India is the second biggest crypto market in terms of global adoption, with an estimated investment of INR 6.6 billion in the asset class. Unsurprisingly, reports of a likely private crypto ban caused market mayhem in the country last week. However, Subhash Garg, the former finance secretary who drafted the Crypto Bill, called the bill’s description mentioning the ban, “a mistake.”
Global think tank promoted regulations
In a recent report, Observer Research Foundation also recommended that India should consider regulating cryptocurrencies instead of banning the “flourishing industry.” Adding that the decentralized nature of the technology anyway makes a ban “technically impractical.” Also stating,
“India has a history of banning goods and services that exemplify innovation in new markets. Such bans often lead to unintended consequences, which include large revenue losses to the government that impact the livelihoods of people, and have had severe implications for industries, forcing them to enter illegal markets.”
Therefore, ORF proposed a “co-regulatory approach” where,
“SEBI, the RBI, and the Ministry of Finance, and a crypto asset service providers industry association work together to oversee and regulate the Indian crypto market.”
Additionally, it suggested incorporating a disclosure framework similar to the one applicable in the securities market for investor protection. But, to promote innovation, ORF endorsed safe harbor for crypto asset service providers, stating,
“Safe harbors have proven very effective safeguards for innovation (many large technology companies have gotten to where they are because of them) over the years and are a lot easier to implement than regulatory sandboxes.”
It is worth noting that to tackle similar problems in another part of the world, U.S. SEC Commissioner Hester Peirce has also been pushing her Safe Harbor proposal for the regulator’s perusal for a long time now.
In India, ORF advocated letting go of a transaction tax on exchanges along with bringing tax incentives for entities providing verified information in the sector. Additionally, it proposed adding “technological tools for compliance with regulatory norms,” and bringing in a framework for taxing income from capital gains in crypto assets.
Corporate directive and the crypto bill
Furthermore, the report also highlighted that other nations have issued guidelines for crypto advertising, adding that India can also look at norms similar to the ones existing in the Mutual Fund market. Recently, Finance Minister Nirmala Sitharam had clarified in a Parliamentary session that no decision has been taken on banning crypto advertisements.
Instead, the ministry has brought in regulators to create awareness in the sector. Meanwhile, local reports cite sources that claim Indian businesses now need to disclose their crypto trade and investments every year. According to the official,
“This will also check tax evasion and give us an idea of penetration of cryptocurrencies in corporate transactions.”
The mandate might come from the government along with the much-awaited crypto bill that is expected to be tabled soon. These, sources noted will be suitably amended as per the directive. Meanwhile, retail transactions do not form part of the corporate directive at the moment.