Indian Prime Minister Narendra Modi recently hailed blockchain’s transformative potential and emphasized the need for "rapid adaptation," a rare instance of a head of state publicly praising the technology.
Blockchain’s grand promise is to do for transparency what the Internet did for communication. It increases trust between two parties -- a particularly big deal in economies with low counterparty trust. More than 80% of Indians work in the informal economy, which relies more on interpersonal trust than formal contracts, leaving them vulnerable to fraud. The country has a 69% bribery rate and was ranked the most corrupt nation in Asia in 2017. Loan frauds average almost $2 billion a year, and to hedge against this, interest rates on business loans routinely run high, up to 20%, denoting low trust.
Modi's comments were not in isolation. For a while now India has been bullish on blockchain -- and a port city, nicknamed “the city of destiny” and relatively unknown on the world stage, is emerging as the country's blockchain hub.
In 2016, the government of the southeastern state of Andhra Pradesh launched the ambitious “FinTech Valley Vizag” initiative with the aim of building Visakhapatnam, or Vizag, into a world-class fintech ecosystem bringing together government, academia, corporates, investors and entrepreneurs. FinTech Valley Vizag’s chief architect, Andhra Pradesh Chief Minister Chandrababu Naidu, has done this before. He's widely credited with transforming Hyderabad, which hosts the Indian headquarters for both Google and Facebook, into a premier tech hub.
As of late 2017, FinTech Valley Vizag has attracted $900 million in investment and created 5,500 jobs -- though the original aim was to create an incredible 500,000 jobs by 2020. Subsequently, Andhra Pradesh has become the first state in India to adopt blockchain for governance. It has piloted two key projects: managing land records and streamlining vehicle registrations. Blockchain helps to protect the state’s digital assets and transactions, preventing tampering by outsiders or even government insiders. This is a big deal in a country where, as per a study by think tank Daksh, property-related disputes account for a staggering 66% of all civil cases and a 0.5% drag on the GDP. The state plans to eventually implement blockchain across the entire administration.
Andhra Pradesh state has also partnered with private companies to test use cases. For example, it has now secured more than 100,000 land records through Indian blockchain startup Zebi Data, which is also working with other states including Maharashtra and Telangana. Swedish blockchain startup, ChromaWay, has also partnered with the state to provide land registry solutions, leveraging lessons from projects abroad including those with Lantmäteriet, Sweden’s land registry authority, and Kairos Future, a consulting firm.
More On Forbes: India's Blockchain Revolution Goes Beyond Banks Into Land Records And Private Firms
FinTech Valley Vizag plans to build the largest repository of blockchain use cases in other key areas such as transport, finance and digital security. It has partnered with Covalent Fund to create Velugu Core, a pioneering India-focused blockchain stack. This would make government data freely and digitally available through open APIs (Application Programming Interfaces), which could then be used by developers to build apps. For example, an individual looking to purchase a particular property could hypothetically access government data through an app built using this stack and get public information on all previous ownership and transaction details. Vizag has also partnered with KPMG to launch a BFSI use case repository program to identify blockchain and other tech solutions to common problems in the banking, financial services and insurance sectors.
Other initiatives include creating several business accelerators and innovation labs, as well as specialized centers of excellence in collaboration with Thomson Reuters (for IT and digital content) and Broadridge for blockchain. FinTech Valley Vizag is also offering generous incentives (monetary, regulatory and infrastructure support) to proactively attract the best talent and develop the region’s thought leadership in fintech and blockchain.
A New Template For Tech Innovation
Vizag’s success in blockchain and fintech is striking for several reasons and can provide a valuable template for other successes in India.
First, it reflects a wider trend of not just metros, but smaller cities in India today (Vizag is a “Tier 2” city) taking the lead in tech transformation. Second, the government, rather than the private sector, is promoting innovation. Third, startups are incentivized to collaborate directly with the government and tap into its vast resources -- a significant development in an ecosystem where they typically steer away from the government, due to red tape and lengthy sales and payment cycles. Finally, FinTech Valley’s entire approach in using state-of-the-art technology to solve pain points uniquely relevant to India is a departure from the typical Indian business approach of replicating tried-and-tested business models and taking a conservative approach to risk.
More On Forbes: India Is Not Banning Cryptocurrency, Here's What It Is Doing Instead
Vizag’s success hasn’t happened in a vacuum. Andhra Pradesh is currently ranked the best state in India for the ease of doing business. The state, being newly reorganized in 2014, is itself in “startup” mode. Unburdened by inefficient past processes, it has taken a big lead in peeling away residual red tape, reducing risk and improving incentives. Now, other states are following suit. Telangana, Karnataka, Maharashtra, and Kerala recently announced broad support for blockchain and pilot projects in similar use cases as Andhra Pradesh to bring more transparency to governance.
In recent years India has renewed its commitment to innovation, particularly tech innovation, treating it as a matter of national interest. Flagship initiatives like Digital India, that aims to transform the knowledge economy, and Startup India, which aims to foster entrepreneurship and innovation -- together with a variety of incentives -- have boosted morale in the tech and business community. Vizag’s initial successes promise to pave the way for an India-wide rollout and bring blockchain into the mainstream.