How Blockchain Can Be the Backbone of India’s Economy, Explained
What’s the current state of India’s economy?
India is currently the seventh-largest economy in the world.
It currently has an estimated population of about 1.34 bln people, or about 18 percent of the world’s population, according to the World Economic Forum. Despite its GDP dropping by roughly 5.7 percent in the quarter that ended June of this year, India remains the fastest growing large economy in the world — other than China.
If estimates are anything to go by, India will have overtaken China as the world’s most populous country by 2024, which would help solidify its position as the nation with the world’s largest youth population. The World Economic Forum also projects that India’s economy will be the second-largest economy in the world by 2050, with China occupying the first position.
In 2016, the Indian government, led by Prime Minister Narendra Singh Modi, announced that the nation’s two highest-denomination bank notes would cease to be legal tenders. At the time, the two denominations accounted for roughly 86 percent of cash in circulation in India. People who possessed the banknotes were to deposit them in the bank. With the move, the Indian government aimed to punish tax evaders in retrospect. The logic was that people with hoards of “black money” would have to answer questions if they attempted to deposit the demonetized banknotes.
While wealthy tax evaders were the target of the demonetization policy, it was the average Indian on the street that suffered the effects the most. At first, the policy led to an intense cash crunch, with Indians pictured queuing for hours at banks and automated teller machines, or ATMs. If you have a minute understanding of economics, you’d quickly realize that the slackened GDP growth in recent quarters found its root in the cash crunch that arose from the demonetization policy.
Poor as the policy might have been for average Indians, though, there were bright spots for proponents of a cashless economy. The World Economic Forum reported that the number of digital transactions in India increased following the demonetization policy — a plus for the government, who would now have increased ability to track the flow of money within the economy. The growth in digital transaction in India is, in turn, a big plus for Blockchain and cryptocurrency.
And what about Blockchain in India?
Blockchain is currently not very popular topic in India.
Just about 0.5 percent of the people in India are into Bitcoin, the cryptocurrency that popularized the Blockchain technology. By inference, if such few people in India know about Bitcoin, it’s safe to say that only about 0.5 percent of India’s population is conversant with Blockchain technology.
However, on the national level, a lot of work is going on to integrate Blockchain technology into various sectors of the economy – including the financial and health sectors. In 2016, the Indian bank, ICIC Bank, announced that it had completed a cross-border transaction executed on a Blockchain. In September of this year, the Institute for Development and Research in Banking Technology, or IDRBT, foundedby the Reserve Bank of India, announced plans to launch a new Blockchain platform. The Reserve Bank of India is India’s central bank. The announcement followed a report published by the IDRBT in January of this year, that India could use Blockchain to digitize its national currency, the rupee. Given the positives — increased tax payments, for instance — that the demonetization policy in India has yielded through increased digital transactions, it’s plausible that the Indian government will double down on its drive to grow a cashless economy.
How do Blockchain and a cashless economy intersect in India?
There are some challenges, but it seems promising.
If, as in any place in the world, the Indian government wants to boost its cashless economy, it needs to find lasting solutions to the challenges confronting the propagation of a cashless economy. Some of those challenges include financial inclusion, high setup and transaction costs and transaction times.
Due to a considerable segment of the Indian economy remaining informal, there’s still a huge part of the population that doesn’t rely on traditional financial institutions for financial services. Based on the cashless technologies employed today, most people would need a bank account in order to live in a cashless economy — an uphill battle. In essence, for you to run a cashless economy, you’ll need an alternative to traditional financial services. This is a good entry point for Blockchain. The Blockchain technology almost entirely eliminates the need to belong in the tradition financial system, in order to be financially included. You may read how Blockchain technology helps with financial inclusion here.
And what about fees and transaction costs?
Currently, they are rather high in India.
It costs a merchant between Rs 4,000 ($61.5) and Rs 8,000 ($123) to set up a card-swiping terminal in India. That is definitely not a problem for big-ticket merchants, but smaller merchants who collectively constitute a big part of the economy might not be happy to pay that much in addition to the subsequent transaction fees. For instance, The Hindu reported in May that Indian consumers are moving back to cash-based transactions, because of remonetization and high digital transaction costs. This makes a case for a cheaper way of conducting digital transactions. Again, Blockchain fits the bill.
Can Blockchain improve transaction times?
It sure can.
If a cashless economy is ever going to be the order of the day, it needs to have a real time feature to it. Today’s technologies have done a great job in reducing the wait times between when a transaction is completed and when the funds become accessible. But, it’s not yet at the level where the entire populace will be motivated to go digital. And this is another problem that the Blockchain technology solves brilliantly.
Building on the recent surge in digital payments in India, a number of Blockchain projects, like BitIndia, are rising to aid the proliferation of digital payments in India. BitIndia offers digital wallets that can hold cryptocurrencies including Bitcoin, Ethereum, Litecoin and Ripple. The vision of the project is to create a “cryptocurrency exchange for the streets of India.” By translation, the project is aiming to help the average Indian embrace digital payments, solving the problems of financial inclusion, costs and transaction times in one platform.