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9.0  Expected Criticism vis-à-vis next generation reforms

Why is the telecom sector the exclusive beneficiary? Why make the telecom sector into a zero-debt sector? The fact is that it is the only sector with the most efficient pan-India last mile distribution to reach 1 billion Indians. We must enable them to fulfill financial inclusion goals with 1 billion smartphones. It would build them into an antifragile monetary stack of India as well as pre-empt LIBRA-like disruptions. India needs a strong defence by raising the strength of its own telecom players to the global level. The second critique would be over the absence of direct or indirect tax on IDD? Blockchain systems scale up only in a minimum friction scenario which means that the shared ledger networks must have only embedded tax provision but zero off-chain reporting compulsions. Another criticism would be that Indians are not ready for this mass change but this proposal is not to be implemented in a few days or months. It is a transformation needed for generations to follow. Its real scale would be on the lines of first-generation economic reforms made in 1991. IDD is basically the bedrock of the second-generation reforms for Indian economy. Public blockchains are going to be the infrastructure for the 21^st century. If we don’t adapt right now with the dual legal tender shift, we might miss the bus.

10.0 Future scope of research

This is a huge transition for Indian monetary system. First, it will need a public dialogue with wide category of scholars and practitioners. A wholesome IDD discourse needs to be created to make it a mainstream idea. It would require a lot of further work in terms of building deep-dive documents on the technological architecture and workflow of the plan. Which blockchain technology platform/s would be suitable? What would be the details of the validator nodes, sybil resistance methods, wallet features, whitelisting process, privacy guards, consensus protocol, block size, platform choice, TPS, scalability etc. How the micro-details of Telecom Pool distribution regarding equity and debt conversion would be finalized? How would the SEBI be brought on-board on this? What challenges would telecom players face in terms of product pricing and data plans for both prepaid and postpaid users? A proper constitutional amendment proposal would need to be designed for updating legal tender laws, adding new provisions in the articles related with Consolidated Fund of India, basic structure of the Indian constitution, transaction tax and GST-exemption clauses. A full roadmap for public adoption of IDD would be required also. Many more such tasks can be counted. However, the fundamental goal is simple. India needs to get ready for transforming into a network state ready for 21^st century post-territorial world. IDD offers us an opportunity. We must grab it.

Acknowledgements

Shrikar Parashar, Sarath Davala, Harsh Patel, Arshad Ali Sheikh, Devi Prasad Choudhury, Vijay Chugh, Sinclair Davidson, Nilesh Trivedi, Sathya R. Narayana, Vishal Anand Kanvaty, L. Bhargav Gollapudi, Tanvi Ratan, Santanu Paul, Gangireddy Buchupalle, M.V. Rajeshwara Rao, V S N Lata, Venkat Koppula, Sateesh Kr. Gajjala, Kalyani Guddanti, Sunil Bajpai, Anandi Sharan, Nitin Sharma, Gopal Bansal, Azmatullah Muhammad, Vasiraju Chandrasekhar, Dharmen Dhulla, Kashif Raza, Sri Padma Vadveru, Sanjay Shramanjothe, Gaurav Aggarwal, Deepak Bhalla, Gaurav Gupta C.A., Pavan Srinivas Vedantham, Aman Sanduja, Siddiq Ahmed, Balakrishnan Chandrashekhar, Anirban Bandyopadhyay, Sumit Puntambekar, Dilip Singh, Abhishek Mangudkar, Shuchita Ahuja Kaushik, Bishal Goyal, S. Sanjit Rao, Srikanth Harathi, Subbaraju Vastavai, Viswanath Akkula, Ajay Yadav, Ashok M. Raja, Ravikanth Andhravarapu, Asit Kadayan, Shree Sule, Asit Kadayan, Naimish Sanghvi and many more.

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Any Indian company can receive payment in either IDD or any other crypto currency as well as can make global payments without any problem. Banks can easily shift to a separate IDD terminal without many technical challenges. Since every public key in the IDD blockchain network would be seeded with a KYC-based institution, any suspicious transaction can be reported and checked instantly by the validator nodes. To offset any threat from other currency clones, Indian government can ask all the centralized cryptocurrency exchanges to discourage the use of centrally issued stable coins like USDT or USDC and replace them with IDD. When IDD can be directly converted into any cryptocurrency or a foreign currency, the need for stable coins would not be there.

