Uncertainty shrouds over cryptocurrency investments and trading in India after the Ministry of Corporate Affairs (MCA) circulated a draft bill that would ban cryptocurrencies.
The draft bill also listed measures for regulating India’s proposed official digital currency.
The bill was slated to be introduced in the recently wrapped up budget session of 2021 but it has been delayed. If passed, it could deal a major blow to nvestors piling into the red-hot asset class.
The draft bill seeks to prohibit mining, holding, selling, trade, issuance, disposal or use of cryptocurrency in the country.
In case of non-adherence, the proposed legislation has prescribed penalties and/or imprisonment of up to 10 years.
India’s move on cryptocurrencies has alarmed sector experts who called for a balanced approach on the issue.
“It is a question of horses for courses,” said an expert on digital currencies with PwC India.
The draft bill, however, has proposed permitting the use of processes or technology underlying any cryptocurrency for experiment, research or teaching.
“The government [of India] in consultation with the Reserve Bank of India (RBI), may issue digital rupee as legal tender. The RBI may also notify a digital currency recognised as legal tender in a foreign jurisdiction, as a foreign currency,” according to the draft bill.
Reserve Bank of India (RBI)
If the proposed bill does become a law, it will make India the first major economy in the world to make holding cryptocurrency assets illegal.
China also banned mining and trading cryptocurrency, but allows citizens to continue to possess crypto assets they may already have.
Experts pointed out that with India facing a severe wave of coronavirus infections currently, the chances of the proposed bill becoming a piece of legislation any time soon remained very thin. The Narendra Modi-government, currently battling with the raging pandemic across the country, is unlikely to convene a Parliament session in the next few months.
Though no official estimates are available, industry estimates peg Indian investments in cryptocurrencies at around 100 billion rupees ($1.4 billion).
“India should definitely consider a bold play in global technology and security talent marketplaces for crypto and encourage setting up of crypto IT parks,” Vivek Belgavi, partner and FinTech leader, PwC India, told Arabian Business.
“On payments, India should fast track the ongoing consideration of a central bank digital currency which would allow use case innovation within the ambit of central bank control.
“India should also consider leveraging innovation sandboxes setup at RBI and International Financial Services Centres Authority (IFSCA) – the concerned regulatory bodies – to closely observe use cases like digital asset exchanges and cross-border,” Belgavi said.
Vivek Belgavi, partner and FinTech leader, PwC India
It is not the first time cryptocurrency investors face this scare in India.
In 2018, India’s central bank issued a circular banning the use of cryptocurrencies in India and directed banks to suspend bank accounts of players supporting purchase and sale of these currencies in India.
India’s Supreme Court, however, has stayed the RBI circular in an order in 2020. The Supreme Court also directed the Indian government and the RBI to come up with an overarching law – if deemed fit – to ban the use of cryptos in India.
The MCA, on March 24, also introduced a formal notification requiring Indian companies to disclose their dealings in cryptocurrencies in their balance sheets.
Experts interpreted the mandate to disclose virtual currency details in the financial statements to be a first official step in a series of other formal measures possibly to be taken by the authorities on regulating or banning the virtual currencies.
While the move to ban cryptocurrencies has led to investors wondering what will happen to their current holdings, experts said the final bill is expected to have a provision to allow cryptocurrency holders a specific period of time within which to liquidate their assets.
“Penalties are expected to be levied post this window, if investors have not completely liquidated and exited their positions,” a sector expert said.
Industry officials said several industry bodies and players are currently making representations to India’s finance ministry and the regulators to rethink on the complete ban of cryptocurrencies, while highlighting the advantages of its use.
Industry officials said there are also talks of India moving to block the internet protocol (IP) addresses of firms or exchanges that trade in cryptocurrencies.
Sector experts, however, said though the government might succeed in blocking known sources of platforms permitting trading and investment of cryptocurrencies, the measure taken will not be fool-proof in successfully executing the ban because of virtual private network (VPN) options.
Experts say various routes remain as loopholes, including VPNs, peer-to-peer trading, using cash to buy or sell cryptocurrencies, using wallets outside India to store and transfer cryptos, and using part of the money permitted to send abroad for investment getting diverted for buying cryptocurrencies overseas.
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