Despite the Ban, Is Cryptocurrency Legal in India?

Indian Government is Cryptic about Cryptocurrency Regulations



The fintech industry in India is booming, with an estimated 121% increase between 2018 and 2020. In 2021, a Boston Consulting Group report stated that there are already 2100 fintech companies operating in India. In fact, by 2025, the industry is set to grow into a 150-160 billion dollar segment. While the overall enthusiasm about fintech is reciprocated by the government, its stand on cryptocurrencies is not so clear. However, despite this legal conundrum, the number of Cryptocurrency users in India is estimated to be more than 10 million. In the past year, with gradually falling stock prices, the Indian crypto industry saw a 30 fold increase in value.

Cryptocurrencies being one of the most prominent aspects within the fintech industry, many countries across the world has tried to create different regulations, to effectively adapt it to the needs of their customer, while not compromising on their safety. Some governments are also planning to issue central bank-issued digital currencies as legal tender. However, India seems to be lagging in its regulatory sophistication.


An Overview of Past Developments 

The technology was first acknowledged by the Indian government in the year 2013. At this time with the very limited user base and overall knowledge about the Cryptocurrency sector, the government issued a cautionary statement for the public. The statement was meant to warn people about the risks involved with digital currencies.

But it was only much later in 2017 when cryptocurrencies were a booming industry that the government decided to form an expert committee to seek recommendations for its crypto policy. The committee did not produce its report until early 2019, yet RBI issued a circular in 2018, directing all commercial banks and cooperative banks to halt their transactions with cryptocurrency-based businesses. This was a shock for the industry. And later in the report of the expert committee, a blanket ban on cryptocurrencies was recommended.

Yet, the caveat is that the government, never really banned cryptocurrencies. They did not criminalize holding or transacting in Cryptocurrency. Even the crypto exchanges were never really delegitimized legally.


Supreme Court Provides a Breather

In 2020, the real potential of cryptocurrencies and the underlying blockchain has been recognized by many governments across the world. They have created spate frameworks and KYC norms to deal with the challenges and potential dangers of decentralized borderless currencies. And based on such precedents, the Supreme Court of India ruled that the previous RBI directive be unconstitutional and arbitrary. They instead proposed the need for better safety regulations to protect the customers against malpractices.


The New Bill

According to a Reuters report, the sources in the government stated that the law will be delegitimizing all private cryptocurrencies. They will however be proposing ways to augment the underlying blockchain technology for the growth of a vibrant financial system in the country. The finance minister also stated how fintech will be a focus in the new SEZs like GIFT city.

Nevertheless, as of now, it seems the government’s scepticism towards cryptocurrencies remain as it is. This might harm the present trajectory of fintech in the country.