4.0 How to implement IDD on-chain?

........................................................................................................The basic objective here is to have a platform-agnostic approach. There are many public chain options like Ethereum, Cosmos, Solana, Avalanche, Cardano, Polkadot, Polygon etc as well as permissioned chains like Hyperledger, Quorum, Corda, Multichain and so on. A large number of these solutions are both scalable and interoperable. A base capacity of 1000 TPS can be enough to reach one billion IDD transactions per day. The most suitable idea would be to use a blockchain with the largest network effect that is technically compatible with other chains. For example, Cosmos Ethermint, Avalanche and Polygon are compatible with Ethereum. So, all the telecom players can float their security tokens on any of them as well as can interoperate with the IDD chain. They can build decentralised finance (DeFi) solutions using IDD as the native token and for their own governance related issues, they can use their own security token. In this way, the IDD economy can become global by default though the government will need to design a framework for this. .................................................................

5.0 Precautions

There are some precautions to be followed in this transition. First of all, the upgrade of legal tender laws is a must. Without getting the approval of Indian Parliament, this change will not get the validation it deserves. Token distribution framework should be made part of the basic structure of Indian constitution as well as assimilated into the Consolidated Fund of India. A separate regulatory body comprising members from RBI, NPCI, TRAI and telecom players should be instituted. RBI would have to curb the INR issuance and factor the IDD issuance in the money supply. Even large currency denomination notes particularly of INR 2000 value need to be withdrawn from circulation as it does not offer any superior transaction value to majority users. Big hoarders must be discouraged. The amount of current physical cash (M0) in the system must be pre-declared. All other money supply figures of M1, M2 and M3 must be pre-declared. Time-stamped hash of all such figures should be issued by RBI and banks. A provision of transaction tax to be included in tax laws so that IDD-to-INR exchanges can be done seamlessly. 26% UBI token transfer and Zero-debt status of Telecom sector is a must for telecom companies to avail banking license. Full definition of “IDD banks” license is also needed. For that, the commercial banking act should include telecom players into its fold as a new category. Since it would not be a fractional reserve banking model rather it would be a full reserve lending model, we need to build this category carefully. ...................................................................................................

Millennials will be able to sign on early in this kind of transition. As time passes, this purse of 26% tokens will be exhausted over time. Since the current smartphone users in India are in the range of 700 million plus, we shall have to speed up to include those who are mobile users but not data users. .......................................................................................... If the Parliament ever feels that the number of data users can go beyond 1 billion, they can also be added to the UBI beneficiary list. The number of EMIs can also be increased to 12 instead of 10 too. This won’t add much burden as the Reserve Pool will have a lot of space to entertain such provisions. To be liberal on this front, we can even compensate moving from higher to lower age groups to expand this number. 100% transparency is must in terms of issuance and distribution.

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preparation of the telecom sector. In this period, Parliament can upgrade the laws and the executive branch can shift to this new dual legal tender system. As far as the bridge between INR and IDD is concerned, RBI can take over this role and as far as project execution is concerned, a joint custodianship between TRAI and NPCI can pull off this job as they understand both the telecom sector and payments industry. Users can buy these tokens from the custodian with a maximum limit imposed per person so that IDD hoarding does not happen. This distribution of 3.65 trillion IDD tokens can be formalized via a constitutional bill passed by both the houses of the parliament. This will defend against any technological risks. Since the law is encoded, it can be used to do course correction if anything goes wrong.

The next important design feature proposed is to have a minimum friction in the IDD economy. Since this won’t be a hierarchical economy, the traditional tax collection machinery won’t make much sense here. Rather, a uniform transaction tax @2% is proposed in all IDD transactions. It means that anybody making an earning in IDD won’t have to pay any other form of direct and indirect tax. No Indian citizen would need to file Income Tax Return (ITR) and the same will be true of corporations. The blockchain programmability can ensure automatic collection of tax that can be shared with states and centre in 65:35 proportion. As far as the GST is concerned, any professional or a company can claim full input tax credit as it happens in the case of exports under “zero-rated supply” method. The way exports are encouraged despite GST, the IDD transactions can be treated in a similar manner. For those who think that it might be regressive, it must be clarified that just distribution of the UBI pool can generate a GDP push of nearly IDD 100 trillion. It can collect up to IDD 2 trillion. Though it is too early to predict such figures, it is quite predictable that the larger the IDD economy, the larger would be the tax collected by the government.

