India’s innovation catalyst: Regulatory sandboxes

Regulatory sandboxes foster innovation by letting startups test new tech in controlled settings, boosting R&D, fintech, and telecom advancements.

India is fully leveraging regulatory sandboxes in critical sectors in its fast-paced journey to digital leadership. Many might wonder, what are these special devices called regulatory sandboxes? A regulatory sandbox is a framework that allows startups and other innovators to conduct live experiments in a controlled environment under a regulator’s supervision. It aims to provide a safe space where businesses can test innovative products, services, business models, and delivery mechanisms while temporarily suspending regulatory barriers associated with commercial operations.

"The sandbox approach helps gather empirical data on the impacts of new technologies and business practices."

The concept has gained traction globally as a method of fostering innovation by using new technologies to make services affordable and easy to deliver to consumers while maintaining the stability of the financial system.

Making Sense for R&D

R&D and experimentation form the bedrock of a country’s positioning on a global technology map, enabling it to grow as a knowledge society. By creating an environment where regulations are temporarily relaxed, companies can experiment with new technologies and business models that would otherwise be difficult or impossible to test due to stringent regulatory requirements. This facilitates a faster innovation cycle, allowing companies to iterate quickly, identify potential issues, and refine their products before full-scale deployment.

For instance, the sandbox approach helps gather empirical data on the impacts of new technologies and business practices. Regulators, in turn, can use this data to make informed decisions about whether and how to modify existing regulations or create new ones. This collaborative approach not only accelerates the pace of innovation but also ensures that it happens in a way that is safe and beneficial for consumers.

Impact of Fintech Regulatory Sandbox

India’s fintech sector has seen remarkable growth, driven in part by implementing a regulatory sandbox by the Reserve Bank of India (RBI). Launched in 2019, the RBI’s sandbox provides a platform for fintech startups to test their innovations under a less burdensome regulatory framework. This initiative has been instrumental in promoting innovation, enhancing competition, and ensuring consumer protection in the financial services industry.

A telecom regulatory sandbox has immense potential. It would offer the industry a controlled environment to test new technologies and business models.

Several fintech startups, including Nucleus Software, ToneTag, Cashfree, and Open, have benefited from the RBI’s regulatory sandbox. However, one of the most significant outcomes has been the success of the Unified Payments Interface (UPI). The regulatory sandbox facilitated the development and widespread adoption of UPI, which has transformed digital payments in India, making them more accessible, secure, and efficient. UPI’s success has boosted domestic digital payments and set a benchmark for similar innovations globally.

The Telecom Sector Regulatory Sandbox

Building on the success of the fintech sandbox, India is now exploring the implementation of regulatory sandboxes in the telecom sector. The telecom industry, like finance, is heavily regulated, and stringent regulatory requirements can stifle innovation.

A telecom regulatory sandbox would provide a similar controlled environment for testing new technologies and business models. The National Digital Communications Policy (NDCP) identified the following goals: providing broadband for all, enhancing India’s contribution to the global supply chain, and ensuring digital sovereignty.

India’s fintech sector has seen remarkable growth, driven in part by the implementation of a regulatory sandbox by the Reserve Bank of India.

Domestic competencies and locally relevant, cost-effective technologies are key to achieving the goals outlined in the NDCP. Innovations and development must be encouraged through experimentation in digital communications and their applications. This can lead to the generation and protection of Indian Intellectual Property Rights (IPR) and expertise in the domain. This will encourage R&D in industry, academia, and startups to try innovation in India.

Facilitating Frameworks for

Telecom Innovations

This requires immediately developing facilitating frameworks and making necessary resources available for experimentation and trials, including spectrum. To encourage the development of indigenous products and promote Aatmanirbharta (self-reliance), the concept of the government facilitating the establishment of large anechoic chambers to test products in radiated environments without causing interference with other equipment was mooted.

Wireless product development involves rigorous testing of product functions under real radiating conditions, the performance of radiating resources, and mitigation of potential interference issues. This requires outdoor testing as part of the maturity cycle in real-field conditions. According to a report shared by the Press Information Bureau, the MSME sector’s contribution to India’s GDP has been around 30% in recent years. Local startups and MSMEs, which form the bedrock of Aatmanirbhar and indigenous product development, need handholding and support to enhance the ease of doing business and reduce transaction costs in obtaining such outdoor testing permissions.

