Like many other countries, India has been struggling to provide a more clear regulatory framework for cryptocurrencies. Because of the nascent nature of digital assets, governments are concerned with the crypto industry’s lack of regulation, especially with the fact that it has not yet unleashed its full potential. India has been vocal about its intentions to ban cryptocurrencies from the country. Yet it is home to the world’s largest community of crypto owners, making India one of the most important emerging markets of the cryptocurrency industry.
Cryptocurrency in India provides a gateway for the unbanked to gain control of their finances. According to Chainalysis, many residing in countries with a less robust financial economy turn to cryptocurrencies to preserve their savings in the face of currency devaluation. Other crucial actions driving the use of cryptocurrencies include sending and receiving remittances as well as carrying out business and interpersonal transactions. This largely contrasts with North America, Western Europe, and Eastern Asia, where crypto adoption is mainly driven by institutional investments.
Further studies from Chainalysis also point to India as being the second-largest crypto economy in the world, after Vietnam.
India’s regulators associate crypto with Ponzi schemes
In 2018, India briefly moved to ban cryptocurrencies – to no avail. The Reserve Bank of India had issued an announcement warning financial institutions against providing services to businesses that operated with crypto. The explanation lies behind the fact that many government officials and regulators associate cryptocurrencies with Ponzi schemes, having no faith in their innate value. Mohan Bhagwat, Head Chief of the RSS, the ideological parent of Prime Minister Narendra Modi’s Bharatiya Janaty Party, shared with Reuters, “There is a need to regularize these things for the larger good of the society.”
He further revealed his concern of not knowing which country was in control of digital assets and added that a government body should regulate them. He said, “The government should do it. It has to do it.”
While cryptocurrencies are inherently decentralized, many government bodies are aiming to make them centralized and regulated. Top government officials associate cryptocurrencies with fraud and scams and are therefore cautious of digital assets as they are mainly unregulated in most countries. In India, the right-group Hindu wing also exerts a lot of influence on Prime Minister Narendra Modi, who often turn to it for advice and guidance. Currently, they are on the same page with cryptocurrencies – that they are too unregulated to operate in the country.
Will India regulate cryptos instead of banning them?
However, because India is home to one of the world’s largest cryptocurrency communities – with approximately 15 million people trading in cryptos according to a report by Bloomberg – the country may find a way to regulate digital assets without downright banning them.
Currently, a crypto bill that will provide clarity on the legal definition of a valid crypto asset is awaiting Cabinet approval. Although its contents are not fully disclosed, the bill will clearly indicate whether cryptocurrencies will fall under the category of a commodity or a digital asset. It will provide more insights on how to regulate digital assets. Sources have also revealed that the bill reportedly recommends a prohibition of all private cryptocurrencies in India, with the exception of virtual currencies issued by the State.
What is most likely going to happen, according to market experts, is that the Indian government will not issue a blanket ban on all digital assets. Rather, with cryptocurrencies being such a nascent asset class, what is most likely going to happen is that Indian regulators will find a way to regulate cryptocurrencies. Additionally, a logical step would be to provide a central bank digital currency for the population to use. Many experts have remained hopeful that Indian regulators will see the potential behind the fintech industry and abstain from carrying out as radical a move as an outright cryptocurrency ban. Banning cryptocurrencies may potentially harm India’s economy and result in its economical infrastructure lagging behind other countries in terms of innovation.
What is encouraging is that from 2018 to now, there seems to have been a progressive view around cryptocurrencies from the part of the Reserve Bank of India, the Finance Ministry of India, and the Supreme Court, all of which have a huge influence on the outcome of crypto in India.
Newest development in India’s crypto regulation
So what will happen to the unbanked in India? According to the Economic Times, the latest development on cryptocurrencies in India is that the government has now decided to find a middle ground between outright banning cryptocurrencies and accommodating their existence within the country. Seeing as there are already large volumes of cryptocurrency investments in India, the government has concluded that a more inclusive crypto bill may be a better solution.
The bill will classify cryptocurrencies as digital assets rather than legal tender, if approved by the Parliament. An interesting clause that the bill can include would be to dictate who can create and sell cryptocurrencies within the country. This may subsequently lead to fewer cases of fraud and scams.
A more detailed crypto bill is likely to be revealed in next year’s Union Budget of India, so more information is to be expected on this end.