Indian authorities plan to release a discussion paper before September on the country’s view of the cryptocurrency industry. Although not a statement on crypto regulation, the policy stance may set the tone for oversight in the crypto sector.
In a recent interview, Indian Economic Affairs Secretary Ajay Seth explained the point of the document. However, Seth did not suggest that the publication points to broader crypto regulation any time soon. Nevertheless, the document may contain information that could help investors decide what cryptocurrencies are likely to rise and bring large and exciting returns for members of the crypto community looking for a long-term investment coin recommendation.
Explaining the forthcoming publication, the Economic Affairs Secretary said:
“The policy stance is how does one consult relevant stakeholders, so it is to come out in the open and say here is a discussion paper, these are the issues, and then stakeholders will give their views. At the moment, an inter-ministerial group is looking into a wider policy for cryptocurrencies. We expect to come out with the discussion paper before September.”
India currently has no comprehensive regulatory framework for the cryptocurrency sector. Seth explains that crypto regulation is “from the perspective of AML and EFT (Electronic Funds Transfer) alone.” This begs the question of a policy stance and whether or not there should be more attention paid to the sector.
Crypto Regulation in India: SEBI Vs. RBI
The inter-ministerial group Seth is referring to comprises the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), the country’s central bank. So far, both authorities seem to have opposing opinions regarding cryptocurrencies.
The SEBI believes that regulatory coverage of the crypto sector is necessary and has suggested that multiple agencies should have crypto oversight. According to documents reported by Reuters, SEBI is open to legalizing the private use of cryptocurrencies, allowing interested investors to engage with the cryptocurrency market. The documents indicate that SEBI’s view is that cryptocurrencies should not be regulated by one agency.
India’s Exchange Board believes the RBI should regulate all stablecoins and digital assets backed by fiat currencies. While it maintains oversight over other cryptocurrencies, SEBI also wants the Pension Fund Regulatory and Development Authority (PFRDA), as well as the Insurance Regulatory and Development Authority of India (IRDAI) to cover all pension-related cryptocurrencies.
Unfortunately, the RBI’s position on cryptocurrency regulation is different. According to the central bank, private digital assets should not be allowed into the country’s financial market because they “pose a macroeconomic risk.” Also, the RBI believes that allowing cryptocurrencies would affect seigniorage - profit central banks derive from issuing currencies. In addition, the RBI believes that digital assets contribute to tax evasion. It adds that decentralized peer-to-peer (P2P) transactions would threaten fiscal stability because voluntary compliance would be necessary.
Chainalysis Ranks India High on Adoption Despite RBI Crackdown
In 2018, the RBI stopped financial services organizations from handling cryptocurrency transactions. However, the Supreme Court dismissed the rule as unconstitutional and overturned it. Following the dismissal, the RBI enforced other foreign exchange and anti-money laundering rules to push digital assets out of the financial system. Reportedly, the RBI is also planning to ban stablecoins.
Interestingly, the 2023 Global Crypto Adoption Index from crypto and blockchain data and analytics firm Chainalysis put India as the world’s number one country for crypto adoption, ahead of Nigeria and Vietnam in the second and third positions, respectively. Chainalysis’ index also has India as the top country ranked by DeFi value received. In May, India’s Financial Intelligence Unit (FIU) granted major exchanges Binance and KuCoin licenses as Virtual Asset Service Providers (VASPs). However, the FIU fined Binance $2.2 million (18.82 crore INR) for violating provisions under its Prevention of Money Laundering Act (PMLA). KuCoin also paid a fine for similar violations.
Conclusion: India’s Crypto Landscape in 2024
Although the future of crypto in India is uncertain, several events may influence the government’s position. For instance, a Supreme Court crypto tax counsel, Rajat Mittal, recently said the government would likely bear down on the country’s cryptocurrency sector through strict regulation. According to Mittal, the government is doing this despite reports that the crypto market’s high tax-deducted-at-source (TDS) is scaring investors away. Current reports suggest that Finance Minister Nirmala Sitharaman will leave the 1% TDS on crypto transactions unchanged.
The Bhara Web3 Association (BWA), a body representing leading Web3 companies in India, wants a TDS reduction to 0.01%. The association also hopes that authorities will consider replacing the flat 30% tax on crypto grains with a progressive and tiered system. Furthermore, the BWA wants the government to allow investors to offset losses against gains, which is possible with other assets.
A major pointer to likely regulatory action in India is the recent WazirX hack. The exchange, one of the largest in the country, lost about $235 million worth of crypto, illegally transferred from the company’s multisig wallet. According to Cyvers, a real time security alerts platform, the assets were funneled through Tornado Cash, a decentralized privacy solution that obscures the source of crypto transactions. The WazirX hack could renew authorities’ concerns and lead to stringent laws for the sector.
