with a bribery rate of 69% and an average of almost US$2 billion a year in loan fraud. The result is high interest rates – an indicator of low confidence.

India is not new to blockchain technology. A Deloitte report cites that as early as 2016, Indian banking and insurance sectors began testing the technology in areas such as trade finance, cross-border payments and loyalty and digital identity. At the same time, the southeastern state of Andhra Pradesh launched the “FinTech Valley Vizag” initiative to build a world-class financial technology ecosystem. While the state piloted projects to manage land records and vehicle registrations using blockchain, mainstream adoption has yet to reach national acceptance and adoption.

Over the past year, the Indian government has been bullish on blockchain. In February, Indian Prime Minister Narendra Modi claimed that disruptive technologies like blockchain will have a profound impact on the way people live and work. In particular, he mentioned the need for rapid adaptation in the workplace in order to keep up.

More recently, the National Institution for Transforming India Aayog (NITI Aayog), the Planning Commission of India, in collaboration with Nucleus Vision, and the Governments of Telangana and Goa, announced that they will host the first International Blockchain Congress, an event that will bring together government officials and industry leaders from around the world to discuss blockchain innovation in the country.

In addition, IBM and Indian e-learning platform National Program on Technology Enhanced Learning launched a free 12-week course to help teach blockchain architecture design and use cases to students in major Indian cities.

With the government’s support and steady efforts, why has India not achieved outstanding results? The answer lies within the country’s negative opinion of cryptocurrencies. A recent Supreme Court vote decided to uphold the Reserve Bank of India’s (RBI) February decision to bar financial institutions from working with cryptocurrency exchanges or related firms.

Under the ban, Indian citizens can no longer deposit or withdraw Indian rupees from an Indian exchange, thus limiting their ability to acquire digital assets such as bitcoin. The RBI argued that cryptocurrencies, including bitcoin, cannot be treated as currency in India, as the country’s law requires coins “to be made of metal or exist in physical form and stamped by the government”.

Although blockchain is not entirely dependent on cryptocurrencies, this decision has negative externalities for the wider industry. Globally, innovative blockchain projects have financed themselves by issuing cryptocurrencies through initial coin offerings, which are analogous to traditional Initial Public Offerings (IPOs), but through the issuance of tokens or coins instead of equity shares.

Preventing the growth of cryptocurrencies limits funding for innovative blockchain projects that will limit startups from flourishing in the country. Preventing access to cryptocurrencies will eventually result in a new wave of brain drain from the country as startups will move abroad to access funding.

When an IPO is listed on a stock exchange, it allows the general public to benefit financially from the growth of companies and sectors. In a similar capacity, a cryptocurrency trading exchange allows the general public to financially benefit from the advancements in blockchain technology. Imposing restrictions on Indian exchanges does not yield any meaningful results as citizens already have access to global exchanges.

In fact, it can be counterproductive as it prevents the government from obtaining potentially significant tax revenues and limits its ability to maintain control or trace money transfers. In this regard, it must be noted that countries such as Japan, South Korea, Russia, Australia, the United States and Malta have all begun to regulate stock exchange-related activities which is the most sensible long-term outcome.

India is one of the hotspots for Blockchain and Web3 developers. Although we don’t have many web3 projects registered in the country, but most of the back-end teams are based from India. Indian Blockchain developers are in demand all over the world and we can see it as a growing trend.

India has also introduced capital gains tax and TDS on crypto transactions recently and coupled with strict ED actions against a couple of crypto exchanges. Apart from all these incidents, we see a clear intention of the Indian government to regulate cryptocurrencies and save its citizens from crypto scams. A country like India cannot afford to expose its 1.4 billion citizens to a large financial risk.

India has all the factors to drive blockchain innovation in the country, but regulatory hurdles, such as the Supreme Court’s recent decision, make progress challenging. For India to reach its full potential, public officials, entrepreneurs and institutions must work together to promote sustainable growth.

Events like the International Blockchain Congress, which will bring together government officials and industry leaders to discuss the future of blockchain in India, will be crucial in the country’s journey to become the global center for blockchain innovation.

The author is Country Manager – India, Bitay

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