Why does India want to ban cryptocurrency?
2021 has been a great year for digital currencies with more mainstream acceptance. Large corporations like Tesla, Goldman Sachs, PayPal, Visa are actively taking interest in it. During the pandemic, significant acceptance was seen around the world. With such dramatic price gains this year, cryptocurrency is here to stay.
Current situation of cryptocurrency in India
On the other hand, India has held on to the virtual ban on all cryptocurrencies, directing all closure of virtual currency dealings. The Indian Government and the RBI team are working on launching its digital currency and fully impose a ban on private digital currencies.
Cryptocurrency exchanges are on the verge of shutting down with no backing from Indian banks for crypto transactions even after the Supreme court had struck down the ban in 2020, removing the curbs imposed by the RBI.
“I request banks in India to update their compliance teams about the Supreme Court ruling that set aside the RBI circular against crypto,” Nischal Shetty, the chief executive of Wazirx wrote on Twitter. “It’s not fair that the crypto industry has a clear go-ahead from the Supreme Court of India and yet banks deny banking to the industry.”
Government is in discussions with stakeholders to give a 3-6-month exit period after which trading, mining, and issuing of cryptocurrencies will be banned completely.
Why cryptocurrency banned in India?
After cryptocurrency became mainstream in the year 2013, startups like Unocoin, Zebpay started dealing with it. Though the Indian government never introduced official regulation, they made it clear that they have not authorized any entity to deal with digital assets.
From 2014 to 2016, many crypto-startup started emerging, crypto exchanges were established and many industry experts were positive about this development in the crypto world.
In a sudden turn of events, India virtually bans crypto trading in 2018 after an investigation over the industry and directs banks to stop conducting operations with businesses dealing with digital currency.
In the year 2019, the Government of India proposed a draft bill banning firms dealing with cryptocurrencies. The draft suggests a 10-year jail term for mining, holding, selling, transferring, or any dealing in cryptocurrencies. They cited the reason that it could be used for money laundering and terror activities.
The Indian government also fears the tax invasion, since digital currencies are impossible to track due to their anonymity. Some of the cryptocurrencies help users to conceal their data and transactions, so hiding earnings from the tax authorities will be easier.
Who will be most affected?
According to sources, Indian investors collectively hold around 10,000 crores worth of cryptocurrencies, as of 2021. If banned, investors and customers who invested in it will be most affected. But government assured investors a window period of 3-6 months to liquidate after which they will be penalized.
Why banning digital assets is bad?
A complete ban on private digital currencies would be a bad move since it would have contributed to India's GDP. Indian firms would face arbitrary raids making them impossible to compete globally and will lose out on the opportunity from capitalizing in this emerging market.
Many legal experts expressed their concerns over the bill to bank digital currencies. The Delhi-based law firm, Ikigai says, “A bank will deprive India, its entrepreneurs and citizens of a transformative technology—as foundational as the internet itself—that is being rapidly adopted across the world, including by some of the largest enterprises such as Tesla and MasterCard.”
In 2018, Russia legitimized cryptocurrency through a draft law making it a digital financial asset and not legal tender. The law states this move would lessen fraud, black market activities and bring transparency to the system.
A ban could also stop the progress of many Blockchain start-ups and their investors to shut down operations and move abroad. Loss of Employment is another concern, with over 300+ startup firms generating thousands of jobs and millions in revenue and taxes.
The ban would have a direct effect on Indian economic development, halting related businesses, and cryptocurrency prices might suffer a big fall globally.
Instead of banning cryptocurrency and imposing penalties on entities dealing with it, the government should promote dialogue and bring changes in financial transactions in accordance with the changing world.
CBW - External Analyst