India Stalls Full Crypto Framework, Citing Systemic Risk Fears: Report
India is facing a dilemma when it comes to regulating the cryptocurrency sector. A recent government document reveals that officials are hesitant to introduce a comprehensive crypto law and are instead opting for partial oversight. The Reserve Bank of India (RBI) has expressed concerns about the potential systemic risks associated with integrating digital assets into the mainstream financial system.
The central bank has argued that effective regulation of cryptocurrencies would be challenging in practice. Granting legitimacy to digital assets could also lead to wider adoption, further exacerbating the systemic risks. While an outright ban could mitigate some of the speculative risks, it would not completely eliminate peer-to-peer transfers or activities on decentralized exchanges.
To control crypto activity, India has implemented heavy taxation and compliance requirements. A 30% tax on profits and a 1% tax deducted at source on transactions have significantly reduced domestic trading volumes. Despite these restrictions, global exchanges can operate in India if registered with the Financial Intelligence Unit. For example, Bybit resumed services after paying a hefty penalty for previous violations.
Even with stringent regulations in place, crypto adoption in India remains strong. The government estimates that Indians hold approximately $4.5 billion in digital assets. The limited adoption and strict rules have helped contain the risks to the wider financial system.
Stablecoins have also come under scrutiny in the government document. While designed for price stability, stablecoins are still vulnerable to market shocks. The widespread use of stablecoins could potentially fragment domestic payment systems and undermine India’s Unified Payments Interface (UPI). Additionally, with most stablecoins pegged to the U.S. dollar, their growth could pose challenges to global financial stability.
India is currently taking a cautious approach, tightening oversight without giving digital assets legal recognition that could make them systemic. The Reserve Bank of India remains skeptical about digital assets, but demand persists among Indian investors despite the stringent tax rules in place. Other government entities, such as the Supreme Court, have urged the government to establish clear regulations for the crypto sector.
In parallel, the Central Board of Direct Taxes (CBDT) has raised concerns about existing rules covering derivatives and cross-border trades, as well as the excessive tax burden. Industry leaders, like CoinDCX CEO Sumit Gupta, have called for a parliamentary committee and a dedicated Web3 working group to align India with global innovation.
India has also committed to implementing the OECD’s Crypto-Asset Reporting Framework (CARF) by April 2027. This system will require automatic reporting of crypto transactions worldwide to strengthen compliance and transparency.
The cautious stance taken by India reflects years of uncertainty and shifting signals regarding cryptocurrency regulation. While the government previously drafted a bill to ban private cryptocurrencies in 2021, it never tabled it in parliament. In 2023, during its G20 presidency, India advocated for a global regulatory framework. The following year, it postponed a discussion paper on domestic policy awaiting clarity from the United States, which has since advanced its own position with the GENIUS Act.
Overall, India continues to navigate the complex landscape of cryptocurrency regulation, balancing the need for innovation with concerns about systemic risks and financial stability. The government’s cautious approach underscores the challenges of regulating a rapidly evolving sector while ensuring the protection of investors and the broader economy.
