No Law Prevents Startups From Crypto Or Web3 Innovation: Rajeev Chandrasekhar

Since 2014, the Narendra Modi government has announced a series of policies and policy reforms such as extended tax holidays, angel tax abolition, startup-specific funds and easy public listing, providing a much-needed boost to the startup ecosystem.

The government has introduced a slew of tech policies to bolster innovation and open new horizons for disruptive startups. Among these, the National Policy on Electronics (2019), the National Strategy for Artificial Intelligence, Drone (Amendment) Rules 2022 and several other schemes are promoting tech entrepreneurship.

On the other hand, a delay in cryptocurrency and digital assets legislation or the Personal Data Protection Bill may lead to policy chaos of sorts as these are critical components of an innovation-driven, digital-first economy.

In a freewheeling conversation with Inc42, Rajeev Chandrasekhar, the Union minister of state for skill development and entrepreneurship and MoS for electronics and IT, cleared the air once and for all.

“There is no delay in any policy. There is nothing to prevent anyone from innovating in the crypto or Web3 space. If you are a startup, and you are innovating in crypto or blockchain or Web3, there is absolutely nothing in the law that prevents you from doing it,” he said.

“We want to make it easier and easier for young Indians located anywhere in the country. They should be able to dream and aspire to make those dreams come true.”

Here are the edited excerpts from the interview.

Inc42: Prime Minister Narendra Modi recently launched 5G in India. When 4G came, it spurred the digital payments boom and enabled massive internet penetration, pushing the number of digital consumers. How will 5G change the market equation? Will it be startup-driven?

Rajeev Chandrasekhar: Of course, 5G is a very deep transformational change – an inflexion point for the entire wireless internet ecosystem. I would say this is the first step to the future of the wireless internet.

In a lot of ways, 5G has many more applications than pure peer-to-peer communications. It opens up a whole new ecosystem of opportunities in adjacent spaces that are driven by its IoT and Industry 4.0 capabilities. The core 5G network will be a series of application-driven ecosystems to be innovated by Indian startups and those around the world. These ecosystems will deal with health, education, agriculture, security and so on.

As we have always said, what we have seen until now is the first wave of internet consumer tech startups. But in the coming years, we will see the broadening of the areas where startups will play a more meaningful role in terms of innovation. And they will create valuable franchises, brands and companies in the process. Intellectual property, semiconductor electronics, artificial intelligence and Web3.0 are the key areas where we will see a number of developments.

All these areas are at the early stages of development, and so is the Indian startup ecosystem. The overall ecosystem is going to be in play in the coming years.

Inc42: Crypto is an essential part of Web3. But the Crypto Bill has been pending for years. Although the tax part has been addressed, Web3, crypto assets, NFTs and the metaverse require a separate Bill for other regulatory matters. Is pendency driving Web3 startup founders out of India?

Rajeev Chandrasekhar: There is no delay in any policy. There is nothing to prevent anyone from innovating in crypto or the Web3 space.

If you are a startup focussing on Web3, blockchain or crypto, you are free to do that. In fact, plenty of startups are doing that. One runs afoul of the Indian foreign exchange laws when it starts buying crypto with INR. The Indian rupee is not a convertible currency. So, the RBI has set up certain limitations and exchange control restrictions on what you can use the rupee for and how many dollars you can buy every year.

We also have the liberalised remittance scheme (LRS) that allows you to buy dollars as an Indian and then invest in US dollar assets. As long as you do that, you can buy, trade and sell crypto and transfer payments into crypto – there’s no problem.

But when a crypto user/entrepreneur decides to start a crypto exchange and start gatewaying the rupee directly into crypto in violation of the foreign exchange rules [sending money abroad using crypto without complying with FEMA], then there is a problem.

There are no restrictions on innovation, though. These foreign exchange laws pose only certain restrictions while operating crypto exchanges or doing crypto brokering in India.

For a startup, whether you are innovating for crypto or blockchain or Web3, there is absolutely nothing in the law that prevents you from doing it. There is nothing in the IT Act that stops you from doing it. We welcome any investor or startup to innovate in crypto or Web3.