Facilitating such outdoor product testing in spectrum regulatory sandboxes is strongly needed to position India as an R&D and Manufacturing hub and actively facilitate and encourage trials and innovations per the national missions of Aatmanirbhar Bharat (self-reliant India) and Make in India.

Simplifying outdoor testing rules for radiating products will help new locally developed products to be tested, matured, and become globally competitive.

Simplifying the rules for outdoor testing for radiating products will help new locally developed products be tested and matured to become globally competitive. India improved its ranking in the Global Innovation Index 2023, from 46th in 2022 to 40th. This improvement is partially attributed to increased governmental support for R&D and innovation through initiatives like the regulatory sandbox.

Global Telecom

Regulatory Sandboxes

To understand the potential impact of a telecom regulatory sandbox in India, looking at successful examples from other countries is useful.

#1

United Kingdom: Ofcom, the UK’s communications regulator, launched a regulatory sandbox to enable companies to trial new wireless communication technologies, including 5G, in a real-world environment. This initiative has helped accelerate the deployment of advanced telecom technologies and fostered innovation in the sector.

#2

South Korea: The Korea Communications Commission established a regulatory sandbox to support developing and testing new telecom technologies, including IoT and smart city applications. This sandbox has been instrumental in positioning South Korea as a leader in advanced telecom solutions and services.

#3

Australia: The Australian Communications and Media Authority implemented a regulatory sandbox for telecom innovations. This initiative has supported the development of new wireless technologies and helped ensure Australia’s telecom infrastructure remains cutting-edge and competitive globally.

TRAI’s Progressive Recommendations

The recent Telecom Regulatory Authority of India (TRAI) recommendations encouraging innovative services, technologies, use cases, and business models using regulatory sandbox in the digital communications sector are focused on providing enabling platforms for talented startups and developers to test their innovative products and solutions in live networks.

This move will significantly augment the startup and MSME ecosystem through the entry of credible new local players, thereby enhancing both competition and technological innovation while also attracting investments in the long run.

The Department of Telecommunications (DoT) has the Digital Communication Innovation Square initiative under the Champion Services Sector Scheme. Over 200 beneficiaries have been reported in the last three years, showcasing the growing interest and active participation.

Permission via the Regulatory Sandbox initiative to carry out outdoor testing of wireless products in live networks will allow the startup ecosystem to test their reliability and suitably tweak them to make them more mature and ready for adoption by operators in commercial networks. The recent guidelines for Spectrum Regulatory Sandbox or Wireless Test Zones aim to foster innovation, enhance the ease of doing business, and promote the country’s self-reliance in developing indigenous telecom products and solutions.

The Ministry of Electronics and Information Technology estimates that the regulatory sandbox initiatives could potentially add 0.5% to India’s GDP over the next five years by fostering innovation and improving the technological capabilities of Indian startups. These initiatives would also act as a catalyst for bringing new technologies into the industry, promoting innovation, and creating IPRs.

The forward-looking recommendations recently announced by TRAI provide startups and MSMEs with an option to directly apply to the DoT when they cannot agree with reasonable terms with the local operators for live testing. TRAI has empowered the DoT to help startups in such situations after conducting due diligence to ensure that the innovations may have a widespread impact on society, the economy, and technology.

By recommending that DoT shall have the right to mandate Regulatory Sandbox testing on an operator’s network, including fixing the terms and conditions of such testing, TRAI has provided an excellent opportunity for Indian startups and MSMEs, technology developers, and innovators to develop and mature their products and solutions in live testing environments within India itself.

As India becomes increasingly an R&D-driven innovative nation, with the government enabling the active involvement of academia and research institutions through suitable initiatives and schemes, the country is poised to become a global innovation hub for all new technology-driven products and solutions in the decades ahead. 

TV Ramachandran

The author is Hon. FIET (London) and President

of Broadband India Forum.

Views are personal.

Research inputs by Debashish Bhattacharya (BIF).

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