Background: In recent years, India has seen gradual progress in the adoption of Distributed Ledger Technology (DLT) for various applications. The official approach towards DLT and blockchain has been cautious, with regulatory bodies wary of its use in some cases, while taking a favorable view in others. For instance, as virtual currencies and exchanges made its
way into India particularly around 2012-13, the RBI and the government took a hawkish
approach by favoring either complete prohibition or strict regulations. However, recent years have also seen several state governments getting involved in blockchain-related initiatives in
the areas of land registry, digital certificates, citizen electronic health record management, agriculture supply chain, etc., thus making the public sector a major driver of adoption. At the
initial stage, official discourse was focused on DLT application in the Banking and Financial Services Industry (BFSI), with later developments indicating an approach towards broader consideration of its potential benefits and risks across sectors.
Landmark changes :
- In 2017, the Institute for Development and Research in Banking (IDRB), an arm of the RBI, published a White Paper: Applications of Blockchain Technology to Banking and Financial Sector in India. It suggested a roadmap for prospective adoption of Blockchain Technology (BCT) to Indian banking with a particular focus on Proof-of-Concept (PoC) implementation and testing for inter-bank applications such as centralised KYC, cross-border payments, syndication of loans, trade finance and clearing and settlement processes in capital markets. It also developed PoC of two use cases: Domestic Trade Finance with a sight letter of credit and ‘Enhanced Information’ payments (EIP).
- In July, 2018, the Telecom Regulatory Authority of India (TRAI) placed DLT at the core of addressing the problem of unsolicited commercial communication by publishing The Telecom Commercial Communications Customer Preference Regulations, 2018. The regulations mandated Access Providers to establish, operate and maintain its own DLT networks or implement it in collaboration with others, with certain functionalities for regulating the delivery of commercial communications, such as: (a) providing facility to its customers for registering their preferences for commercial communication and maintaining a complete and accurate record of such preferences; (b) providing facility for recording and revocation of consent of customers acquired by senders; (c) carrying out regulatory pre-checks; and (d) a Distributed Ledger(s) for Complaints (DL-Complaints) to record complaints and reports regarding violation of regulations.
- The Steering Committee on Fintech Related Issues was constituted with the mandate to take stock of developments in the fintech space in India and globally, identify application areas and use cases and suggest flexible regulations to enable fintech innovations. The committee submitted its report to the Finance Ministry in September, 2019. It recognized cross-border payments, settlement of securities, trade finance and smart contracts as some of the major fintech applications where blockchain was being deployed. Among its recommendations, the Committee suggested testing and implementing block-chain solutions in trade finance for MSMEs in public sector banks, setting up of an Inter-Ministerial group on fintech for exploring and suggesting potential applications of underlying technologies such as blockchain particularly in accounting & asset management, and taxation.; and proposed capacity building of government officials on these technologies.
- In an attempt to discern the functional definition of DLTs and the legal and regulatoryissues surrounding them, Niti Ayog released a draft discussion paper titled ‘Blockchain:The India Strategy- Towards Enabling Ease of Business, Ease of Living and Ease of Governance’ in January, 2020. It covered a general value proposition of blockchain and DLT, outlined a framework for blockchain use-case evaluation, discussed implementation challenges, and explored several use cases in, inter alia, land records, pharmaceutical drugs supply chain, anti-fraud identity intelligence for educational certificates, and immunization supply chain. The paper also outlined recommendations that called for the creation of a national infrastructure for deployment of blockchain solutions, promotion of research and development in blockchain, and for adoption of blockchain solutions for public procurement.
Recent Developments:
The National Strategy on Blockchain explores using blockchain to create trusted digital platforms for e-Governance service delivery was released in 2021 by the Ministry of Electronics and Information Technology. It examines the national and international efforts on developing and piloting e-governance applications on blockchain technology, considers suggestions from public consultation, and lays down strategies and outcomes targeted for the next five years. These targets include:
- development of a geographically distributed national level shared blockchain infrastructure,
- providing Blockchain-as-a-Service by hosting applications in different areas (such as agriculture supply chain, electronic health records, education certificate chain, drug supply chain),
- initial application of the framework in e-governance, with a gradual transition to other areas based on defined policies and guidelines,
- Addressing challenges tandards & interoperability, scalability & performance, consensus mechanisms, security & privacy, secure smart contracts, etc by creating working groups to initiate research, and
- Using skilling programmes to undertake Human Resource development in blockchain.