The cryptocurrency sector in India is facing challenges due to the new tax regulations that have led to a decrease in trading volumes, prompting many established crypto firms to consider moving to more crypto-friendly jurisdictions.
While several developed countries and even some Asian nations are actively exploring and developing better crypto regulations, the Indian government has remained steadfast in its “blockchain, not crypto” stance.
Although it may appear that the government is taking a cautious approach by focusing on the underlying technology while keeping a distance from the volatile and risky crypto market, recent policies and statements from the finance minister and sitting parliamentarians suggest a lack of understanding is the main issue.
For instance, the newly introduced crypto tax laws in India seem to be heavily influenced by the country’s gambling regulations and were rushed through without involving stakeholders in the crypto ecosystem. Consequently, the stringent tax policy has driven traders away from Indian exchanges.
Some government officials have been spreading misinformation about crypto without providing any evidence to support their claims. For example, Sushil Kumar Modi, a member of parliament from the ruling party, has likened crypto to “pure gambling” and suggested imposing higher taxes to discourage investments in this volatile asset, creating a contradiction in his argument.
Sathvik Vishwanath, the co-founder and CEO of the Indian crypto exchange Unocoin, stated that the government views crypto as a form of betting and gambling, leading them to support the technology while disregarding the tokens built on it, highlighting a fundamental misunderstanding of the relationship between blockchain and crypto tokens.
Shivam Thakral, CEO of BuyUcoin, emphasized the importance of fostering discussions with specialized groups to address the flawed policies stemming from a lack of understanding. He urged the Indian government to form specialized groups to engage in dialogue and find more appropriate ways to regulate the flourishing crypto sector in India, suggesting that India has the opportunity to become a leading hub for blockchain technology.
While some attribute the government’s reluctance to embrace crypto to a lack of understanding of the technology, others believe that India’s fintech and payment infrastructure are sufficiently developed, questioning the additional utility a crypto layer would provide. As a result, the government’s focus remains on the core blockchain technology.
Trevor Goott, director of Africa and India at Unlimint, a digital financial interface provider, noted that India’s mature fintech and payment sector may limit the immediate benefits of integrating crypto and emphasized the importance of realizing the benefits of blockchain applications before deciding between crypto and blockchain technologies.
Perception of Crypto as a Threat by the Indian Government
The Indian government perceives cryptocurrencies as a potential threat to the existing financial system, with the central bank warning against crypto adoption, citing concerns about the potential dollarization of the economy.
According to the Reserve Bank of India, crypto poses a serious risk to the central bank’s ability to set monetary policy and regulate the country’s monetary system. While many countries initially viewed digital assets as a risk to traditional fiat systems, the evolution of the industry has shown that cryptocurrencies can coexist with traditional financial markets.
Siddhartha, founder of Intain, a blockchain solutions firm, stated that government officials are reacting to the short-term influx of marketing campaigns promoting crypto exchanges rather than expressing genuine concerns about blockchain technology’s potential to enhance transparency and trust in non-bank financial operations.
By embracing blockchain technology, India could potentially develop its centralized cryptocurrency without competition from other digital coins if it chooses to ban them. Sukhi Jutla, co-founder of MarketOrders, an online jewelry marketplace based on blockchain, suggested that the Indian government aims to exert greater control over the use of this new technology to mitigate its impact on the current financial system, reflecting a broader trend of governments being cautious about cryptocurrency’s disruptive potential.
The approach governments take—whether supportive and collaborative to encourage innovation or restrictive due to fear of technological advancements—can shape the future of this sector. It appears that the Indian government may be leaning towards a more cautious stance, as highlighted by the significant tax burden on crypto trading and the decline in trading activity observed on some exchanges following the implementation of these tax policies.
Challenges in Developing Crypto Regulations in India
The Indian finance ministry initiated the drafting of a crypto bill in 2018, with the initial draft proposing a complete ban on all crypto-related activities in 2019. Since then, the government has fluctuated between proposing a ban and considering crypto regulation as an asset class, but no concrete proposals have been finalized or introduced for parliamentary discussion.
The crypto community in India has been self-regulating to a certain extent. However, the hesitant stance of the Indian central bank, coupled with regulatory ambiguity, has prompted many crypto firms to reassess their operations in the country.
Nitin Agarwal, founder and chief revenue officer of FV Bank, an international digital bank, acknowledged the complexity faced by regulators in the crypto space and highlighted the importance of developing a regulatory framework that balances innovation with oversight. The Indian government appears to be pragmatic in its approach, seeking to learn from regulatory frameworks in the United States and the European Union to inform its own policies and prevent users and companies from relocating to less regulated jurisdictions.
While the ruling party largely aligns with the finance ministry’s stance, opposition leaders have raised concerns about the flawed tax policies and advocated against banning crypto, drawing parallels to banning the internet.
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