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A new Cabinet note on the proposed cryptocurrency bill shows that India is planning to regulate private cryptocurrencies, rather than banning them.
A Cabinet note seen by Indian TV channel NDTV suggests that India proposes to bring cryptocurrencies under the supervision of the country’s central bank while existing crypto exchange platforms will be regulated by the Securities and Exchange Board of India (SEBI).
According to the news service, the bill does not include provisions for a central bank digital currency (CBDC) and it will not recognise cryptocurrencies as legal tender in India.
Last week, news spread across the internet announcing that a new Indian bill may impose a total ban on cryptocurrencies in the country.
However, the latest development confirms what experts told VIXIO last week that although there was little known about the planned bill, an outright ban on cryptocurrencies was unlikely.
Original Story: India Unlikely To Ban Crypto Completely
India has tabled a new cryptocurrency bill that may restrict certain cryptocurrency activities while paving the way for a central bank digital currency (CBDC). However, it is unlikely that the country would impose a complete ban on crypto activities.
News emerged that India is planning to ban private cryptocurrencies, while also proposing a framework for central bank-issued digital money.
By restricting use of private digital currencies, India would join the likes of China, which banned all cryptocurrency-related activities within its borders in September as it continued preparations to move ahead with its plans to issue a digital yuan.
However, experts have told VIXIO that although very little is known about India’s plans, it is unlikely that the country would impose a complete ban on private digital assets.
New crypto bill
The news broke when a parliamentary bulletin dated November 23 showed that the legislature is planning to discuss a cryptocurrency bill in its winter session held between November 29 and December 23.
According to the description attached to the bill, the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 would “create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”
“Although speculation is ripe, nobody is aware of the exact wording of the proposed law and the aspects or activities it seeks to regulate or prohibit,” Anoush Bhasin, founder of New Delhi-based cryptocurrency tax advisor Quagmire Consulting, told VIXIO.
“There is no ban currently,” Rameesh Kailasam, CEO of IndiaTech, agreed. He added that the actual regulation is still being written and in progress. “Hence early days to assume a ban.”
“Although one thing is evident that India will not accord them the status of a currency or legal tender,” Kailasam pointed out, adding that the industry has been asking for an asset or commodity status rather than legal tender.
“Even the ban on private cryptocurrency as stated in the headline can be assumed to be a ban on them as a "currency or legal tender" and could probably also include those not on the public ledger,” he continued.
To become law, the bill first needs to be discussed and approved in both houses of the parliament.
“Recent interactions between various ministries and industry experts lead me to believe that extreme proposals within the bill would be up for debate, keeping in mind global developments and India's prime position to be a global leader in the fintech space,” Bhasin explained.
Even if a “draconian” bill does turn into law, it will likely be immediately challenged by the crypto industry at the Supreme Court level, he added.
The Supreme Court has previously overturned a decision by the Reserve Bank of India which, in 2018, restricted banks from engaging in cryptocurrency-related activities.
Cryptocurrencies and CBDC
Crypto adoption has seen tremendous growth in India this year. The Chainanalysis 2021 Global Crypto Adoption Index puts India in second place after Vietnam, whereas others estimate there are more than 100m users in the country.
Whether private cryptocurrencies and stablecoins are considered a competitor or a complement to central bank money is largely an unsettled question.
According to news reports, Subhash Chandra Garg, former finance secretary of India, said in a speech at the Business Standard Insight Out Summit on October 22:
“The private cryptocurrencies hurt government revenues in a way…the return on investments that the crypto platforms can make from the currency delivered to them is not accrued to the government,” he said. “Once the official digital currency comes in, most of the private cryptos and stablecoins will disappear.”
It is possible that the Reserve Bank of India is interested in protecting the influence of the sovereign currency and is of the view that a CBDC is the best way to adopt blockchain technology while not losing control to decentralisation, Bhasin pointed out.
However, he added that most factors that attract Indian investors to the cryptocurrency space are not relevant to CBDCs. “On the contrary, it is likely that banning cryptocurrencies will result in this space becoming even more popular.“
