In a July 25 interview with Moneycontrol, Indian Economic Affairs Secretary Ajay Seth announced that the country will release a discussion paper outlining its stance on cryptocurrencies before September 2024.
This paper, rather than proposing immediate legislation, will focus on initiating stakeholder consultation.
India’s Evolving Approach to Indian Crypto Regulation
An inter-ministerial group, including the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), is developing a broader cryptocurrency policy.
This group incorporates diverse perspectives on Indian crypto regulation. The RBI, for example, advocates prohibiting cryptocurrencies due to perceived macroeconomic risks. Conversely, SEBI appears more open to regulation.
“The policy stance is how does one consult relevant stakeholders, so it is to come out in the open and say here is a discussion paper these are the issues and then stakeholders will give their views,” Seth explained in the interview.
It is encouraging to read that @FinMinIndia will articulate its policy stance on cryptoassets in a discussion paper before September.
We thank the government for including cryptoasset regulations in its 100-day agenda of the new government, building on India’s G20 Presidency… pic. .com/palRYyMcgr
— Ashish Singhal (@ashish343) July 25, 2024
Despite the lack of comprehensive legislation regarding cryptocurrency in India, the country has imposed substantial taxes on cryptocurrency transactions.
Recently, the Indian government mandated that crypto entities register with the Financial Intelligence Unit (FIU-IND).
This measure ensures compliance with anti-money laundering (AML) and terrorism financing standards set by organizations such as the Financial Action Task Force (FATF).
India’s Crypto Policy Faces Regulatory Challenges
The upcoming discussion paper builds upon a September 2023 statement by Economic Affairs Secretary Ajay Seth.
At the time, he indicated that India would analyze global approaches to crypto regulation before finalizing its stance.
This analytical approach aligns with India’s efforts during its G20 presidency to prioritize a global consensus on crypto rules.
Recent developments, however, complicate India’s considerations. The nation’s Narcotics Control Bureau (NCB) has, for instance, intensified surveillance of cryptocurrency payments on the darknet to curb drug trafficking.
🕵️ India's NCB has intensified its surveillance of cryptocurrency payments on the darknet in a bid to curb drug trafficking within its borders.#India #Cryptohttps://t.co/rGlWtEMEWX
— Cryptonews.com (@ ) July 25, 2024
This increased focus comes as a response to a noticeable increase in the use of cryptocurrency for drug-related crimes over the past five years, particularly those involving the darknet.
Responding to these concerns, Nityanand Rai, the Minister of State for Home Affairs, recently unveiled a comprehensive 13-point strategy during a Parliamentary discussion.
This strategy seeks to address drug trafficking and narco-terrorism. Combating the misuse of digital currencies, especially as it relates to Indian crypto, is a key component of this plan.
To that end, Rai announced the formation of a Special Task Force on Darknet and Cryptocurrency. This task force will monitor suspicious, drug-related transactions within these digital spaces.
To bolster its investigative capabilities, the NCB has launched specialized training programs focusing on digital forensics, darknet activities, and cryptocurrency.
These developments will likely influence the forthcoming crypto policy paper. The government must balance the potential economic benefits of cryptocurrencies with the need to mitigate their use in illegal activities.