As I said, the restrictions involve exchange control. Some startups have made the mistake of becoming full-blown crypto brokerages and exchanges without getting the required permissions from the RBI and SEBI.

Inc42: The government is now drafting a new Personal Data Protection Bill. Is it based on the old draft or a completely new one? 

Rajeev Chandrasekhar: Instead of making a direct comparison, I would clarify that the previous Bill was repealed and withdrawn from Parliament as it had become very cumbersome. It had become very compliance-intensive for startups and small companies.

The Bill had become many things other than just data protection. It had even morphed into things that attempted to regulate social media. The draft based on Justice Srikrishna Committee’s report was not deemed what a modern digital economy like India requires.

The basic principle of the new Bill is that it will be simple and evolvable. It will address startups’ requirements for a compliance-easy framework. At the same time, it will protect Indian citizens’ data protection and privacy rights. That is the basic framework. It will be evolvable and won’t be something cast in stone.

This is because new challenges will arise in the coming years. New intermediaries will emerge as new technologies continue to disrupt things. So, we want the Bill to be relevant for the next decade. It will be an evolvable Bill and go through extensive public consultation.

We are not sticking to any pre-set timeline. We are more interested in a process that ensures the Bill has the support of all principal stakeholders, the innovation economy and our citizens. Once that is established, the Bill [with that kind of consensus] will be taken to Parliament.

Inc42: How does the government plan to address the regulatory requirements for non-personal data? 

Rajeev Chandrasekhar: We have already gone through a significant consultation process on what we call the national data governance framework. Soon, the Cabinet is expected to approve it as part of an overall digital government and the digitalising framework.

This framework envisages an India dataset programme, aggregating and making all anonymised and non-personal data available for the Indian research community and startup communities.

Besides, an India data management office will be part of the policy that will frame all standards and rules regarding all aspects of the data today. In the future, we will include the anonymisation standards.

So, non-personal data will have a different framework. It is a huge requirement for our AI ecosystem. AI, in turn, is a kinetic enabler of the digital economy and a critical component of our trillion-dollar digital economy roadmap. That’s why we have gone ahead in this manner [taking meticulous care of everything].

But some issues regarding non-personal data still need to be resolved. And these require discussions and debates.

For instance, who is the owner of the information that contains personal data collected with consent for purpose limitations but has been anonymised since? Who owns it? Who benefits when companies use anonymised data for algorithms and other monetisation purposes? We need to talk through and debate these points as we move forward.

However, the  Digital Personal Data Protection Bill will only deal with personal data.

Inc42: Lately, many tech startups are not performing well in the stock market. And most of the reports put it to overvaluation. SEBI, too, is looking into VC and AIF mechanisms and mulling possible reforms. What is your take?   

Rajeev Chandrasekhar: It is not new. But then, it is not my place to comment on the valuation of a particular stock. It is purely a matter between the capital market regulator [SEBI], enterprises selling their shares and investors putting their money.

Some startups get really high valuations at times because investors see certain strategic value in those companies. There is nothing right or wrong about it. It all depends on the market.

Currently, global tech markets are going through a correction, and hence, we see corrections in valuations.

But that is how tech markets perform. They go high, they go down, and they get corrected. The demand-supply equation also impacts stock prices. I would not spend too much time on valuation issues because the stock market regulator could take care of it. Beyond that, any conversation on why a company is valued the way it is should be purely between the investors, the enterprise and its founders.

Inc42: Many startups and VC funds have been under fire for their corporate governance and lack of transparency. Should the government intervene?

Rajeev Chandrasekhar: Our way of looking at the tech sector is that we should be non-interfering. Our presence should be there rather than be felt in terms of compliance, power, or discretion, which may create problems for investors or enterprises.

Of course, we are a law-abiding country. We want the growth to be as orderly and ethical as possible. Whenever a participant in this complex digital economy violates the law or tries to do something unethical, we will always respond and react to it.

But that should be the exception, not the rule. I see no reason for us to get into areas other than the violation of the legal system. And when there are violations, there are institutions and regulators to deal with them.

Suppose a fund is violating corporate governance norms or doing something wrong. In that case, there will be the Companies Act, the Competition Commission of India (CCI) and the ministry of corporate affairs (MCA) to take care of it. Many institutions can intervene to protect small or big investors, the management or the board, as the case may be. These checks and balances are very much there in our ecosystem.

