India, with its population of 1.2 billion, growing internet penetration, and the presence of several major financial institutions, make it one of the most potentially lucrative markets for the wider fintech sector. However, when it comes to cryptocurrency and blockchain specifically, things are a little hazy.
As far as regulation is concerned, the current state of play is sending mixed signals. The government has flirted with using blockchain technology but with Bitcoin (BTC/USD) and other digital coins, it’s a bit misty.
Most recently a lawyer in Kolkata, the capital of the fourth most populous state West Bengal, filed public interest litigation with the high court seeking clarification on laws surrounding Bitcoin and demanding the introduction of tighter laws, citing cryptocurrencies’ use on the dark web for the purchase of drugs and for money laundering.
Kolkata’s Narcotics Control Bureau last month busted two people for purchasing drugs on the dark web using Bitcoin. The case flung cryptocurrency and illegal activity back into the limelight. The lawyer that filed the litigation, Bivas Chatterjee, wants the local and federal government to introduce better regulation to counteract this.
India’s central government established a committee early last year to consider and devise regulations for the crypto space. Similarly this past November, the Supreme Court requested that the central government and the Reserve Bank of India take a position on regulation, however, these efforts have yet to yield anything solid. Chatterjee said there is an “urgent need” for regulations.
It’s not just lawyers and courts that want the government to take a firm view but also exchanges. The same week as Chatterjee’s filing, several Indian-based Bitcoin exchanges (including Zebpay, CoinSecure, and BtcxIndia) called on the Advance Authority of Ruling (AAR) for clarification on taxation.
AAR is the agency that oversees tax rates, who has to pay what, and how much. The exchanges are looking for confirmation on whether or not they have to pay goods and services tax (GST). The tax authorities “must give clarity on whether Bitcoin exchanges are selling goods and services, or are mere trading platforms that earn margins,” explained one lawyer.
Exchanges were however queried last year on whether their users were paying income tax. The country’s tax department visited a number of exchanges demanding information on users, including bank account data and transaction history. This created more confusion though, the lack of clear guidelines on cryptocurrency-related taxes has left the exchanges with even more questions as to which tax laws apply to them and which don’t.
On the flip side, the finance minister Arun Jaitley has been quoted as saying: “The government’s position is clear, we don’t recognize this as legal currency as of now.”
The ministry even issued a note at the end of December likening cryptocurrencies to a Ponzi scheme: “There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money.”
Despite this unclear picture, the government has shown some interest in using cryptocurrency to create a digital version of its fiat currency, the rupee. So while it appears the government will remain skeptical, or at best indecisive, on Bitcoin and others, it is looking at the technology in some way. The government, under the helm of prime minister Narendra Modi, is running the Digital India program, an initiative to digitize many areas of India’s economy and society. Blockchain, the technology underpinning Bitcoin, and its rival coins, has factored into that initiative.
Similarly, one of the government’s agencies has looked at how blockchain can help in securing digital verification processes. This is particularly pertinent of late given the recent security and hacking concerns raised over Aadhaar, the government’s centrally run ID system for citizens. Aadhaar holds a significant amount of personal information on Indians but its security is regularly under scrutiny for being supposedly lax or not going far enough.
There may be no moves by India to use blockchain with the Aadhaar, however, this agency called the Niti Aayog, responsible for policymaking, is looking at using blockchain in the public sector, such as in health and education. It is readying at least one proof of concept, according to reports, following a successful hackathon held by the agency.
“[Blockchain] is a safe system for document verification and hence can be adopted in sectors like education, health and agriculture,” claimed one official.
It may take one agency to advocate for the use of blockchain to begin a gradual sea change in how the government views the tech and cryptocurrencies. As for using Bitcoin in India? You’ll need to be wary of the mixed message on regulations for the time being at least.