5.0 IDD proposes a new Political theory of Network State for India

What fundamental transition is happening here? With IDD as the second legal tender, India is shifting its monetary anchor to a dual consensus model; first is the traditional form of political LOLR consensus and the second one is public utility-based blockchain consensus built around data consumed by Indian users. This shift is moving away from semi-transparent monetary issuance to blockchain-based fully transparent monetary issuance, distribution and payment system. Legacy payment systems can continue to work in centralized servers as usual whereas IDD payments would work as parallel one on the decentralized nodes of the IDD blockchain.

..................................................................................................................Current territorial state is run by multiple server states located in different silos like UIDAI, NPCI, Telecom players, State governments IT infrastructure and so on. In the IDD blockchain, both central and state institutions can become the validator nodes to maintain fair control of the network along with telecom players, banks and other payment players. To ensure easy transition from IDD to INR and vice-versa, the governments can upgrade all Indian crypto-currency exchanges into crypto-payment banks and they can work with telecom players to disburse UBI Pool. If users are uncomfortable with public-private key pair, we can ask these exchanges to be custodian of private keys till users are educated enough. These exchanges are already experienced in handling large users who are learning the wallet management with public key infrastructure. The initial rush of the INR-IDD transactions can be managed by them with enough confidence. Even large players like NSE, BSE or banks can establish their own exchanges to manage this INR-IDD bridge. This will be a huge market where 1 billion users can generate huge volumes.

6.0 IDD offers an automatic framework for regulating crypto currencies

.................................................................................................................. Anybody who wants to interact using crypto currencies can move from INR to IDD and do the transactions. In this way, the legacy INR economy would not have to struggle with complications of regulating the crypto economy. IDD would provide default capital account convertibility to Indians. Any Indian company can receive payment in either IDD or any other crypto currency as well as can

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One person’s expenditure is someone’s income. Being digital, this UBI would create a high money velocity that can be even 10x of the initial amount given. With this kind of second legal tender reaching mass adoption in a direct manner, RBI won’t need to do money-printing in traditional manner that is not distributed efficiently.

4.4 Telecom Pool

..................This would also need changes in the billing and product pricing methods of the telecom players. However, the core issue is how the allocation would work. Since the idea is total tokenization of the telecom sector, it also means that equity of telecom companies would also be priced in IDD. That is where 40% of token supply will be made to the telecom company shareholders & debtors. This amount is not fresh money in M0 sense of the term rather it is exchange of their current holdings. Now, once the equity holders convert their equity into the new IDD token, they have two options. They can maintain their liquidity in IDD or they can convert it back to a security token. It means that all telecom companies will be asked to convert themselves into a blockchain-friendly governance system where equities should convert into security tokens issued by the respective companies like Airtel, Reliance JIO, Vodafone-Idea and BSNL/MTNL. This is also applicable to all the debt-holders of these companies. Most of the promoters hold the majority equity and prefer to take debt against equity. This creates a tendency to keep a company under loads of debt. Telecom players hold a massive debt to the tune of nearly INR 5 trillion. This debt is held against some sort of pledged equity. The telecom players would convert themselves into a zero-debt status by offloading their equity.

..................................................... For this, three economic parameters need to be used. First one is the respective user share that should get 50% weightage as this shows the long-term effort of a telecom player. The second parameter should be the market revenue share with 25% weight. The third parameter should be the market cap with 25% weight. Since a company’s equity is being converted into a national legal tender (IDD), it would expect a fair evaluation of its enterprise. How to evaluate it? Let us estimate the total market cap of the telecom sector. In a pessimistic scenario due to pandemic, it can be as low as INR 6-8 trillion. In an optimistic scenario, it can be as high as INR 12-15 trillion. What can be an all-time high value in the next 10 years? As data price would be fixed with a single unit of IDD, the telecom companies cannot increase data prices in next ten years. So, they need to be compensated also. The basic hypothesis is that telecom companies should be healthy & zero-debt. Only such a network can execute its fiduciary responsibilities. 40% Telecom token supply assumes a fair value @ INR 14.6 trillion of the sector. It can be both an under & over-estimate as there is no perfect way to do it. There is no fool-proof way of finding a true value. That is why the Parliament should seal this value. Once the final value is decided, 40% IDD tokens should be distributed to all the players based upon the weighted formula. A phased equity-to-token conversion should happen as per this distribution plan. First priority is to make the telecom sector into a zero-debt sector. Somebody may argue that telecom companies will object to this transition. Yes, it may happen but there is a hidden incentive for all the telecom players. If the telecom companies fulfill two conditions of distributing UBI to the users and converting themselves into zero-debt organizations, the second priority is to rechristen them as “IDD Banks”, a new banking category. .................................................................

