The Indian government and crypto policy

The Indian government’s recent announcement of increasing scrutiny and checks on cryptocurrency in the country has been met by investors and holders with some trepidation. India has also become the latest in a series of countries to proscribe the exchange and use of privacy coins. This is not completely unheard of in international crypto policymaking. 

Indian authorities have mandated centralised exchanges to ask for additional verification of their users, such as a liveness check via a selfie, additional identity documents, and even the ‘penny drop’ bank verification system (you make a microtransaction to verify that the bank account you are connecting is indeed yours). These are all steps that are in place in other jurisdictions as well. The EU, for instance, has most if not all of these methods in place to verify users. But there is a larger problem at play in India, very similar to China, in fact.

India is ranked number one in the list of countries to embrace crypto adoption, but this is despite, and not a result of, Indian policymaking. Crypto is taxed heavily in the South Asian country, but there are no formal rules regularising the sector. The government of India drafted a legislative document in 2021 that would ban all trade and exchange of cryptocurrencies in the country, but it never went through with its plan. 

It has since called for global rules and procedures to govern digital assets, but this has not transpired either. The Indian government’s reluctance to legalise crypto assets is partially grounded in tangible fears of a very large population exposing themselves to something as volatile as cryptocurrency, but the fact that Indians are thriving in this space, all the way from founders and CEOs to small day traders and NFT flippers, indicates that the pessimism might be misplaced.

But apart from this, the sheer number of Indians in the space tells us that policymaking is a need, and not only an ideal anymore.

The Indian government must contend with the fact that a larger section of its populace is already investing in and trading cryptocurrency, whether the state likes it or not. Instead of only taxing a portion of this segment, the government would be well-placed to legislate in the industry, both to widen its own tax net and to bring important state checks and balances in place. 

There have been hints that the government might finally see sense. The world is changing, after all. President Trump’s second stint and the push he has made for the industry will undoubtedly lead to spillover effects all over the world. India looks like it could also turn a corner on crypto policymaking as a result.

The starting point will of course be stablecoins. International transfers might completely do away with old systems once the global order fully embraces stablecoins. And that would be a good start for any state looking to draft its first legislation to open up avenues for crypto trade in its jurisdiction.

How long will India resist before it has to face the inevitable?