Cryptocurrency: Is India coming of age?
From a proposal to ban it outright in 2016 to the present proposal to regulate it, the cryptocurrency has of course come a long way in India. Whether one agrees on its benefits or otherwise as an investment tool, the cryptocurrency is here to stay
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From the year 2013 to 2022, the story of cryptocurrency as an investment option in India has been an interesting one. During this period, the regulatory journey of cryptocurrency in India took several turns ranging from a clarion call from the experts for an outright ban of the virtual currency in the country to the still evolving opinion of regulating it rather than imposing a blanket ban.
As the world was witnessing the emergence of cryptocurrency as an investment theme on the turn of the last decade, it caught the attention of the investors in India too. Sensing the inherent risks involved in investing and trading of cryptocurrencies, the Reserve Bank of India (RBI) issued a circular in 2013, warning the country's nouveau riche investors against the use of cryptocurrencies like Bitcoin, Litecoin, and other altcoins. The country's banking regulator warned the users, holders, and traders of cryptocurrencies about the potential financial, operational, legal, customer protection, and security-related risks they are exposing themselves to.
But the RBI's warning did not go down well with the banks in the country as they continued to allow transactions on cryptocurrency exchanges forcing the RBI, on February 1, 2017, to release another circular, reiterating its concerns on the issue. And by the end of 2017, another warning was issued by the RBI and the Union Finance Ministry clarifying that cryptocurrencies are not a legal tender in the country. In March 2018, the Central Board of Digital Tax (CBDT) of the Finance Ministry submitted a draft scheme to the Finance Ministry for banning cryptocurrencies in India. On April 6, 2018, the RBI issued a circular to commercial and co-operative banks, payments banks, small finance banks, NBFCs, and payment system providers restricting them from dealing in virtual currencies, or providing services to all entities which deal with crypto exchanges. In effect, the RBI banned crypto trade in India.
During this time, as arguments in favor and against the cryptocurrencies were going on, two Public Interest Litigations (PILs) were filed in Supreme Court, one asking for a ban on buying and selling of cryptocurrencies in India, the other asking for them to be regulated. After several rounds of hearing, the Supreme Court in March 2020 lifted the curb on cryptocurrency imposed by the RBI, which had restricted banks and financial institutions from providing access to banking services to those engaged in transactions in cryptocurrencies. Since the Supreme Court reversed the RBI's order banning banks from supporting crypto transactions, currently, there is no regulation or any ban on the use of cryptocurrencies in the country.
As the issue lingered on, Prime Minister Narendra Modi, in early 2021, chaired a meeting on the way forward for managing the cryptocurrency sector. A high-level Inter-Ministerial Committee (IMC) under the chairmanship of Secretary (Economic Affairs) was constituted to study the issues related to virtual currencies. The committee, which was asked to propose specific actions to be taken in the matter, recommended in its report that all private cryptocurrencies, except any virtual currencies issued by the state, will be prohibited in India. The committee's recommendations virtually took the crypto investors by storm. And as late as in November 2021, the Standing Committee on Finance, chaired by BJP member Jayant Sinha, met representatives of crypto exchanges, Blockchain and Crypto Assets Council (BACC), among others, and came to the conclusion that cryptocurrencies should not be banned, but regulated.
Of course, the Indian government's stand on cryptocurrencies has changed considerably during the last five years. Earlier, the government came out with a Bill called 'Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019' to ban cryptocurrencies in India. Changing its stance, now the government has proposed another Bill named 'Cryptocurrency and Regulation of Official Digital Currency Bill, 2021' to regulate it.
From a proposal to ban it outright in 2016 to the present proposal to regulate it, the cryptocurrency has of course come a long way in India. Whether one agrees on its benefits or otherwise as an investment tool, the cryptocurrency is here to stay.
(The author is freelance journalist with varied experience in different fields)