4.5  Reserve Pool and Transaction tax

UBI Pool takes 26% and the Telecom Pool takes 40%. What is left is 34% of the IDD tokens. This is called the Reserve Pool. The sole objective of the Reserve Pool is to be the long tail of IDD money supply. It means that the best option is to release it in a gradual fashion by dividing it into 100 tranches across 120 months excluding the first 20 months needed for UBI and preparation of the

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Assume...............................................................................Don’t forget that USD:YUAN peg was used as a great monetary tool by China for building its export-led economy 20 years back. Let us call this pegged token Indian Data Dollar (IDD). It virtually means INR 36.5 trillion worth of new money over next 10 years.

4.2 Three pools of IDD and tokenomics

An amount equivalent to INR 36.5 trillion may create serious prejudices in certain minds. That is why it is important to clarify that this is not easy money created by the Parliament of Indian for reckless spending. Before anybody mistakes this number, we need to remind that the current money supply (M3) in India is nearly INR 195 trillion. In 2010, it was only INR 50 trillion and it was INR 9.9 trillion in 1999. India is a large nation with increasing money supply. India has witnessed nearly 15-17% growth in money supply for the last 30 years or so. It is a developing country with increasing needs. If you add INR 36.5 trillion to INR 28.74 trillion worth of currency supply with public today, it comes down to INR 65.24 trillion. Over a period of ten years, this comes down to CAGR of 8.54% that is lesser than half of CAGR for the same. It is also not very high with respect to consumer price inflation. Secondly, all this new money (IDD 3.65 trillion or INR 36.5 trillion) is neither M0 nor M3 in the traditional sense of the term. RBI does a regular job of issuing fresh currency into the public and bank lending creates a fresh money supply too in the economy. It is the combined impact of these two actions that affect the money circulation. The idea here is to not get caught in the technical definitions of money supply and create three following pools for distribution with dedicated shares for each:

1. Universal Basic Income (UBI) Pool with an allocation of 26%
2. Telecom Pool with an allocation of 40% for all the telecom players
3. Currency Reserve Fund @34% to be used over next 10 years gradually

 

4.3 Universal Basic Income (UBI) Pool

.......................................................................................................................................................................................................The telecom sector pays GST on telecom services @18% as well as annualized gross revenue (AGR) share of telecoms is 8% in lieu of spectrum fees. This makes 26% net outgo from the fees received by the telecom players from Indians. This is the amount which is collected from the people and paid back to the people in the form of public expenditure by the government. What is proposed here is that 26% of the IDD supply should be distributed as advance income support to 1 billion data users of India and they should not be charged GST on their telecom bills as well as given 8% deduction on the bill in lieu of AGR exemption for the next 10 years. This is public money which is being given to the public and they are being assured that they will not have to pay it to telecom players in any form.

26% of 3.65 trillion tokens comes to the UBI Pool of IDD 949 billion or INR 9.49 trillion. If you calculate this money at a larger scale, it comes down to 4.86% share of GDP at current rates. It can be distributed to 1 billion data users of India in 10 equal monthly instalments of INR 949 each. In a family of four, it comes down to nearly INR 38,000/- in less than a year. If we make IDD payable for telecom billing, e-commerce portals & all PoS terminals pan-India, it will generate a huge uptick in Indian GDP. One..................

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Networks dominate today more than nations. The millennials and GenZ that have grown with the internet and smartphones are more acclimatized to networks than a territorial obedient behaviour. Today, a country can be paralyzed without even firing a bullet with cyber weapons, a pandemic or an ecological catastrophe. That is where India needs to stop thinking like a territorial state. The new paradigm is that of a network state. It is a state where every citizen is deeply connected with every other citizen in a virtual manner in all those matters that were once exclusive preserve of the governments. Whether it is communications, education, global business or payments, people are hardly noticing any government presence in their day-to-day lives. This retreat of the government is quite visible over a generation.  It does not mean that governments are not needed. .....................................................................................................................................................................Chinese model is not aligned with the federal structure of Indian constitution as well as it is not suitable for the plural structure of Indian society. Still, if India must reincarnate as a network state, what important anchor it must choose to redefine itself?

3.1 A new anchor for future of money

.............................................................................................................................................................................This paper basically proposes two following design changes in money: -

1.     India needs to shift monetary definition from LOLR consensus to a public utility-based token floating on blockchain. This means exercising the right of a sovereign network state to choose a new monetary anchor called Indian Data Dollar (IDD) that would be backed by one GB of data. It would shift the logic of money from the political power of a nation to data consumption behaviour of 1 billion citizens.

