The State of Tamil Nadu in India has unveiled the Tamil Nadu Blockchain Policy, 2020 (‘Policy’), making it the first formalisation of blockchain technology in the Indian jurisdiction after the State of Telangana ad released its Draft Blockchain Policy in 2019. Previously, the Government of India (‘GoI’) think-tank Niti Ayog had also unveiled India: Blockchain Strategy, and the technology finds its way as a passing mention in the recent Expert Committee Report on Non-Personal Data Governance Framework (‘NPD Framework’), however, Tamil Nadu’s effort in releasing the policy will mark the beginning of decentralised ledger technology (‘DLT’) advancement in India. The current skeptic scenario on cryptocurrencies in India has led to disbelief towards providing headway for blockchain technology, especially the recent introduction of the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 (‘Banning Bill’), which has caused turmoil in the companies furnishing blockchain as a service. The Policy introduced will certainly provide repose for such companies in matters pertaining to regulatory clarity. In this blog, we highlight the key implications of how the policy will take India’s blockchain structure forward and what are the current setbacks in the technology’s regulatory scope.
The ‘talks’ of blockchain advancement is not new to India, however, the government has not resorted to take active initiation of regulatory policies or to even provide clarity on gaps in regards to the blockchain-based application.
Key highlights of the Policy
Currently, the applicability of the policy has been limited to e-governance standards on bodies, authorities, trusts, public sector undertakings, and partnership companies associated with the state of Tamil Nadu only. The policy highlights the role of the government as not only a regulator but also a consumer of blockchain, implementing its usage in governance standards such as the creation of digital identity, healthcare, and land registrations. The key objective of the policy is the creation of an ecosystem where opportunities in the execution of blockchain in various sectors recognised while initiating overall community development in Tamil Nadu. Under section 5, the Policy envisages in the building of a regulatory sandbox for the promotion of blockchain applications. This would be highly encouraging of stakeholders involved in blockchain applications other than a payments network for cryptocurrencies as the same are restricted from enrolling in the Reserve Bank of India (‘RBI’) pursuant to exclusionary criteria highlighted under section 6.3 of the enabling framework for the regulatory sandbox. The policy proposes the creation of a blockchain backbone infrastructure for the leverage of the use case of blockchain within a government to citizen (B2Z) model. The Policy expresses a blockchain as a service model for functioning wherein the blockchain shall be completely interoperable with third parties too if required. The Government of Tamil Nadu has also highlighted certain areas that they would be focusing on for initial implementation. Some of such areas are as follows:
a. Data integration and audit trails including documents generated from the Government of Tamil Nadu platforms;
b. Securing of educational certificates;
c. Implementing privacy protection and creation of a digital identity portal;
d. Securing the government websites from any cybersecurity threats;
e. Land workflows and land document interoperability between departments;
f. Agricultural supply chain;
g. Creation of a secure healthcare platform; and
h. Distribution of benefit schemes to the citizen of Tamil Nadu.
The Policy has also introduced guidelines for building blockchain applications and all organisations within the scope of the policy are encouraged to adhere to the same. These guidelines include insuring privacy, control management, node on-boarding, governance framework for networks, consensus mechanisms.
For the purposes of effective implementation of the Policy, certain committees, mainly, a) TN Blockchain Policy Implementation Committee; b) Protocols and Standards Committee; and c) Legal and Regulatory Committee shall be set up.
While the aim of the government is to increase the growth of start-ups involved in the DLT business, it shall be noted that the Policy currently focuses on governance functions. This essentially means that monetising of blockchain for other commercial purposes, for example, private tokenisation, is currently not covered in the regulatory framework of the Policy. The establishment of the sandbox shall definitely help start-ups in testing their blockchain products and provide incentives for such companies who are looking to implement governance-based models. In light of the recent Health Data Management Policy, 2020, the intersection between healthcare records and blockchain shall deem extremely useful in the coming months. Moreover, Tamil Nadu is most likely to become a frontrunner in DLT initiation since currently in India there is little to no regulatory guidance for blockchain implementations.
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