India’s web3 space, while relatively nascent as compared to its Southeast Asian counterparts (think Vietnam, Indonesia, and the Philippines), has been spurred by an increase in digital transformation during the Covid-19 pandemic and the recent overrule of the RBI’s (Reserve Bank of India) crypto ban by its Supreme Court.
The country’s surging economy and demographic dividend also makes it well-positioned to become a high-growth market within the web3 space in the coming years. According to data from India’s NASSCOM (National Association of Software and Services Companies), the country possesses 11% of the world’s web3 talent, making it the third-largest web3 workforce in the world.
“India is part of the global trend of individuals becoming more comfortable with new digital currency platforms, as well as exploring the numerous innovations that cryptocurrency/blockchain technology enables such as non-fungible tokens (NFTs), establishing property rights, monetizing art and more,” Ulisse Dell’Orto, managing director APJ (Asia Pacific & Japan) at Chainalysis, told Blockhead.
India ranked fourth in Chainalysis’ 2022 Geography of Cryptocurrency report, down from second place last year. However, it also ranked first in DeFi (decentralised finance) and centralised service value received, which means that there is a huge demand for crypto services on both DEXs (decentralised exchanges) and CEXs (centralised exchanges) in the country.
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“In India, we know of a robust DeFi market that is highly utilized by young, tech savvy people looking to make returns on their funds. There is a large amount of innovation happening in India that is worth paying close attention to,” Dell’Orto said.
Tonmoy Shingal, co founder and CEO of crypto tax reporting app Binocs, also believes that India’s young population is what’s driving Web3 adoption in the country.
“More than half the population of India is below 30 yrs old. They are driven, educated and technologically savvy. They are fascinated by the promises held by ‘decentralisation’ and the ‘metaverse’,” Shingal told Blockhead.
Growing but ambiguous landscape
India’s fast-growing Web3 industry partly stems from its vibrant startup ecosystem. Data from NASSCOM shows that there are 450 active Web3 startups as of April 2022, four of which are unicorns. It’s also worth nothing that while most of these startups are based in “Tier 1” cities (e.g. Delhi and Mumbai), there is also an emerging ecosystem within “Tier 2” and “Tier 3” cities (e.g. Jaipur), with the overall amount of web3 startups growing over sixfold since 2015.
“The Tier II ecosystem is rapidly growing across all Web3 application areas, similar to the Tier I ecosystem,” Raj Kapoor, founder and CEO of India Blockchain Alliance, told Blockhead.
“Indian Web3 startups have focused less on purely speculative cryptocurrency trading. Instead they are focusing on building diverse web3 solutions across all major application areas,” Kapoor added.
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However, in April, the Indian government implemented a 30% tax on crypto gains – equivalent to India’s highest income tax bracket. Two months later, in July, the government introduced an additional 1% transaction deduction at source (TDS), which means that crypto users have to pay an additional 1% fee on every transaction.
It’s a setback for the industry, particularly for centralised exchanges, something which Binance CEO Changpeng Zhao (CZ) pointed out at the recent Singapore Fintech Festival.
“India has high tax which is probably going to kill the industry,” CZ noted.
Furthermore, according to KPMG, there are 15 homegrown crypto exchanges in India as of June 2022, most of which are of privately-owned, and there remains no designated regulator to oversee their operations or regulate any settlement risk.
For Rajagopal Menon, vice president of India’s largest cryptocurrency exchange WazirX, the country’s crypto ecosystem is currently “stuck in a pause state” due to the high tax rate on cryptocurrencies and the lack of regulatory clarity.
“Entrepreneurs and developers are voting with their feet and moving to crypto-friendly destinations like Singapore and Dubai,” Menon told Blockhead.
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Despite the Indian government’s current ambiguous approach to crypto, it appears keen on exploring the use cases of DLTs (distributed ledger technologies), particularly on the CBDC (central bank digital currencies) front, just like many other Asian countries.
Last week, RBI commenced the testing of its retail CBDC, the e₹-R (e-rupee), in Mumbai, New Delhi, Bengaluru and Bhubaneswar, with the initial participation of four banks, including the State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank.
According to Kapoor, the e₹-R, if successful, will lead to the development of many applications that will be built to cater to the CBDC-led financial needs of companies and individuals in the country.
“That would be a great opportunity in the near future,” Kapoor said.
Still, according Shingal, the ongoing FUD within the crypto markets and India’s regulatory uncertainty have not deterred the country from learning about Web3 and developing the overall ecosystem.
“There are already more than 50,000 web3 developers [in India]. Because of this, a lot of L1s and other infrastructure companies are entering India or getting built in India. For example, the ‘NEAR India’ (Near Protocol’s local hub) was recently established and has already made good progress,” he pointed out.
“It’s just a matter of time before the crypto adoption picks up again,” he said.