Why India Says Yes to Blockchain, Yet Still Undecided About Crypto [INTERVIEW]
As countries around the world find their feet in the cryptocurrency market, governments have jumped on board in attempts to regulate the use of digital assets. Places such as Malta, Gibraltar, and Singapore have taken an open-arms approach to new crypto ventures and companies, coupled with a strict regulatory framework to help prevent fraud.
India and China, however, have opted for a much more cautious approach to cryptocurrencies while embracing blockchain technology. Both governments have said they think cryptocurrencies are too risky to remain unregulated.
Bullish on Blockchain, but Not Crypto
India is currently considering a ban on cryptocurrency offerings to private retail investors, an announcement that comes mere months after the ribbon was cut on India’s first ‘Blockchain District’ in Hyderabad, in the southern Indian state of Telangana. The country hasn’t outright banned crypto but has communicated to banks that they cannot have accounts for digital assets, making their integration into the mainstream financial sector more difficult.
“I think that the current space in India is that the government is very pro-blockchain,” said ex-Morgan Stanley banker turned crypto entrepreneur Prashanth Swaminathan. He added:
“Where I think the country is lacking at this stage is in its understanding of the crypto space.”
Before founding crypto exchange XDAT and becoming an advisor for Indian blockchain company eleven01, Swaminathan worked ten years with Morgan Stanley and even guided financial institutions in the EU through the financial crisis of ’08. He leverages that experience to try and educate companies like eleven01 on the regulatory standards they need to stay abreast of to stay out of trouble.
Swaminthan says he hopes the government reaches a more thorough understanding of crypto “sooner rather than later, because this space moves very quickly,” and fees India could suffer a “brain drain” if a crypto ban is imposed. He outlined three ways the government was approaching the thorniness of integrating crypto into the Indian economy:
- Looking at the travel of fiat currency into and out of India. Currently, the rupee cannot move in and out of the country, and crypto could offer an alternative to the country’s fiat currency.
- Figuring out ways to prevent tax evasion.
- Figuring out how to prevent money laundering.
XDAT is based in Malta, and Swaminathan told us that he hopes it can serve as a model for similar crypto ventures in India, some of which could be launched through eleven01. “It’s important for any society to be able to have its own call on currencies,” he said, adding that access to digital assets would offer that chance.
Swaminathan didn’t appear worried about the possible ban India’s government is considering on cryptocurrencies but said it would be up to the government, financial regulators like the Financial Stability and Development Council (FSDC), and the Central Bank of India (CBI) to hammer out a functional approach to regulation going forward.
The FDSC stated outright it was considering a ban, but other measures, such as an 18 percent goods and services tax on crypto trading, are also on the table.
Government on the Blockchain?
Where enthusiasm for crypto might be lacking in India, there’s plenty of love for blockchain technology. When Indian IT giant Tech Mahindra partnered with the government of Telangana to open the Blockchain District, Telangana’s IT Minister, K.T. Rama Rao, described it as “not just a proud moment for Telangana but India as a global leader in the Digital Era,” and the official release stated a goal of making India the “blockchain capital of the world.”
Right now, blockchain will probably see the most use is in the public sector. Swaminathan told us that he saw several memorandums of understanding (MOUs) inked by blockchain companies exploring areas like land rights, health records, and billing at the International Blockchain Congress conference in Hyderabad this past August. He also moderated a panel on “the way forward for Indian exchanges” at the event.
Applications like these may be more favorable to India’s government because the services sector comprises so much to the country’s economy. More than half the Gross Value Added-55.65 percent-comes from the sector, and it employs 28.6 percent of the total population. To government officials, there exists a clear incentive to invest in blockchain technology to make service sector businesses more efficient.
Proponents of crypto argue that the adoption of digital currencies would bring more money into the economy through greater liquidity across borders and, perhaps, more ready access to monetary resources for the poor. Charitable projects in Africa are exploring ways to get finances into the hands of those without banks, and similar applications may be viable in poorer parts of India.
When asked about the hurdles to crypto adoption in India, Swaminathan said that “the primary block is the government’s unclear stance on cryptos,” adding that it would be difficult for them to flourish in the current environment. Once a regulatory framework of some kind is in place, it could clear the way for more widespread adoption.
There is currently no ban on crypto per se, and retailers can accept it as payment, but with the government discouraging investors and no real institutional backing from India’s banks, the road ahead remains murky. Blockchain technology, on the other hand, is positioned to flourish.