India’s “blockchain, not crypto” stance has led to disastrous crypto policies, forcing several thriving crypto firms to relocate.
Indian crypto businesses are struggling with the new tax policies as trading volumes have dried up and many established crypto firms are looking to relocate to more crypto-friendly jurisdictions.
While many developed countries and even several of its Asian counterparts are actively studying and formulating better crypto regulations, the Indian government has maintained a “blockchain, not crypto” stance.
It might seem like the government is taking a cautionary step to focus on the underlying technology while keeping its distance from the volatile and risky crypto market. However, going by the recent policies and statements from the finance minister as well as sitting parliamentarians, the issue seems to be more of a lack of understanding.
The newly introduced crypto tax laws, for example, are highly motivated by the country’s gambling laws and were introduced and passed hurriedly without any input from the stakeholders in the ecosystem. As many crypto pundits have warned, the harsh tax policy has driven traders away from Indian exchanges.
Many ministers in the ruling government have propagated false narratives against crypto without offering any evidence to back their claims. Sushil Kumar Modi, a member of parliament from the ruling party, has compared crypto to “pure gambling” and called to “impose more tax on it so that the government can get revenue and people can be discouraged from investing in this volatile asset.”
The statement is a clear example not only of a lack of understanding but of a contradiction, in that he is talking about discouraging people from investing in crypto while believing it would bring more revenue to the government.
Sathvik Vishwanath, co-founder and CEO of Indian crypto exchange Unocoin, told Cointelegraph:
“The government continues to see crypto as a betting and gambling alternative due to which they are only ready to support its technology but not tokens on top of it.”
It is important to understand the fact that crypto and blockchain are somewhat inseparable. Crypto tokens play a pivotal role in the functioning of blockchain projects and blockchain-based rewards.
Shivam Thakral, CEO of BuyUcoin, explained that a fundamental lack of understanding is one of the key reasons for such flawed policies and advocated for dialogues with specialized groups. He told Cointelegraph:
“Any attempt to create an isolated policy by any country will defeat the whole purpose of blockchain technology, which is aimed at liberating the financial systems of the world. The Indian government must create specialized groups to discuss and debate finding a more accurate way to regulate the booming crypto sector in India. The time is right for India to take the lead and become the blockchain capital of the world.”
While many blame the government’s lack of understanding of the nascent tech to be the key reason behind its “blockchain, not crypto” stance, others feel that India’s fintech and payments network are mature enough and that a crypto layer wouldn’t really add much utility. Thus, the government is more focused on the core technology.
Trevor Goott, director of Africa and India at Unlimint — a digital financial interface provider — told Cointelegraph:
“The Indian fintech and payments sector is mature and well-serviced, and crypto would just be another layer on top, so the net benefit to India would be less when compared to another country that has a less developed payment sector. Crypto will have its place in India in the medium-term, but the short-term benefits of the other blockchain products must be realized first if a choice has to be made between crypto or blockchain.”
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Indian government sees crypto as a threat
The Indian government clearly sees crypto as a threat to its current financial system. The Indian central bank has recently warned against crypto adoption and said it could lead to the dollarization of the economy.
The Reserve Bank of India said, “Crypto will seriously undermine the RBI’s capacity to determine monetary policy and regulate the monetary system of the country.”
In the early days of crypto, most countries thought digital assets posed an inherent risk to their fiat ecosystem; however, as the industry matured, it has been proven that cryptocurrencies can co-exist with traditional financial markets.
Siddhartha, founder of Intain — a blockchain solution firm — told Cointelegraph:
“Having spoken with several people in government, they understand blockchain but are reacting in the short term to a surge of marketing dollars and campaigns that have caused a lot of noise on behalf of some crypto exchanges. These campaigns are worrisome due to the broad exposure they create among the general public. It is our view that government officials are generally supportive of blockchain that works in a manner that brings trust and transparency to the financing of non-bank financial companies.”
By approving the use of blockchain, India can use it to create its own centralized cryptocurrency without any competition from other cryptos if it successfully bans other coins. Sukhi Jutla, co-founder of MarketOrders — a blockchain-based online jewelry marketplace — told Cointelegraph:
“I think it’s more about the Indian government wanting to impose greater controls on how this new technology can be used, and they are clearly concerned with how it will impact their current financial system. The more controlling governments are around cryptocurrencies, the more fearful they are of the impact it will cause on their current financial systems.”
Governments can either have a supportive and collaborative approach that allows innovation to occur or they can stifle and shut down progression and innovation if they remain too fearful of this technology, and it seems as though the Indian government may be taking the latter approach.
Popular crypto influencer and trader Scott Melker, who is known by his Twitter name The Wolf Of All Streets, told Cointelegraph:
“As of today, crypto and blockchain are now legal and encouraged in the country, but a 30% tax on all cryptocurrency trading hinders the growth. Following this disastrous tax policy, some exchanges have reported up to a 70% decline in trading activity. For now, it truly seems like India only has an interest in what blockchain can do for the country and not what Bitcoin can do for its citizens.”
India’s struggle with crypto regulations
The Indian finance ministry was first tasked with drafting a crypto bill in 2018, and the first draft copy was introduced in 2019, demanding a complete ban on all activities associated with cryptocurrencies. Since then, the government has changed its stance on crypto on several occasions, going from a blanket ban to regulating the crypto market as an asset class. However, none of the proposals have been finalized or introduced in parliament for discussion.
The crypto ecosystem in India has managed to self-regulate for quite some time now. However, the hesitant stance of the Indian central bank, in addition to regulatory uncertainty, has made many crypto firms reconsider their future in the country.
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Nitin Agarwal, founder and chief revenue officer of FV Bank — an international digital bank — told Cointelegraph:
“The job of regulators is difficult and is even more complex in the crypto space due to its inherent nature of being censorship-resistant coupled with grappling with the rapid pace of innovation. Regulators the world over are working hard on creating a regulatory framework that can be applied to digital assets and crypto. The Indian government’s approach is pragmatic in that they don’t want to over-regulate and see all users and companies move to a non-regulated or more lightly regulated jurisdiction.”
He added, “The government is waiting to see a regulatory framework come out of the United States and European Union, which they can imbibe upon and take best practices to apply to the people of India.”
While a majority of ministers in the ruling party have toed the line of the finance ministry, many opposition leaders have called for reconsideration of the flawed tax policy. They have also opposed the idea of banning crypto, claiming it would be similar to banning the internet.