The Union finance ministry ruled out setting up any regulatory regime for cryptocurrency, arguing that this could lend legitimacy to the sector and create a false sense of security for investors.
The finance ministry told the standing committee on finance that it wants to instead push the Reserve Bank of India’s Central Bank Digital Currency (CBDC) or the e-Rupee, with an eye on making this the medium for the delivery of welfare benefits.
The government doesn’t recognise cryptocurrency in the country and levies a 30% tax on its profits.
Government flags regulatory issues
The Economic Affairs Division of the Finance Ministry told the committee led by BJP MP Bhartruhari Mahtab that since crypto assets enable anonymous transactions outside traditional state-controlled financial systems, developing a regulatory framework for such assets comes with “inherent challenges and contradictions,” according to functionaries aware of the details.
Citing international experiences, the ministry argued that as “regulations develop for centralised intermediaries, activities increasingly migrate towards decentralised and non-custodial arrangements, which are outside the purview of regulation.”
It also maintained that a regulatory framework “may create a false sense of security and give rise to moral hazard among unsophisticated investors,” these people added, asking not to be named.
Noting that the global regulatory architecture for crypto assets is still evolving and has significant gaps, the ministry said that the government will continue to strengthen targeted measures to address the “most significant and immediate risks, including financial integrity, consumer protection, taxation and financial stability, through existing legal and regulatory mechanisms”, the people sited above said. It would continue to monitor domestic and international developments.
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Even as the government doesn’t promote or recognize crypto trade in India, it has imposed 30% tax with a 4% cess on all profits from crypto trading.
The government also bars people from offsetting losses from one crypto with profits from another transaction. The government’s Financial Intelligence Unit got 50 crypto asset service providers including CoinDCX and Binance, to register with the authorities.