India has emerged as a significant player in the Web3 space, boasting a vibrant ecosystem of blockchain developers and startups. The nation’s ambivalent approach to cryptocurrency regulation hangs like an anvil over a budding innovation. Yet, Indian entrepreneurs and developers are looking for more friendly jurisdictions. India’s future as a leader on Web3 now literally hangs in the balance.
India is now experiencing a blockchain startup renaissance, in part because of the regulatory uncertainties. The country ranks either first or second in the world per capita in active blockchain developers. Beyond that, since 2020, it has grown to be a booming community for more than 450 Web3 startups. Indian developers are spearheading major international projects, solidifying their position as key contributors to the global Web3 landscape.
Regulatory Roadblocks and Their Impact
India’s 2022 Union Budget announced a 30% flat tax on crypto asset gains with the additional markup of a 1% TDS—which would apply to all crypto transactions. This bureaucratic move dealt a crushing blow to the nascent startup ecosystem. Most affected founders agree that the tax is harmful but step one is regulatory clarity which the tax postpones.
"We wish to build from India, not against India. The absence of a certain regulatory road map is compelling our entire team to look at moving elsewhere. It's not tax, it's legitimacy." - A Web3 founder in Bengaluru
This uncertainty is causing Indian talent to leave the country and head for places where they have clearer regulatory paths. Developer movement While developer activity by Indian-based blockchain teams has increasingly moved to jurisdictions providing more assurance and backing for Web3 invention.
The Need for Clear Differentiation of Digital Tokens
This is the big ask from Indian Web3 founders. Second, they seek a bright line, easy to understand, safe harbor distinction between digital tokens, including payment tokens, utility tokens, and security tokens. It’s difficult for startups to walk this regulatory tightrope without any clear sense of direction. This continuing uncertainty forces them to doubt the legal status of their own projects.
Policy-oriented think tanks like the Blockchain Commission for Sustainable Development have long seen the potential of blockchain technology and proposed their own innovative solutions.
"Policy think tanks have circulated sandbox blueprints for blockchain innovation in supply chain, digital identity, and public finance."
This lack of clarity has led to a great deal of confusion which is impeding the development of the Web3 ecosystem in India.
Global Examples and the Path Forward
Other nations have gone much farther in rededicating their regulatory regimes to promote homegrown Web3 innovation with clear, supportive regulations. So much so that the UAE has recently set up a separate, complete Virtual Asset Regulatory Authority (VARA) to supervise the crypto market. Singapore provides accessible licensing routes and startup compliance support, drawing in Indian entrepreneurs looking for a friendlier location.
Inspired by these examples, India has an opportunity to lay the ground for a regulatory framework that promotes innovation, while ensuring adequate investor protection. When it comes to regulating crypto, Finance Minister Nirmala Sitharaman has admitted that we need a uniform global template. Finally, she is eager to work across the globe to reach this goal.
India stands at a crossroads. It has new potential as a global Web3 hub, building on their rich vein of tech talent and entrepreneurial energy. To meet this potential, the country needs to get past its ambivalence and truly lead—with transparency, conviction, and consultation. Without a sound regulatory framework, India could merely become a population of Web3 consumers and developers, but an innovator that leads the world.
With the global Web3 economy expected to be between $1.1 trillion by 2030, this is a huge opportunity for India. Will India capitalize on this moment to lead the world in blockchain innovation from within its shores? Or will it sit idly by as its best talent and innovation move to friendlier climates, jurisdictions, and states?
