Loosening the Reigns?
Are we seeing a phased removal of the crypto ban in India? The Government of India has a draft proposal to allow limited use of crypto tokens, which indicates a rethink. The proposal will allow crypto tokens to represent value, but not replace the fiat currency.
India has consistently opposed cryptocurrencies. The Reserve Bank of India (RBI), the country’s central bank had issued many advisories on this. They had warned Indian citizens about the risks of dealing in cryptocurrencies and clarified that RBI doesn’t recognize them as legal tenders.
In February 2018, Mr. Arun Jaitley, the Union Finance Minister of India had stated that the government doesn’t accept cryptocurrencies as legal tenders. He had stated on the floor of Indian parliament that India won’t allow them in the payment system. The country discourages cryptocurrencies due to how crypto offers relative anonymity, raising the risk of money laundering. Anonymous crypto transactions also can be used to fund criminal activity including terrorism. Also, the crypto market is highly volatile due to speculation.
Throughout 2018, India and RBI have made well-coordinated moves to enforce the crypto ban in India. They have made several announcements reinforcing the ban and took concrete actions, for e.g.:
- The tax authorities raided Indian Crypto exchanges since they haven’t paid tax;
- RBI had directed Public Sector Unit (PSU) banks to bar crypto traders from using credit cards to buy crypto;
- In April, RBI has directed banks in India to deny banking service for all crypto-related transactions. The Supreme Court of India, i.e. the highest court in the country is now hearing petitions against this order.
However, the crypto ban in India is a more complex subject.
Promoting the Blockchain
Policymakers in India have a tightrope walk concerning the crypto ban in India. Any permissive regulation has a variety of factors to consider. First, the government needs to be assured that regulation can prevent money laundering and funding of crime with crypto, while also allowing the country’s current legal tender to remain supreme, and still boosting the adoption of blockchain technology development in the country.
Indian policymakers see the promise of blockchain due to decentralization and immutable record. It can help in India’s technology modernization, and Mr. Narendra Modi, the tech-savvy prime minister is encouraging its adoption.
Union and state governments in India are piloting a number of blockchain use cases, for e.g.:
- The government in the western Indian state of Maharashtra is piloting blockchain to improve government service delivery.
- A premier Indian government policy think-tank called the ‘National Institution for Transforming India’ (NITI) has signed an agreement with the Gujarat Narmada Valley Fertilizers & Chemicals Limited (GNFC). GNFC is a PSU corporation in the western Indian state of Gujarat. They are jointly exploring the use of blockchain in fertilizer subsidy distribution.
India is thinking of allowing crypto in a limited manner to start with. An inter-governmental task force is studying the blockchain-crypto space to propose a regulatory framework.
This task force is exploring if crypto tokens can substitute the metro rail smart cards. It’s also considering if tokens can represent airline miles, limited to buying the next ticket with them. There is no proposal for crypto tokens to substitute country’s fiat currency.
The task force has representatives from the finance ministry, taxation department, RBI, department of economic affairs, etc. We need to wait and watch if India can adopt crypto in a regulated manner instead of an outright ban.