Report: The Future of Asset Tokenisation in India, by Digital India Foundation

Digital India Foundation, in collaboration with Premji Invest, released a comprehensive and well-researched report titled The Future of Asset Tokenisation in India. Prepared after extensive consultations with a wide range of stakeholders - including regulators, market infrastructure institutions, financial intermediaries, legal experts, technologists, and academics - the report provides a thoughtful, balanced, and India-centric perspective on the opportunities and challenges of asset tokenisation.

Unlike many global discussions that treat tokenisation as a revolutionary new financial paradigm, this report adopts a pragmatic view. It positions tokenisation as a programmable infrastructure layer that can enhance existing market architecture rather than replace it. India’s financial system, already characterised by deep digitisation, strong regulatory oversight, and institutional maturity, offers a unique foundation for adopting tokenisation in a measured and responsible manner. The report draws on both domestic realities and international experiences to assess where tokenisation can deliver real value and where expectations need to remain calibrated.

Core Concepts and Models of Tokenisation

The report begins by clarifying what asset tokenisation actually means. At its core, it involves creating digital representations of real-world assets or claims on programmable ledgers. These tokens can embed ownership records as well as rules governing transfers, servicing, compliance, and lifecycle events. Key enabling features include fractionalisation of traditionally illiquid assets, programmability of conditions, composability with other digital systems, and atomic settlement that reduces counterparty risk.

The report presents three primary structural models for implementation. In the Digital Mirror approach, the on-chain record acts as a supporting layer alongside the authoritative off-chain legal register. The Digital Twin model offers partial on-chain representation of beneficial interests while the primary legal ownership remains off-chain, often through intermediaries or wrapper structures. The Digital Native model features full on-chain issuance, ownership transfer, and settlement with legal recognition of the ledger as the authoritative source.

Given India’s current legal frameworks and supervisory preferences, the report expects near- to medium-term adoption to concentrate on Mirror and Twin models. Fully Digital Native implementations are likely to emerge more gradually, primarily in controlled environments such as wholesale systems or pilots under the International Financial Services Centres Authority (IFSCA) in GIFT City.

Financial Asset Tokenisation

India’s public capital markets are already sophisticated, with near-universal dematerialisation, compressed settlement cycles in equities, and widespread digital onboarding. Despite this progress, significant frictions remain, especially in private markets and across certain asset classes. These include cumbersome investor onboarding processes, sequential and reconciliation-heavy settlement workflows, fragmented record-keeping across multiple intermediaries, and limited secondary market liquidity for instruments such as alternative investment funds, private credit, and structured products.

Tokenisation can help address these challenges by introducing programmable representations that improve coordination and efficiency. For instance, it can streamline issuance and ownership record-keeping for funds, bonds, and other securities. It also offers potential in post-trade settlement by enabling more event-driven and atomic processes, reducing liquidity lock-ups and operational overheads. In private markets, tokenisation supports controlled secondary transfers by embedding eligibility, consent, and timing conditions directly into the asset representation. Additionally, it shows strong promise in credit, collateral, and cash-flow management applications, which are particularly relevant for MSME financing and asset-backed lending in India.

The report repeatedly emphasises that tokenisation delivers the greatest value when applied as a complementary layer within regulated market infrastructure, rather than as a standalone or disintermediated system. Institutional and wholesale use cases are seen as the most practical and credible starting points.

Physical Asset Tokenisation

The report dedicates substantial attention to physical assets, particularly real estate, which remains one of the largest but most challenging asset classes in India. Traditional markets suffer from fragmented land records, high transaction costs, illiquidity, and limited access for smaller investors. Tokenisation is not presented as a quick fix or a replacement for essential reforms in land registries and title guarantee systems. Instead, it is viewed as a supportive layer that can enable fractional economic exposure, improved auditability, and smoother participation in cash flows from commercial, income-generating, or infrastructure assets.

Global case studies illustrate how tokenised real estate and commodity vehicles have broadened investor access while operating within regulated custody and legal frameworks. In the Indian context, the report stresses the need for clear legal recognition of tokenised interests, alignment with laws such as RERA, and robust investor protection mechanisms. Similar opportunities exist for commodities, warehoused goods, and certain infrastructure assets, where tokenisation can enhance verification and financing efficiency without disrupting core ownership structures.

Challenges, Limits, and Design Constraints

The report clearly outlines the boundaries of tokenisation and does not automatically create liquidity or affordability. Programmability cannot fully replace human supervisory judgment or institutional accountability. Governance, custody, and liability must continue to reside with identifiable, regulated entities rather than depending solely on smart contract code. Legal and tax uncertainties must be resolved early, and concerns around data privacy and transparency require careful balancing.

It cautions that retail-facing applications should only be expanded after strong custody arrangements, disclosure standards, and grievance redressal mechanisms are firmly established. It also advises strongly against unsupervised or offshore settlement mechanisms for assets in domestic markets. These constraints highlight that tokenisation must evolve within, rather than outside, India’s institutional and regulatory architecture.

Key Recommendations and Way Forward

The report concludes with several practical and actionable recommendations. Tokenisation should be developed primarily as an infrastructure and coordination tool applied to existing assets. Functional separation across issuance, validation, trading, and liquidity provision should be preserved to minimise conflicts of interest and operational risks. Regulators should prioritise institutional and wholesale use cases in the initial phases, ensure alignment with existing regulated settlement rails, and actively resolve legal and tax ambiguities through coordinated efforts across SEBI, RBI, IFSCA, and tax authorities.

The use of regulatory sandboxes and institution-led pilots is strongly encouraged to enable evidence-based learning and cross-regulatory coordination. Overall, India’s comparative advantage lies in deliberate sequencing, institutional ownership, and policy clarity rather than rapid, unregulated experimentation.

Conclusion

The Future of Asset Tokenisation in India stands out as a mature and well-grounded contribution to the policy discourse. It recognises the genuine potential of tokenisation to improve capital efficiency, reduce idle capital, enhance collateral mobility, broaden market participation, and support inclusive economic growth. At the same time, it grounds these possibilities in India’s institutional strengths and practical realities, warning against overhyping or rushing implementation.

If pursued with careful sequencing, strong safeguards, and collaborative regulatory engagement, asset tokenisation can meaningfully strengthen India’s financial markets and contribute to the next phase of technology-led economic development—while preserving stability, trust, and regulatory control. The report is likely to serve as an important reference point for policymakers, regulators, and market participants in the years ahead.

Source:

1. Digital India Foundation. The Future of Asset Tokenisation in India. https://digitalindiafoundation.org/report-the-future-of-asset-tokenisation-in-india/