2.     From a constitutional point of view, it means that Indian parliament should legislate a move from single legal tender to a dual legal tender system where IDD would be pegged at INR10:IDD01 for next 10 years. This bridge between INR and IDD shall be safeguarded by RBI but the two worlds should be separate in terms of identification. The INR world should remain as it is while the IDD world should signify a parallel network state where Indians can interact with the rest of world with full capital account convertibility. It is a world that does not require tax collection machinery rather a uniform transaction tax @2% via blockchain protocol can collect a huge amount of revenue for sharing 65:35 among the states and the centre.

 

4.0 Mechanism design behind Indian Data Dollar

........................................................................................It is also one of the cheapest data countries with a predominantly young population where the expected user base would be at least 1 billion in the next 3-4 years. The data consumption is a mandatory need for every individual who is 15+ and it is only going to increase year after year. If data is the new oil, let us dollarize the data and call the new anchor of money as Indian Data Dollar (IDD). How to do it?

4.1 Tokenize the telecom sector totally

Assume a median base of 1 billion Indian users in the next 10 years with each user consuming 1GB daily. It means a monthly consumption of 30GB & annual consumption of 365GB. Over 10 years, the total data consumption would be 3650 GB per user. For 1 billion users, it comes down to 3,650 GB or 3.65 trillion GB of data. Let us create 3.65 trillion tokens pegging @ INR 10 = 1 GB. Don’t forget......... USD:YUAN peg

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Not just three generations of blockchains have simultaneously grown as a collective wave rather they have also grown laterally with rise of interesting tools and industries like Decentralized Finance (Defi), Non-Fungible Tokens (NFTs) and Layer II scaling solutions like Polygon, Lightning Network, ZK Roll-ups and so on. Though there is no exact proof, it is estimated that there are around 200 million users already on-boarded to this ecosystem and more than 10 million transactions are happening daily as of now (August 2021).

These are largely censorship resistant systems that are nearly impossible to ban by even powerful regulators. Even if they prohibit their use, it will only drive crypto currencies underground but not kill them. The foundational logic behind this is that they are planetary infrastructure used by peer-to-peer actors. They are completely parallel to KYC-led banking networks and other regulated financial activities. In this scenario, how to regulate crypto currencies is a big headache for governments. If their use rises underground, it will result in loss of taxation as well as compliance culture. If they are to be regulated, it will require massive global cooperation of scale as big as creating a new global parliament. It seems a non-possibility looking at the splintering of global opinion in matters of origin of covid-19, eradication of poverty, human migration resulting from global warming or regulating big tech and many such issues. What options does a developing country like India have in this kind of a historical setting? If it does not allow crypto currencies, it kills the huge wave of innovation thriving in the brilliant entrepreneurs of India. If it allows them without restrictions, how to stop the spill over of black money operators using crypto currencies? If it does not build a credible regulatory framework, its large corporate class and citizens will never know how to leapfrog with this new wave of wealth-building.

1.1  The difficult economic outlook for a post-pandemic India

The universal shutdown due to Covid-19 has hit Indian economy harder than many countries. As per Centre for Monitoring Indian Economy (CMIE) report, India lost 114 million jobs in April, 2020. Though the situation improved in the second half of the year, it is still not rosy enough. India’s pre-covid employment number was 404 million workers. In May, 2021, this number had declined to 375.5 million which means loss of 28.5 m jobs. The overall state of Indian economy showed a shrinkage of 7.3% in the year 2020-21 and even the hopeful rebound in 2021-22 was downgraded from 12.5% to 9.5% by the IMF. Though the Indian government has done its bit to control the problem, it is more damage control rather than pulling the economy out of a trap. It seems that these two financial years 20-21 and 21-22 would end up with a GDP that would be lesser than it was in 2019. For a developing economy that was already slowing, this is a double whammy. Though some sectors have bounced back yet the broader economy is having K-shaped recovery. ..........................................Pandemic has paralyzed all territorial units of productivity and income for nation-states, enterprises and individuals. If virus is a singularity attack, political regimes need a singularity defence. Radical monetary imagination alone can stop the second order effects of this pandemic.

3.0 Time to make out-of-the-box choices

............................... Whether the threat comes from outside in the form of Chinese CBDC, Facebook’s monetary network, China-US enmity or crypto currencies or it comes from inside in the form of economic decline, we cannot stick to old methods for facing these challenges. Our statesmanship is stuck with a model of a territorial state for the last seven decades whereas the world today is equally virtual also.