India has been growing leaps and bounds after the economic collapse of 1991. Today, India is projected to clock an economic growth of 7.5% in the 2019-2020 fiscal year on strengthening of investment and robust private consumption, the IMF said in its latest report. The International Monetary Fund (IMF), in the report published last Tuesday, said that the near-term macroeconomic outlook for India is “broadly favorable”. Growth is forecast to rise to 7.3% in fiscal year 2018/19 and 7.5% in 2019/20. Having said that, India ranked 6th in global economies. This will play a very important role as India becomes an integral part of the crypto world. But, as with any new disruptive technology, hurdles will have to be overcome.
India And Bitcoin : Head to Head
While Bitcoin caught the attention of people in India long ago, the real attention started after 2012. Bitcoin’s price reached almost US$19000 in 2017. Indian citizens had a fairly free playing field until 2017. And while the stories of unhindered cross border financial/crypto transactions started emanating in the public domain, the Government of India started to look into possibilities of regulating/monitoring the crypto trade. While a dozen or more Trading Exchanges integrated with Indian Banks to exchange with the Indian Rupee, the crypto part of the transactions could neither be monitored nor controlled. It was this limitation of monitoring/controlling that sent the Government into jitters.
Control is in the air for India
It was in 2016-17 that the regulatory framework, to the extent possible, started to get developed. In fact, the KYC(Know Your Customer) norms were made mandatory for the exchanges. This resulted in a slow down in crypto to fiat transactions. Nonetheless, this measure gave little information on Crypto to Crypto transactions. The final blow came in the shape of a ban of Indian Rupee transactions to and from these exchanges that had been operating smoothly until now. The central bank gave a final date of 6th July 2018 to stop all kind of Indian Rupee to crypto transactions by freezing the bank accounts of all exchanges in India. Furthermore, the credit card companies had already been told not to allow any crypto related transaction on their credit cards. While various governments have recognized the digital currencies based on their economic environment in their respective country, the taxability concerns are still of great concern.
The Indian Government is waiting for a final verdict from the Supreme Court of India in the second week of September. The Supreme Court had been approached by various business entities as the government restricted their freedom to operate. While it has been widely accepted that cryptocurrencies are not financial instruments, they do carry the financial derivatives in the shape of prepaid notes or contracts of value, though in electronic form. The introduction of smart contracts within the blockchain genre also contributes to this enforceability of the cryptocurrency concept.
Governments feeling the Pressure
There is a need to ensure the validity and legal domain of these smart contracts. In addition, as a new war on ETF and similar products have emerged, the governments are finding themselves in a tight spot. The SEC in the USA would play a lead role in adopting a policy that would be widely looked for and referenced by the global governments. Meanwhile, the Law Commission of India has opined in favor of the Crypto trade, subject to PMLA, with adequate Taxation policy alongside freedom to operate. They do not consider Cryptocurrency as a legal tender. Chances of accepting crypto as a tradable commodity could be one possibility.
Considering the lack of clarity in India, there is bound to be an immediate tax and regulatory issue which will need to be addressed quickly by the government. Let us agree that regulations on digital currencies will defeat their basic purpose of such currencies, being free from any government intervention. However, if somehow the digital currencies can be tracked, the resulting ease of business may surpass the ills being counted.
There is a situation of imminent double standards, on the part of the Government in India. Even with all the restrictive policies and attempts to monitor and control, they are not able to stop this trade. The peer-to-peer trades have flourished and are graduating into foolproof mechanisms to complete the product and payment deliveries, without any infringement of the legal or transactional limitations. At the same time, individuals are expected to declare the profits in their books of accounts and pay due income tax pertaining to respective tax slabs.
While all of the above has been going on, the crypto business in this land of opportunities is thriving in conflicting situations, while at the same time flourishing in adverse circumstances. The Indian community is currently operating on a peer-to-peer model, while crypto-to-crypto trade is flourishing unhindered.
Is crypto-trading in India illegal?
There’s no law prohibiting Indians from crypto trading
Laws are made by the Govt of India
RBI ≠ Govt of India
— WazirX (@WazirXIndia) July 9, 2018
India: What’s to come?
While nothing very dramatic is expected in the near future, the government is likely to find a middle path and add the trade revenue to the tax net, while providing the legitimate cover with regulatory guidelines put in place. This is going to make a huge impact on the Indian economy, considering the crypto activity seen within the country. As a result, there is a beaming ray of light for the cryptocurrency market as a whole.