In an exclusive interaction with Adlin Pertishya Jebaraj, correspondent of Finance Outlook Magazine, Raj Kapoor, Founder of India Blockchain for Alliance and Chairman of India Artificial Alliance, speaks about ROI in public blockchain projects specifically on pilot project, the Coffee Board of India’s blockchain-enabled traceability between the farmer and the consumer fostered trust and enabled farmers to sell at premium prices over middlemen. He shares how the blockchain presents local government procurement and contract transparency that has never been seen before. Raj is a visionary in the realm of artificial intelligence, blending deep expertise with innovative thinking to pioneer groundbreaking solutions at the forefront of technology and a champion of Ethics and Responsible AI. He is also the chief Board Advisor for Nappbooks Ltd for who he heads the world’s largest project for implementing blockchain for E- Notary services, Govt. of India.
Has any current public large-scale blockchain project delivered a clear return on investment (ROI)?
ROI in public blockchain projects can be easily seen in indirect saving cost and efficiencies rather than direct earnings. To illustrate, the land bears an electronic project of land titling and securing the land on blockchain has minimized conflict and court challenges, speeded up the transactions, and enhanced investor confidence. In its pilot project, the Coffee Board of India’s blockchain-enabled traceability between the farmer and the consumer fostered trust and enabled farmers to sell at premium prices over middlemen. Analysis after the pilot indicated an increase in the margins of the farmers by approximately 15 percent following the improved access to the markets. Similarly, piloting of IndiaChain in the Kerala and Chhattisgarh state public distribution systems has put an end to fake beneficiaries in addition to strengthening the efficiency of delivery, and has saved crores of rupees per year. Although it is difficult to estimate ROI numbers, the real benefit is a cost decrease, easier processes, and less fraud. A specific Blockchain ROI Observatory may need to be set up along with a consistent process designed to measure and publicize the social and financial performance of these initiatives.
What are the main financial barriers to large-scale blockchain adoption in public projects?
Firstly, the significant difficulty is the heavy initial capital outlay to upgrade infrastructure, integrate with older systems, and hire competent personnel and to have training programs. Secondly, timelines to achieving ROI are unclear; it can take years before the benefits of blockchain become manifest and policymakers and stakeholders commonly require fast results that can be seen, easily. The additional obstacle is the complexity of government procurements which are mostly designed to be in conflict with legacy technology and almost never involve an evaluation criteria specifically related to blockchain. It also has a high demand of quality blockchain programmers leading to an increase in recruitment expenses. Lastly, there is the issue of cybersecurity, because to secure the decentralized systems against external attack or internal sabotage, monitored security knowledge is necessary. One way in which these barriers could be overcome might include a Public Sector Blockchain Readiness Fund established as part of the Ministry of Electronics and Information Technology (MeitY) to de-risk early adoption, fund skill building and also establish shared infrastructure across government agencies.
How does blockchain minimize administrative costs and fraud in public finances?
Blockchain is considered to mechanise financial operations mainly via automation and transparency. Smart contracts could be used to automate the disbursement of subsidies, payments of invoices, and procurement that can reduce the manual overhead cost by about 50 to 70 percent. The irreversible character of the technology eliminates the possibility of altering expenditure reports and fund flows retroactively, which also decreases the cost of conducting audit, as well as the chances of corruption. Through functionalising as a single point of truth, blockchain eliminates the need to duplicate KYC and data submissions in ministries and saves large sums of money being wasted in duplication of identities. On-the-spot reconciliation of the departments also increases the speed of the movement of funds and helps with leak assessments. It has been estimated by the World Bank that India loses between 2 to 3 percent of its GDP to corruption on a yearly basis and blockchain can directly contribute to plugging such loopholes. As an example, implementing the GST system into a blockchain platform may be used to reduce the delays and disagreements between the centre and states virtually immediately.
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How does blockchain enhance transparency for budgets and minimize welfare payment leakages?
Blockchain has the potential to deliver sizeable government returns, should it be adopted at scale. There is a direct savings potential of 1.5 to 2 lakh crore each year in welfare schemes and land management alone. Blockchain has the potential to enhance compliance within sectors like taxation, customs and real estate by enhancing trust in government systems as a result of transparent record-keeping, generating national revenues up to 5-10 percent. Increased transparency is also capable of elevating the credit rating of the municipalities and the state governments and cutting the cost of funding in infrastructure development projects. The main angles of incorporating blockchain into the RBI CBDC system could be the programmability of payments, minimized monetary friction, and enhanced accuracy in welfare payments. The technology may reach net fiscal neutrality after seven years (i.e., become budget-positive in 2032). Beyond the cost savings, a blockchain would be a structural asset to fiscal resilience so that the Indian welfare state would be more targeted and efficient in its operations under fiscal constraints.
How can blockchain enhance the financial accountability of local government institutions?
Blockchain can present local government procurement and contract transparency that has never been seen before. Through the automation and the public recording of the tendering procedure via smart contracts, it is made much more difficult by favors or kickbacks to take place. An open book of spending would enable citizens to monitor, in real time, their gram panchayats or municipal bodies as they spend. Since constraints are cryptographically guarded and can be easily audited, compliance is enhanced, and local bodies are in a position to be prepared to be audited anytime as against just specified auditing times. This minimizes the period of financial aberrations. The examples of Estonia with the model of local governance based on blockchain technologies or the global ones (the application of Artificial Intelligence in health care) demonstrate how such automated involvement of citizens and tracking of the performance of the public sector can be implemented. India could follow such models and incorporate them into the existing programs of smart cities. The next step of initiating a pilot program of a Smart Panchayat Finance Blockchain in a hundred villages, where budget allocation and monitoring of expenditure is open to the masses and is made real-time, can generate scalable models of citizen-led governance and also enhance accountability at the grassroots.
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What type of budgetary adjustments might blockchain provide to the Indian government within the next five to ten years?
Blockchain might make a big difference to the Indian fiscal system in the next decade, namely in terms of maintaining fiscal integrity by detecting and sealing leakages in major sectors, including land records, health systems, municipal governance, income tax, customs, and GST. To give an example, small routinely occurring government financings, which can include the notarizing of documents, could be rendered tamper-proof and traceable so that fraud can be eliminated and revenues can be fully accounted. Although ROI might not appear immediate, sustained practical application would lead to a reduction in oversight, governance, and transparency, which ultimately would increase India’s global credit ratings. This would reduce interest rates on loans as well as access to foreign financing of infrastructure development. With attention to blocks where the leakage is highest and coordination of blockchain efforts to the fiscal policy agenda, the government might not only experience an increase in the GDP but also enjoy more trusting institutions and financial resilience in the next five to ten years.
