India could have a key role to play in building the metaverse. Here's why

This article first appeared in Quartz India

The concept of the metaverse is new and there is still considerable debate about how to define it. All definitions, however, assume that extended reality (XR) – a combination of augmented, virtual and mixed reality environments that are accessible and interactive in real time – will be the entry point for the metaverse. These technologies have been the harbinger of innovative applications in fields such as gaming and entertainment, enterprise solutions and simulations, as well as in military and defence.

In addition, blockchain technology is presently expected to play a major role in building the metaverse, because it permits verifiable claim of ownership and transferability of digital assets. The vision seems to be that, together, XR and blockchain will produce applications that increasingly blend our physical and digital identities, enabling new forms of social and commercial interaction.

Clearly, the metaverse remains aspirational, but that hasn’t stopped companies across the spectrum from making plans for engaging with it. The most vocal proponents are western tech companies, even as the global discourse on the topic is influenced by economic powerhouses such as China and South Korea. But India also has a role to play in building the metaverse, and a range of factors suggest it is primed to do so.

India: primed for the metaverse

Since 2015, India has risen almost 40 places in the Global Innovation Index, now ranking 46^th in the world. India also has a thriving culture of entrepreneurship, which has recently experienced significant growth. Last year, a record 42 Indian start-ups were valued over $1 billion – behind only the United States and China in the creation of these ‘unicorns’. This environment is bolstered by a set of favourable consumer trends, including rising disposable income, increasing smartphone adoption and affordable mobile data.

The country is no stranger to accelerating development and economic growth by leapfrogging to new technologies, most famously in the case of its mobile phone revolution that started in the late 1990s. The last decade has seen the creation of India Stack, which is a combination of technology projects, including the national digital identification and payments infrastructure, that together heralded a new era of financial inclusion in the country.

The growth of digital India is being fuelled by a large and growing young population. Much of this demographic is deeply familiar with digital interaction and recreation. The use of digital payment mechanisms has grown rapidly, reflecting a 75% year-on-year growth from September 2019 to 2021, in the index developed by the Reserve Bank of India to measure the penetration of digital payments in the country.

Furthermore, consumption of video streaming and gaming in India has been increasing at a scorching rate, with reports suggesting the Indian gaming market will more than triple to $7 billion by 2026. This growth in gaming has also boosted the popularity of transmedia experiences, especially through the pandemic. Several gaming platforms now provide virtual stages for concerts, exhibitions and brand promotion, normalizing the idea that social and cultural experiences do not have to take place exclusively in person.

These developments in the country have been taking place within the broader context of the Government of India trying to foster a digital economy worth up to $1 trillion. It has developed incentives and policies for technologies and industries that could be viewed as forming the building blocks of the metaverse. Its National Blockchain Strategy was released in December 2021.

In addition to India’s plans to use blockchain applications for e-governance, the most recent Union Budget included a proposal for a blockchain-backed Digital Rupee, to be issued by the Reserve Bank of India from 2022-23. The government has also announced that it will conduct spectrum auctions to facilitate rollout of 5G mobile services, which should accelerate demand for cloud applications – including those for gaming and the metaverse. Realising the sector’s potential for generating employment, the budget also created a task force to explore how to enhance domestic capacity in the animation, visual effects, gaming and comic (AVGC) sector.

The evolving regulatory landscape

While the technical, demographic and policy foundations for the metaverse appear to be present in India, there remains the operational challenge of building the metaverse. If India is to take a leading role, deal flows in the private sector will need to accelerate. Indicators for this to date are promising: the 18 months to August 2021 saw over $1bn of capital infused in just the local video games ecosystem – more than the preceding five years combined.

At the same time, like many other countries across the world, India is debating how best to regulate the technologies that will underpin the metaverse. The latest Union Budget levies a 30% tax on income from transfers of Virtual Digital Assets (VDAs), which could include cryptocurrencies and potentially non-fungible tokens (NFTs). While the tax would imply recognition of crypto as an asset that can be regulated, it does not legalise crypto ownership, which can be done through due legislation.

Owning and trading NFTs is believed to be a pathway towards a new digital economy, so this will have consequences for the development of the metaverse. An NFT is a digitally secured claim of ownership for a unique, non-interchangeable digital asset and can link offline and online economic activity more strongly. For example, a musician could create a song, release it digitally as an NFT and incorporate a feature where they are paid a percentage each time it is traded. This could support artists financially, ensuring they benefit from the consumption and sale of their work in perpetuity, rather than as a one-off.

India’s move to tax transfers of VDAs appears to recognise that people see value in NFTs, even if it does not fully embrace ownership of them yet. Evangelists of the metaverse argue that one is irrelevant without the other, suggesting the debate still has a long way to go. Regardless, a lot remains to be decided before the aspiration around NFTs can become a reality, but there is cautious optimism around the potential for new business models to emerge.

Beyond crypto, the metaverse also raises policy questions of how privacy and security should be addressed. Online risks may be exacerbated in the metaverse, where unwanted contact could become more intrusive and pervasive. Governance mechanisms for virtual worlds would need to be supported with strengthening and scaling efforts to promote digital literacy, safety and wellbeing so that participants can engage meaningfully in online communities while consciously navigating harmful content and behaviours.

Will the metaverse bring about meta-governance?

Within the private sector, these debates are encapsulated within a broader discussion of the extent to which the metaverse should – or even can – be interoperable. A number of open standards have been proposed for the metaverse, but the incentives for adopting them appear to be outweighed by the interests of some technology companies to maintain control. However, less attention is being paid to the notion that interoperability could be made irrelevant without a consistent regulatory policy landscape. If laws for monetising and moderating the metaverse are made and applied differently around the world, is it possible for a single metaverse to exist?

Nowhere is this more apparent than in the varying attitudes to internet regulation today, summarised by technology analyst Benedict Evans. Until recently, companies, products, norms and rules originating in the west have dominated the policy agenda. But with software and company creation and adoption diffusing around the world, regulation is expanding with it.

The European Commission recently called for further scrutiny of the development of the economic models of the metaverse, suggesting that plans to create an all-encompassing virtual reality environment would pose new challenges for antitrust regulators in the EU. Prime Minister Narendra Modi, during his speech at the Davos Agenda 2022, indicated that a collective and synchronized, global approach towards addressing challenges with cryptocurrencies is needed.

In South Korea, the Ministry of Science and ICT recently created a ‘metaverse alliance’ to coordinate and facilitate the development of virtual and augmented reality platforms. Meanwhile in China, a metaverse industry group, the Metaverse Industry Committee, was formed under the state-supervised China Mobile Communications Association, in December 2021. The committee has the stated objectives of strengthening innovation and integration among metaverse builders, organizing the training of professionals, and promoting new thinking.

Governments are usually criticised for acting too late in addressing emerging technologies and their implications for business, society and politics, so such developments should be welcomed. One thing is for certain, the Indian tech governance and regulatory policy landscape is going to be an evolving one, as global best practices also inform key decisions to be taken by policymakers.