Remittances remain a key source of capital income for low-income countries

The lifting of the RBI ban on trading of digital assets has encouraged companies to consider reviving plans to invest and expand businesses in India. Digital assets still exist within the grey area in the country, though not outrightly banned. "Remittances remain a key source of capital income for low-income countries," Navin Gupta, Managing Director (South Asia and MENA), Ripple, tells Bizz Buzz in an exclusive interview

As per a report published by the World Bank in 2018, India received a significant flow of remittance of $ 79 billion globally and India sends approximately $18-19 billion every year across the globe, which amounts to about $ 100 billion

As pandemic caused sudden shift to digital mediums due to lockdowns. Coupled with a historical depreciation of the rupee, digital assets are emerging as a less volatile form of wealth. This is believed to be a direct impact of the Supreme Court lifting RBI's 'unconstitutional' two-year ban on cryptocurrencies

In what form or shape is remittance taking place in the world?

Despite the economic slowdown due to the pandemic, people still needed to send money to friends and family abroad even more than ever. In fact, the World Bank even recommended that remittance service providers be treated as essential services during the Covid-19 crisis.

Remittances remain a key source of capital income for low-income countries. According to World Bank data, middle and lower-income countries receive remittances at about the same level as foreign direct investment. In fact, in some developing countries remittances represent between five per cent and 20 per cent of their GDP. Despite this, remittance fees to these countries are still very high and, in some cases, involve a fee which is equivalent to seven per cent of the value of the payment.

What is the scenario on the Indian front?

As per a report published by the World Bank in 2018, India received a significant flow of remittance of $79 billion globally and India sends approximately $18-19 billion every year across the globe, which amounts to about $100 billion that moves in and out of India.

How is the virtual currency segment performing post the RBI's verdict on revoking the ban?

The lifting of the RBI ban on trading of digital assets has encouraged companies to consider reviving plans to invest and expand businesses in India. However, digital assets still exist within the grey area, though not outrightly banned. This has caused many banks to halt payments for currency trades, be it in India or overseas, in the absence of any specific communication from the RBI following the Supreme Court decision.

In our view, this lack of regulatory and clarity on digital assets is the biggest roadblock in India. Especially, as India heads into a path of recovery to get digital assets into play, a regulatory framework needs to be put into place before organisations can confidently adopt the use of it.

In line with this, we launched a policy paper in June 2020 titled 'The Path Forward for Digital Assets Adoption in India' that takes into account a global economy with a growing appetite for the adoption of digital assets. It covers short, mid, and long-term solutions, and goes into specific legislation and regulations that need to be amended or included in order to take advantage of this financial revolution.

Through this paper, we urge Indian policymakers to have extensive consultations with stakeholders in the digital assets ecosystem and the wider public before taking any policy action touching upon digital assets in India. The paper proposes that any regulatory framework should be technology-agnostic, principles-based, risk proportionate and not rules-driven.

We surveyed regulatory frameworks implemented by other jurisdictions to establish benchmarks for Indian policymakers. More specifically, the paper proposes a taxonomy of digital assets, illustrating how countries across the world are practically defining and classifying digital assets.

There are many examples cited in the paper that should quickly dispel any apprehension about adopting digital assets and hopefully will serve as a guide. The following are our key recommendations for Indian policymakers: Adopt a digital asset taxonomy consistent with global practices providing clarity to the legal character of digital assets. Enact a facilitative legal framework for digital asset service providers at the Gujarat International Finance Tec-City (GIFT) in the short term to attract mature global participants to GIFT for developing enterprise use-cases of digital assets. Modify RBI's Regulatory Sandbox Framework to remove "cryptocurrency" and "crypto asset services" from the negative list thereby offering service providers an opportunity to test the value proposition of this new technology in the Indian context

Implement a conducive regulatory framework for digital assets by amending specific financial sector laws - for example, empower the Securities & Exchange Board of India (SEBI) to license, regulate, and supervise digital asset service providers.

What will be the future of remittance in India since we now live in the digital era?

The pandemic has caused a sudden and rapid shift to digital mediums due to forced lockdowns. Coupled with a historical depreciation of the rupee, digital assets are emerging as a less volatile form of wealth. This is believed to be a direct impact of the Supreme Court lifting RBI's 'unconstitutional' two-year ban on cryptocurrencies.

While the per-transaction value of remittances has reduced, individuals are still remitting money to friends and family who depend on it for essential needs. In fact, remittances are a key source of capital income in low-income countries. For some developing countries, remittances can represent between five per cent and 20 per cent of their GDP. This is where companies like Ripple are helping people sustain their remittances without having to worry about the high costs of remittance.

We are confident that the convenience, transparency, low costs of transaction, easy-to-use payment system, powered by blockchain is going to be the future of financial transactions. However, if India wants to be a part of the new emerging global financial ecosystem, it will need a strong legal and regulatory framework to be its backbone.

Can you throw some light on the growth of Ripple in India as well as globally?

Ripple currently has nearly 500 employees across its nine global offices in San Francisco, New York, London, D.C., Mumbai, Singapore, São Paulo, Reykjavík and Dubai. India is a key market for Ripple as it is the largest recipient of remittances in the world. There are a number of customer-centric banks in India that are already delivering the Ripple experience to Indian citizens.

There is a lot of potential in India, and opportunities for many ambitious innovators who can succeed with the right kind of regulatory framework and support. With such a high number of Indians employed overseas, India is the highest recipient of foreign remittances. This means that there is demand for fast and cost-efficient methods of cross-border transactions, such as Ripple's On Demand Liquidity (ODL) solution that leverages the digital asset XRP as a bridge between two currencies, thereby eliminating the need for pre-funding of destination accounts, reducing operational costs. However, our ODL) solution is not yet available to our Indian customers while we await regulatory clarity on digital assets in India.