Coach-Soch: Web3 opportunity for India — now or never

From its global affairs interests, India has to lead the mainstreaming of Web 3.0: the future model of society that develops in the decentralised internet era. India simply cannot afford any digital authoritarianism or colonialism. The Web 3.0 would have variables ranging from individuals, communities, and coalitions to nation-states, non-state actors, and even international bodies, many of them faceless and boundaryless. India has to think of how these technologies would influence the public narrative, political ideologies, financial markets, global power structures, and social behaviour, and stretch the concept of morality, societal values, ethics, and even global finance.

Until the 2000s, in the Web1 & Web2 era, the internet technology and businesses were largely dominated by companies from the developed nations.  India did not have the requisite global policy voice or the consumption market clout to be involved in the development of policy development on internet governance and the global internet ‘platform-isation’ possibilities. 

Web3 : Decentralisation of the Internet and the opportunity to be self-sovereign (in terms of identity & ownership at the hands of individual creators, rather than platforms) that it ushers in, is an innovation that holds a promise to create a competing model of current internet governance. Web3 is about technologies beyond just digital assets. 

A recent report from the US India Strategic Partnership Forum (USISPF) and Cross Tower estimates that Web 3.0 and digital assets could add $1.1 trillion to India’s GDP over the next decade. With about 1 billion in expected internet users and an equal number of expected social media users in 2025, India will be the home for 25 percent of all social media users worldwide and will have the 2nd largest internet user base in the world. By 2040, the total number of Internet users in India is expected to cross 1.53 billion and yet the overall demographics will remain and productive with a median age of 35 years. As a recent Nasscom Report highlights, the biggest potential for web3 lies in entertainment / creator economy and infrastructure. It is obvious that policy making for this sector has to be holistic and not as set pieces.

And why is all this important for India ? The Internet 1.0 & 2.0 birthed several businesses and armed the rebels, to borrow from Star Wars, also brought with it powerful centripetal forces that catalysed emergence of “Big Tech” entities. 

These Big Tech entities termed, “multi-sided platforms”, have formidable convening power in terms of bringing complimentary groups together, the network effects they generate and the online interaction they facilitate between these groups. That’s what generates concerned public policy queries including around data protection and privacy of consumers and SMBs using them.

A recent Report by the Parliamentary Standing Committee highlights the antitrust implications of growing influence of Big tech. The RBI Financial Stability Report, a half-yearly exercise, has underlined potential negative externalities flowing from the growing role of Big Tech in intermediating financial services. To illustrate, if large domestic financial institutions run on a cloud service offering powered by one or two Big Tech providers, it is easy to discern the systemic risks flowing from that concentration. Things are further complicated when Big Tech actors appear to act as surrogates of hostile state actors- a question that has repeatedly been posed in the context of certain Asian Big Techs. The public policy dilemma for policymakers and sectoral regulators when confronted with these Big Tech entities, is the metaphorical -  wolf by the ears - you can’t hold on to it, but you dare not let it go. 

Web3’s - decentralisation, cryptography, open source and composability - is an organic market-driven “out” that Indian policymakers could embrace. By avoiding centralisation of data in the hands of a platform, it also avoids levering on a private-data-encashment-supported business model. This is also why policymakers have to situate digital assets in the larger fluidic-demographic-adoption context, and regulate them as a first step towards facilitating emergence of other use-cases in web3 context. 

Meeting this opportunity, is India’s immense potential in this frontier niche. More than 10 percent of the global talent pool that powers technology and products on Web3 is in India. Furthermore, this pool is growing at about 120 percent.  On the consumer side, 77 percent of India’s population will be in the cohort born between the late 1990s-2010 (“Gen Z”) and cohort born between early 1980s- late 1990s (“Millennials”) by 2030. These age cohorts are the first adopters of new cultural and technological trends and evidence in the context of digital asset investment data confirms that the same pattern is followed in web3 context. 

In the absence of a regulatory and public policy framework for enabling use-cases powered by web3, this native user base will shift abroad. On the developer side, this will mean brain drain from India; on the consumer side, this will mean exposing young investors in the nation to fiduciary risks from bad actors operating from jurisdictions that give short shrift to guardrails like investor protection. Already, we are witnessing entrepreneurial and technological talent in this space setting up operations  in UAE and Singapore, in response to the prolonged PAP (Policy analysis paralysis) in this niche in India. 

What are the next steps policymakers could take ? They won’t have the luxury of time for policy development, as the development of Web 3.0 products and solutions is moving with great speed.

First: Put a regulatory wrapper around Web3 including digital assets and digital asset intermediaries. A comprehensive framework should develop a taxonomy (classification), reporting and recordkeeping mandates on digital asset intermediaries, treat digital asset intermediaries at parity with other financial institutions, in terms of access to banking and payment rails like UPI. Regulation should distil the serious operators from non-serious and bad actors. It will also give a safe haven to closed loop tokens that are necessary to power certain use-cases in web3 from being mistakenly categorised as “securities”. 

Second: Extensive sandboxing to test the use-case across the federal, state and regulatory levels. The Nasscom Report highlights initiatives taken by states like Telangana to sandbox use-cases in metaverse context for example. Other state governments as well as the Union Government should consider creating their own differentiated sandboxes.

Finally: Government & Regulatory capacity building of talent in working with this sector, regulatory supervision. These technologies are novel and evolving. It is important policymakers are lockstep with the developments to avoid the risk of prescriptive mandates that may inhibit development in this sector. 

 

 

—The authors --Srinath Sridharan is a Policy Researcher & Corporate Advisor, and Mandar Kagade is a Public Policy & Regulatory Expert. The views expressed are strictly personal.      

 

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