There is no need for the MeitY or any other government department to go out of the way and do things differently. If these reports surface, I am sure that the department of company affairs under the MCA will take appropriate measures.

Inc42: There has been a lot of debate on moonlighting. While IT companies have collectively spoken against the practice, some startup founders have supported it. How do you see this? 

Rajeev Chandrasekhar: There needs to be more clarity about employment trends. Employee entrepreneurship is an area that companies cannot ignore. If not today, it is going to be a reality tomorrow. But if an employee has a contractual obligation to work exclusively for a company and no one else, these terms and conditions will apply to the employee.

If a work contract requires an employee not to disclose confidential information and abide by other workplace rules, not doing so will be a breach of contract. This is not something to be encouraged or condoned.

The bigger point I want to make here is companies should understand that their employees will increasingly want to work as consultants. They will increasingly seek to be free agents, and groups of people will start collaborating to develop next-generation products. This is the way of the future.

Having said that, I want to make it very clear that I am not condoning, and nobody should ever condone, any breach of contract between employees and their employers. In effect, this can be a legal and an ethical issue.

Inc42: You had set up Namma Bengaluru Foundation and co-chaired the Vigilance and Monitoring Committee on Bengaluru. But the Karnataka capital and other metros are still struggling to cope with heavy rainfall, traffic logjams and other infrastructural issues. What can be done here? 

Rajeev Chandrasekhar: One of the critical challenges for cities like Bengaluru is that everyone wants to come here, and you can’t prevent it. It is where the biggest companies are today, seeking talent and making investments.

What we are looking at – the Prime Minister said this way back in 2015-16 – is to move the digital opportunity narrative and distribution beyond some three-four cities – Bengaluru, Hyderabad, Gurugram and Chennai. We knew then that we must create at least 15 more cities for this purpose.

Today, we see that 15 other cities are emerging as tech hubs. Clearly, there is no restriction for smaller cities to make the best of this digital opportunity.

The government is encouraging companies to invest in smaller towns to build the robust digital infrastructure required for growth. And that process will continue because it is the only permanent solution to overcapacity issues cities like Bengaluru face.

Further, Karnataka chief minister Basavaraj Bommai has spent a lot of resources and bandwidth to ensure that Bengaluru becomes India’s most livable city. He has also taken several measures such as setting up a ‘new’ Bengaluru with good infrastructure and connectivity across the country. This will help offload some of the city’s congestion, ensure better municipal services in Bengaluru and suburban areas, and provide better living standards.

These are the [infrastructural] issues currently under discussion and debate. And, of course, citizens will participate in everything.

The government is also fast-tracking the Beyond Bengaluru project, while Mysuru has been a classic example of how a giant old city can evolve from a tourist hub to a tech hub.

Similarly, we are creating more and more digital opportunities across the country. Regardless of your location – whether you are in Ghaziabad, Indore, Bengaluru, Mysuru or Surat – you should get equally good opportunities and the infrastructure advantage – that is our aim.

Inc42: In the last eight years, we have seen a series of reforms. Subsequently, the number of Indian startups has grown from a few thousand to over 80K. Going forward, what are the key reforms on the cards? And what are the major challenges you face as a policymaker?

Rajeev Chandrasekhar: In Prime Minister’s words: We want to make it easier and easier for young Indians to become successful. We want [to make it] easier and easier for young Indians to pursue opportunities in all the new areas we are opening up.

So, the government’s main mission is to ensure ease of doing business, minimum government and maximum governance. Essentially, we want to propel our policies by enabling frameworks, providing capital and partnerships, and leveraging linkages between startups and the industry and startups and the government.

As I said before, people should be able to leverage these opportunities and the infrastructure regardless of their locations.

They should be able to set up enterprises, move forward and succeed or fail, as the case may be. That is our mission.

Why do I show up at work in the morning and leave late in the evening every day? Because we want the startups to enter all these new areas that are opening, ranging from semiconductor electronics, AI, Web3 and more. We also want them to be from the smaller towns in India. And we are working towards these goals.

[Edited By Sanghamitra Mandal]