By Abhishek Pitti, CEO and Founder of Nucleus Vision
For decades, India has been on the frontline 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 in excess of 4,200 startups operation in the region. In addition, with over 300 million people having access to the internet globally, India is the second-most connected nation in the world behind China.
However, despite its vibrant technology industry, India has so far struggled to remain at the forefront of blockchain innovation.
Blockchain technology has proven to be a hot topic over the past year, driving wealth creation and innovation across the globe, especially in relation to cryptocurrencies. While the technology has many applications beyond cryptocurrency, it has been widely touted for its ability to increase trust between two parties — even ones 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 works in an informal economy, which relies heavily on interpersonal trust rather than formal contracts. This leaves the great majority of citizens extremely vulnerable to fraud. The country was ranked the most corrupt nation in Asia in 2017 with a 69% bribery rate and, on average, almost $2 billion USD a year in loan fraud. The result is high interest rates — an indicator of low trust.
India is not new to blockchain technology. A Deloitte report cites that as early as 2016, Indian banking and insurance sectors began to test the technology in areas such 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 remained bullish on blockchain. In February, India’s Prime Minister Narendra Modi claimed that disruptive technologies such as blockchain will have a deep impact on the way people live and work. In particular, he cited the need for rapid adaptation in workplaces in order to keep up.
More recently, the National Institution for Transforming India Aayog (NITI Aayog), the planning commission of India, in partnership with Nucleus Vision, and the governments of Telangana and Goa, announced it will co-host the inaugural International Blockchain Congress, an event that will bring together government officials and industry leaders from across the world to discuss blockchain innovation within the country.
In addition, IBM and Indian e-learning platform National Programme 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 salient results? The answer lies within the country’s adverse opinion on cryptocurrencies. A recent supreme court vote decided to uphold the Reserve Bank of India’s (RBI) February decision to keep 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, thereby restricting their ability to acquire digital assets such as bitcoin. The RBI claimed that cryptocurrencies, including bitcoin, cannot be treated as currency in India as the country's law requires coins “to be made of metal or existing in physical form and stamped by the government.”
Even though blockchain does not entirely rely on cryptocurrencies, this decision has knock-on negative externalities for the wider industry. Globally, innovative blockchain projects have funded themselves by issuing cryptocurrencies through initial coin offering, which are analogous to traditional Initial Public Offerings (IPOs) but through issuance of tokens or coins rather than equity shares.
Preventing the growth of cryptocurrencies limits the funding for innovative blockchain projects which will restrict start-ups from flourishing within the country. Preventing access to cryptocurrencies will eventually result in another wave of brain drain from the country as start-ups will move abroad to access funding.
When an IPO is listed on an exchange, it allows the general public to benefit economically from the growth of companies and sectors. In a similar capacity, a cryptocurrency trading exchange allows the general public to economically benefit from the advancements in blockchain technology. Imposing restrictions on Indian exchanges does not achieve any meaningful results as citizens can already access global exchanges.
In fact, it may be counterproductive as it prevents the government from gaining potentially significant tax revenues and restricts its ability to maintain any control or trace of the transfer of money. In this regards it must be noted that countries such as Japan, South Korea, Russia, Australia, the United States, and Malta have all begun regulating exchange related activities which is the most sensible long term outcome
India has all of the factors to drive blockchain innovation within the country however regulatory hurdles, such as the supreme court's recent decision, make it challenging for progress to be made. In order for India to reach its full potential government officials, entrepreneurs, and institutions need to work together to foster sustainable growth.
Events such as the International Blockchain Congress, which will unite government officials and industry leaders to discuss the future of blockchain in India, will be critical in the country’s journey to become the global center for blockchain innovation.