SUMMARY
Nandan Nilekani has said that crypto can be used as a stored asset class for India. but not for transactional purposes
Nilekani had previously proposed the concept of using the $2 Tn pool of global crypto wealth to solve credit scarcity among small businesses in India
In recent months, banks issued notifications telling customers that they are suspending crypto transactions, causing much panic and confusion in the market
Infosys cofounder and the architect of India’s Aadhaar programme Nandan Nikelani has backed the use of crypto as an investment asset class, to be bought and sold like a commodity or shares, amid confusion about the regulatory stance on crypto in India.
Nilekani claimed allowing individuals and businesses to tap the $1.5 Tn market would allow the crypto industry to generate wealth and add value to India’s economy. “Just like you have some of your assets in gold or real estate, you can have some of your assets in crypto…I think there’s a role for crypto as a stored value but certainly not in a transactional sense,” Nilekani told the Financial Times.
This is the second time in recent months that the former UIDAI chairman has spoken in favour of regulating cryptos as investment asset classes. In April, Nilekani had suggested the concept of using the global crypto wealth to solve the massive scarcity of credit faced by small businesses in India. In a tweet in support of cryptos, he said, “How does India become a $5 Tn economy? We’ll need to close the $250 Bn financing gap for India’s small businesses by attracting global, risk-tolerant pools of capital — and as iSPIRT details, the rapidly growing crypto economy may be one of the key ways.”
Nilekani was referring to the white paper by the Indian Software Products Industry Roundtable (iSPIRT), which argued for allowing regulated inflow of cryptocurrencies from investors through approved Indian and global exchanges. The think-tank also said this could be instrumental in providing small and medium enterprises (SMEs) with much-needed growth capital.
Backing iSPIRT at the time, Balaji S Srinivasan, the former Coinbase CTO and former Andreessen Horowitz general partner, talked about the need to include crypto and India’s proposed digital rupee to IndiaStack, to help Indian SMEs leapfrog the 20th century financial structures that are still in place, and gain access to pools of capital from global crypto investors, through decentralised finance or DeFi protocols.
Nilekani had come forward to discuss the same with Srinivasan and other investors in India in a recent Clubhouse conversation. “We should think of crypto as an asset class and allow people to have some crypto. Crypto as a transaction medium will not work as fast as UPI, which is targeting a billion transactions a day. However, crypto has enormous capital,” Nilekani noted during an earlier conversation with Srinivasan and Karthik Reddy of Blume Ventures.
The Infosys non-executive chairman added that India needs to look at how crypto will help Indians, and how MSMEs can access capital using bitcoins. “No amount of tech is going to sway anyone’s view.”
Besides leading Infosys and the efforts to bring the Aadhaar universal ID to India, Nilekani has backed startups such as Tracxn, RailYatri, ShopX, Power2SME, Ninjacart, Fortigo, among others. He has also set up a venture capital fund called Fundamentum in 2017 along with Helion Ventures co-founder Sanjeev Aggarwal.
His support for crypto assets as investment classes come amid the growing adoption of virtual currencies particularly Bitcoin among corporates and institutions including Tesla, JPMorgan, Visa, MicroStrategy, PayPal, Goldman Sachs, etc. But in India, there’s no clarity on how cryptos will be regulated in the future.
India’s Crypto Flip-Flops
On April 6, 2018, the RBI had issued a circular asking banks and other RBI-regulated entities to stop extending any banking services to crypto startups. However, in March 2020, the Supreme Court set aside the notification and said that banks have to facilitate transactions to crypto exchanges. This led to a major boom period for crypto platforms in India, with the likes of WazirX, CoinDCX, CoinSwitch Kuber and others attracting funds and new users.
However, a year after that SC ruling, in April 2021, many banks started blocking crypto transactions given the upsurge in such transactions. Banks sent notifications to users that transacting on crypto platforms might result in their credit cards being suspended. As a result, the issue of whether crypto transactions are permitted once again cropped up. Many claimed that the RBI was in contempt of court because of its anti-crypto stance.
In order to avoid being penalised for any contempt of court, the RBI had last month, issued a notification informing banks that they cannot refer to its 2018 crypto-ban order to caution their customers against dealing in virtual currencies. “It has come to our attention through media reports that certain banks/ regulated entities have cautioned their customers against dealing in virtual currencies by making a reference to the RBI circular dated April 06, 2018,” a notification by RBI said.
