By Nidhi Bhardwaj: As the budget session approaches, uncertainties start to loom on the startups and various organisations about what could be the potential fate of blockchain companies. This time, experts eagerly anticipate the rationalised tax regime, along with financial support for crypto, digital assets and small scale startups, as compared to the government’s budget decision in 2022. But why should the 2023 budget focus on blockchain development?
By 2025, blockchain systems could hold 10 percent of global GDP, according to the report from the World Economic Forum. Experts believe that by eliminating the requirement for intermediaries, blockchain technology can disrupt the global economy and nearly every sector, for that matter.
Recent studies have confirmed the impactful effect of blockchain technology on various sectors, given its transparency, credibility, security, accessibility, and effective cost, etc. Due to these factors, many considerable organisations are shifting from Centralised Finance (CeFi) to Decentralised Finance (DeFi). Even the World Bank in one of its reports mentioned the increasing global demand for blockchain for offering transparent and secure payment systems across banks and other financial institutions.
Economic Potential of blockchain by industry sectors
As per a report by McKinsey, potential value created by blockchain would differ from sector to sector, with the public sector perhaps best positioned to take advantage from the perspective of potential impact and feasibility of application.
Does the growing DeFi sector demand the government’s attention?
DeFi has just 1,000 developers managing smart contracts with assets worth more than $100 billion, revealed the study of Electric Capital, a crypto asset management firm. This number stated the lack of talent with its growing demand in the blockchain companies. According to Statista, the demand for blockchain developers is increasing by 300–500 percent every year as more and more businesses deploy smart contracts and build blockchain apps.
With the budget 2023 on the way, Co-founder & CEO, Pratik Gauri, of 5ire, layer1 blockchain company designed with economic and environmental sustainability at its core, perceived this lack of talent as a constraint for startups. He said, “I expect the government to set up training institutes to build skills development infrastructure in blockchain to fulfil growing blockchain talent criteria.”
“There is a need for the government to set up a Fund of Funds for Industry-oriented early-stage capital – just like PLI (production linked Incentive) , early-stage funding in some sectors of blockchain and Web3 to promote entrepreneurship and drive new investments in this ecosystem,” added Gauri.
Moreover, out of the 2 million-odd IT skilled professionals, only 5,000 of them are blockchain professionals,” said Jagdish Mitra, Chief Growth & Strategy Officer, Tech Mahindra at the Business Today conclave in March 2022. “To glorify the future of blockchain in India, talent hiring and development is the major raw material along with capital to tap emerging opportunities, ” expressed Mitra.
What experts think on GST rebates and tax in budget 2023-24?
After the introduction of a 30 percent crypto tax in the last budget, irrespective of the individual’s income tax slab rate, the market crashed for many blockchain enthusiasts.
In an interview with India Today, WazirX, an Indian-based exchange, revealed that “If we compare what we spent this year till date (Jan – July 2022) from the same period last year (Jan – July 2021), then there is an 88 percent fall in spending. Do note, spending was reduced in the 2nd half of last year and has been further cut back since Q1 2022.”
“It is anticipated that the government would use corporate tax and GST rebates to subsidise businesses in the blockchain industry. This might involve tax benefits for businesses engaged in the creation and application of blockchain technology, as well as GST exclusions for transactions carried out utilising blockchain. The government may potentially offer financial support to entrepreneurs developing blockchain-based solutions as well as to blockchain research and development, said Asif Kamal, CEO of ArtFi, a blockchain-based art company.
“The last Union budget introduced a 30 percent tax without a setoff option for losses against other virtual digital assets. This should now be changed to allow setoff as it will build turnover in crypto trading volumes based on blockchain,” said Gauri.
“Indian blockchain businesses anticipate that the government will offer a clear and advantageous regulatory framework for the sector. This might include rules for the application of blockchain technology across a range of industries, such as finance, healthcare, and supply chain management,” Kamal spoke in the discussion.
“It is expected that the government may provide tax incentives and rebates to encourage the growth and development of new industries, such as blockchain startups,” believed Sathvik Vishwanath, Co-Founder & CEO, Unocoin.
Overall outlook of the government for the blockchain industry from 2022
In the recent statement of RBI’s Governor Shaktiankta Das on 12 January at the Banking & Economy Summit in Mumbai, he clearly stated to ban cryptocurrency but at the same time said to support the blockchain technology, given its diverse need for various applications. With such a statement, few experts indeed felt overwhelmed as reported, but still, speculate keenly on the upcoming budget for 2023-24.
To note the government’s interest towards this sector, a recent pilot project launched by Niti Aayog in January 2023, was launched to collaborate with the Himachal Pradesh government to push farm exports by integrating blockchain technology. On this, Ankit Wadhwa, Co-founder & CEO of Rario, said, “The government is adopting the blockchain into the system, and given the current step, this will give natural farming a technological boost.” He further said to welcome the same growing government’s blockchain interest in the banking, sports, gaming, agriculture and energy sector.
“We hope India will be at the forefront of blockchain technology innovation during India’s G20 presidency,” said Wadhwa.
Some experts anticipate the upcoming budget to support the growth of ReFi or regenerative finance with an increase in startups and big tech companies shifting their attention to this technology which supports low carbon technology.
ReFi has gained immense mainstream attention and adoption in the last few years. It proved how blockchain has tangible impacts on the real world and accelerates the world towards a more sustainable, low-carbon economy, said Nikhil Goyal, CEO & Founder, Beyond Imagination Technologies. “Government should support ReFi blockchain startups or firms in the 2023 budget and give at least an initial level of traction to the sector,” he believed.