Watch this space but it seems increasingly likely that India may be about to revise its previously anti-crypto stance. Rumours have started to circulate in the digital assets world after the country’s Economic Affairs Secretary, Ajay Seth, said that India’s government is revisiting its crypto regulations.
While not naming specific countries, Seth hinted that the change in tone from US regulators, following Donald Trump’s election victory, has a lot to do with it, causing fears at high levels within the Indian government that the country could end up behind the curve in digital assets innovation.
India’s cryptocurrency ban: real or imagined?
India has been notoriously strict about allowing its institutions to manage or custody cryptocurrencies. The Reserve Bank of India in 2018 banned institutions from supporting businesses or individual investors who wanted to handle crypto assets. While the move was subsequently overturned by India’s Supreme Court, further bills were drawn up by lawmakers in an effort to ban crypto and even the country’s president, Narendra Modi, weighed in, expressing fears that cryptocurrencies could “spoil our youth.”
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The digital assets sector also saw a major crackdown in India in 2022, with raids on the offices of leading local trading venues. The legal risks caused some of the top crypto brokers and exchanges to back away from the Indian market altogether. Professionals hinted that they were also facing pressure from Indian regulators to stay out of the market.
Just by way of example, Coinbase said in 2022 that, having launched a retail crypto trading service in India using retail banks as a platform, it was folding the service due to what CEO Brian Armstrong called “informal pressure from the Reserve Bank of India.”
The picture is an opaque one: while crypto trading was not technically illegal in India, and Indian citizens still have to pay tax on their crypto holdings, local regulators including the National Payments Corporation, have been able to apply a shadow ban on the asset class.
Such activity could technically be in violation of Indian Supreme Court rulings, which overturned an earlier ban. Cryptopcurrency exchanges have complained about issues with supporting fiat currency as a consequence.
Is India having second thoughts on crypto?
Crypto exchanges are now making an effort to return to India. According to TechCrunch, Coinbase sources say it is working with a number of Indian government agencies in an effort to re-start operations there. Binance has already re-started operations in the wake of a seven month hiatus enforced by the Financial Intelligence Unit, which surveils currency transactions.
Local trading platforms have complained to India’s finance ministry, claiming they were losing business to overseas venues as Indian traders took their business offshore.
While it is already a major Asian tech hub, Indian officials seem to be getting increasingly worried that the country could be left behind in the digital assets arms race. Maintaining its shadow ban of cryptocurrency trading is not helping India’s case with banks and local traders. The change of stance by the SEC in Washington, following the end of the Gary Gensler regime there, has caused many other financial regulators to have a rethink about crypto. India seems to be one of them.
The FIU seems to have been India’s red tape tool of choice for deterring the uptake of cryptocurrency. That agency is now in the process of performing a U-turn. Expect to see further progress in the liberalisation of India’s crypto regulatory regime this year.
