The Indian government is preparing to unveil a discussion paper on cryptocurrencies before September, according to Economic Affairs Secretary Ajay Seth. This document is expected to outline potential regulations for digital currencies and invite feedback from industry participants.
Objectives of the Discussion Paper
The upcoming discussion paper aims to provide a comprehensive overview of cryptocurrency regulations and gather insights from various stakeholders. Seth elaborated in an interview with Moneycontrol, stating, “The policy stance is how does one consult relevant stakeholders, so it is to come out in the open and say here is a discussion paper, these are the issues and then stakeholders will give their views.”
The paper will also explore the scope of regulation for cryptocurrencies in India. Seth noted, “Currently, in India, cryptocurrencies are regulated primarily in terms of anti-money laundering (AML) and electronic funds transfer (EFT). The regulation is limited to these aspects. The discussion paper will address whether the regulatory scope should be expanded and what the policy stance should be.”
Role of Inter-Ministerial Group
An inter-ministerial group, which includes representatives from the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), is working on a broader cryptocurrency policy. This group is tasked with formulating a comprehensive approach to managing digital currencies within the country.
International Guidelines and Local Impact
This initiative aligns with the guidelines endorsed by G20 member countries during India’s presidency last year, which were developed in collaboration with the International Monetary Fund (IMF) and the Financial Stability Board (FSB). These guidelines aim to establish a standardized global framework for cryptocurrency regulation.
The release of this discussion paper comes at a time of heightened tension in the Indian crypto sector. The RBI has been a vocal critic of cryptocurrencies, citing macroeconomic risks and advocating for a ban. In contrast, SEBI has suggested that multiple regulators should oversee cryptocurrency trading.
Existing Regulatory Measures
In 2022, the Indian government introduced a 30% tax on crypto earnings and a 1% tax deducted at source (TDS) on crypto transactions. These measures have significantly impacted trading volumes on Indian cryptocurrency exchanges. Despite these steps, the government’s overall stance on digital assets remains unclear.
Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman have previously advocated for a global framework to regulate cryptocurrencies, reflecting a desire for international consensus on this emerging issue.
Industry Response
The uncertainty surrounding cryptocurrency regulations has had a tangible impact on the sector. Funding for crypto startups has sharply declined, with several companies, such as WeTrade and Pillow, shutting down in response to the evolving regulatory landscape.
As the government prepares to release its discussion paper, the future of cryptocurrency regulation in India remains a subject of intense debate and anticipation.