According to the study, it would be unwise for India to ban private crypto asset, when it has the potential to capitalize on the opportunity offered by cryptocurrencies.
Report offers key policy suggestions on building the model crypto Regulatory framework that will benefit India’s economy and ensure consumer welfare.
The Indian crypto asset industry has witnessed rapid growth in the past five years. Analysts suggest that more than 15 million Indians now hold digital currency. As a result, cryptocurrencies, like any other financial asset, need to be regulated to ensure consumer welfare as well as promote innovation. This is the major finding on regulating crypto assets in India, a report jointly published by the Observer Research Foundation and the Esya Centre, two New Delhi-based public policy think tanks.
The report is the first of its kind deep-dive into the world of cryptocurrency in India, which has one of the fastest growing consumer-bases globally. The analysis comes at a time when New Delhi aims to introduce a bill to regulate property.
The report argues that India is well-positioned to capitalize on the opportunity that crypto assets exist due to its expanding private crypto market. Therefore, it would be unwise to impose a complete ban on private crypto assets. This will result in significant revenue loss to the government and may encourage new industries to operate illegally.
Instead, the report suggests a balanced regulatory approach, addressing concerns of fiscal stability, money laundering, investor protection and regulatory certainty while promoting innovation.
“Most of the regulatory formulas needed to address policy concerns related to crypto-assets such as investor protection, foreign exchange management, money laundering and tax evasion are already in place,” says Meghna Bal. “They simply have to be adapted to accommodate the emerging technological paradigm. The recommendations in our report show how this can be done.”
In India, classifying crypto as a security, good or capital asset can lead to unexpected restrictions on investments or leave regulatory gaps in key policy areas. A sui generis crypto framework adapting to the specifics of the crypto industry would be more appropriate and taking into account emerging global trends.
The report also makes suggestions for lawmakers as to what a crypto regulatory framework should include: it should be technology neutral, innovation friendly and consistent to fully exploit India’s potential in the region. The report said, among other things, the framework should provide clear definitions, identify relevant regulatory bodies and create KYC/anti-money laundering obligations.
The regulatory framework should also protect crypto asset service providers from being held liable for the actions of investors on their platform. This will help asset service providers to innovate and scale new crypto-based products and offerings.
The report proposes that the government adopt a co-regulatory approach where industry associations and authorities such as SEBI, RBI and the finance ministry share the responsibility of oversight. Such an approach follows the Japanese model, where officials are tasked with enforcing the rules by industry associations. Providing incentives to industry whistle-blowers can help players self-regulate within the crypto-market.
India needs a convenient regulatory framework that will fuel the growth of India’s crypto ecosystem while addressing any potential harm to consumers and society at large.