India’s digital economy needs timely regulatory engagement

Technology is rapidly transforming the world as we know it. In the past, business models took decades before they became trending. Today, apps and platforms can become viral in hours and days. Economic progress today is more tied to development and use of technology than it ever was. However, while the speed of change has become exponential, the regulatory engagement and support in India continues to trail. This is particularly evident in areas such as cryptocurrency, online gaming and the use of drones. While the technologies and their applications have raced ahead, a clear and firm regulatory stand still remains a pipe dream.

Let us take cryptocurrency. Bitcoin was first introduced in 2008 and became popular in India sometime in 2017-18. At least 20 million Indians are believed to have invested in crypto, making India the second largest user of crypto in the world. Based on some recent data, this market is growing at a massive 100% month on month. Not just retail investors, even sophisticated institutional investors are actively trading cryptos. The regulations however, have largely been absent beyond the tokenism of not recognising crypto as legal tender. Suddenly, in late 2021, the government announced a plan to introduce a bill potentially banning the use of crypto. This comes at a time when cryptocurrencies are globally valued at $650 Billion in market capitalization. The knee jerk reaction of the government followed the age old template of prohibited till permitted. While the bill is still awaited, the rumour mills are churning speculations over time on items such as tax implication, currency conversion and asset class classification of crypto. The uncertainty is creating a lot of volatility and anxiety among existing investors. 

Another case in point is online gaming which is still largely unregulated. Over 300 million Indians actively play online games growing at the rate of 38% CAGR. Online gaming is pegged at a $5 Bn market opportunity by 2025. A number of popular games are liberally straying in the territory of non-skill gaming leading to loss of productivity and risks associated with gambling. While non-skilled gaming is generally prohibited in most states in India, online games typically transgress state boundaries.  A number of states are responding abruptly with blanket bans instead of a more nuanced regulatory intervention. Karnataka for instance, has made online gaming a non-bailable offence. The reactionary position of the states is at odds with the judiciary which has by and large been opposed to any prohibition on skill-based gaming not amounting to wager. 

A third example is of the recently introduced drone rules. The new rules replaced the Unmanned Aircraft System Rules 2021. The regulatory intervention is a step in the right direction as it is based on the principle of self-certification. However, the development has taken disproportionately long. The drone industry has been booming globally across many commercial applications including wedding photography, vlogging, last mile delivery, law and order surveillance, border patrolling and defence among others. The Global Drone Market was valued at 18 billion dollars in 2020 while the Civil Aviation Ministry estimates the size of the Indian drone market at around 1.5 to 2 billion dollars. The government is actively pursuing attracting hundreds of millions of dollars in investments in the drone manufacturing industry. The regulations clearing the air on their use however, were nowhere to be found until recently. 

Delayed regulatory intervention is hurting India’s aspiration to become a trillion dollar digital economy. There is a pressing need for the government to keep up with the emerging exponential technologies. A key reason for the delay can be attributed to the lack of expertise within the government. It is recommended that the government build and nurture capacity within itself to constantly scan breakthrough technological innovations and their implications on emerging digital business models. Not doing so leads to uncertainty and hostility in the business environment and affects India’s ease of doing business. In addition, it also increases the risk of economic frauds, shadow markets, complex enforcement among others.

The author does not intend to comment on the qualitative aspects of government’s intervention, however, is recommending timeliness in regulatory interventions to improve transparency for prospective investors.

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Views expressed above are the author’s own.



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