The Ministry of Electronics and Information Technology (“MeitY”) has released a roadmap in December 2021 for development of a national blockchain platform, by issuing an updated guidance document, titled the ‘National Strategy on Blockchain’ (“NSB”).

The NSB aims to provide an overall guidance for creation of trusted digital platforms through shared blockchain infrastructure and promotion of research and development initiatives in the space, with the intent to facilitate transparent, secure and trusted digital service delivery to citizens and businesses in India. 

Key Takeaways - 

  • Most notably, the NSB has set down a goal for development of a National Blockchain Framework (“NBF”) over the course of the next 5 years, touted as a “geographically distributed national level shared infrastructure”, which would be hosted on nodes which are geographically distributed across the country, and enabled as shared Blockchain infrastructure. 
  • With creation of such shared infrastructure, MeitY aims to booster development of blockchain-as-a-service for large-scale hosting of blockchain applications, enabling varied sectors such as agriculture supply chain, electronic health records, cross border trade, amongst others. 
  • Having said that, MeitY initially plans to deploy the NBF for the e-governance domain, which will later transition to include different fields. To illustrate the utility, MeitY specifically provides the example of patient health records, which can be stored in a tamperproof manner on the NBF, and help doctors of any hospital/ clinic in the country access medical history of a patient data, which access can be role based and privacy enabled. 
  • In a similar tone, MeitY has clearly identified and listed down 44 sectors in the NSB document, wherein blockchains can be deployed. For this purpose, MeitY further highlights the collaborative efforts that are required from both the Government and industry stakeholders. 
  • It is also interesting to note that in its strategy note, MeitY particularly discusses the various initiatives that countries such as China, Canada, and Singapore (amongst others) have launched in promoting Blockchain technology. This bears mentioning, since interoperability amongst the platforms hosted by different countries would be key to not only various cross border transactions, but also cross border access to health care records, drugs supply chains etc. 
  • In terms of one of the key differentiators between the earlier draft of the NSB (released in January 2021) and the current, MeitY has proposed formation of the ‘Blockchain Advisory Counsel’ to provide overall guidance at policy level for the blockchain initiatives in the country; and the ‘Steering Committee’ to regularly review and monitor implementation of the NSB. If set up, the Blockchain Advisory Board would be constituted under the chairmanship of the Minister of MeitY; and the Steering Committee would be constituted under the chairmanship of the Secretary of MeitY.
  • However, while the NSB emphatically stresses on the importance of researching and developing blockchain as a technology, the strategy note conspicuously does not identify the parameters for ascertaining fulfilment of the roles and responsibilities of each stakeholder (whether Government or private sector), nor does it set any timeline of concrete goals, for development and deployment of the NBF.

Key Observations - 

  • Given that the acceptance and adoption of blockchain technology continues to be at a nascent stage in India, the industry stakeholders welcome the release of the strategy note from MeitY. However, the regulatory framework which would govern the development and utility of such shared infrastructure remains unformulated. MeitY passingly refers to this in the NSB, stating that the Government, “may work on specific regulations and policies for the framework as it evolves as per the needs of various application domains.”
  • Another relevant point of discussion has been the legislative landscape at the time of release of the strategy note, i.e., at a time when the bill to ban (or regulate) cryptocurrencies is slated for discussion in the Indian Parliament. Considering that blockchain forms the underlying technology of all cryptocurrencies, the possible stance of the Government to ban cryptocurrencies can be construed as contradictory to promotion of blockchain as a technology. 
  • Apart from concerns related to the regulatory compliances applicable to blockchain, the strategy note rightfully identifies other key challenges, including the availability of skilled manpower who understands potential of blockchain and its applicability to a particular domain; and difficulty with identifying suitable and secure use cases of blockchain in a particular application. 
  • In an attempt to proactively address the possible weaknesses in the envisaged framework, the strategy note discusses harmonising the conflicting tenets of data privacy laws, with the characteristic aspects of blockchain technology. In this regard, it is crucial to note that the Indian Parliament is also in the process of finalising India’s first comprehensive data privacy bill, and the ‘right to be forgotten’ of Indian citizens, along with mandate of data localization are expected to be among some of the key provisions likely to be codified under such law. Such measures may be practically hard to implement, given that data in an interoperable shared infrastructure may be stored in computers/ nodes across the globe, and the immutable nature of the records stored on blockchain. In this regard, various industry experts have recommended that MeitY revisit its position on data localisation, and exempt decentralised storage (which ultimately enhances data security) from such requirement. 
  • The NSB interestingly discusses the differences between a public (or permissionless) model vs. a private (or permissioned) model of blockchain infrastructure. While a public model would be highly secure due to the large number of unknown participants; a private model (while also secure) would have known and limited participants, making it only partially decentralised. Despite drawing out the distinctions between the two models, MeitY does not conclusively state whether the NBF is likely to follow a public or private model.
  • In comparison to the earlier draft of the NSB (released in January 2021), the updated NSB presents a more deliberate and comprehensive roadmap for the NBF. Given this, multiple industry veterans have interpreted this release to indicate positive sentiment from the Government towards blockchain technology, which is likely to translate to substantial promotion and encouragement of new-age technologies.

Authored by - Mr. Rishi Anand, Partner and Mr. Nakul Batra, Associate Partner; assisted by Ms. Palak Sehgal, Senior Associate and Mr. Kunal Garg, Associate.