In what can be a major disappointment to the Indian crypto community, a law to regulate cryptocurrencies is unlikely to be put in place until at least after next April, several people familiar with the matter told CoinDesk.
The law is still under construction. While the bill titled “The Official Cryptocurrency and Digital Currency Regulation Bill, 2021” was posted on the website of Lok Sabha (Lower House of Parliament of India), it was canceled by the 22nd. in the last days of the session.
Although the government is reported to be “looking to conduct broader consultations on the matter,” CoinDesk has learned that the government is unlikely to close these consultations until the next parliamentary session, commonly known as a budget session.
With only one month to go to the budget meeting, it is highly unlikely that the bill will be presented at least in March, as the Treasury and the institutional actors in charge of drafting the project have different priorities with the Treasury. but they were not allowed to speak to the press.
The development is both a blow to India’s burgeoning crypto ecosystem and an opportunity. The crypto industry has been hungry for cheap regulation, but the delay maintains uncertainty, complicates the processes exchanges are trying to introduce and slows down the process that could lead people in the world’s second-most populous country to adopt. cryptocurrencies. The downside is that the delay gives the industry more time to commit and comply with the government.
The long-awaited bill has been debated and requested by industry stakeholders to help establish a roadmap for financial stability. Uncertainty bottomed out in April 2018 when India’s central bank, the Reserve Bank of India (RBI), prohibited banks from endorsing or engaging in crypto transactions until the Supreme Court lifted the ban two years later. Since then, discussions have been held between government, industry, and political experts on the regulation of cryptocurrencies.
The finance minister informed parliament that “as many things had to come into play quickly, we had started work on a new bill.” The word “cryptocurrency” has reportedly been replaced with “crypto active” in the bill.
The bill would have also gone from banning “all private cryptocurrencies in India” while allowing “certain exemptions to promote the underlying technology of cryptocurrencies and their uses”, to authorizing the “use of cryptocurrencies as an asset, but the prohibition of its use as currency “. or payment. . The violations would reportedly result in an arrest warrant and/or fines imposed by regulators – the RBI and the market regulator, the Securities and Exchange Board of India (SEBI).
The stakes for a favorable outcome for the Indian crypto industry are alarmingly high. India has the largest number of cryptocurrency users in the world, almost four times that of the United States, according to a report.
Several factors contribute to the current legal uncertainty.
The next session of Parliament, which is expected to start at the end of January, is known as a budget session. The finance minister presents the budget. This is the highest priority.
The Ministry of Finance, which is in charge of drafting the cryptocurrency bill, also has fiscal responsibility for drafting the budget. The budget, to be released on February 1, is expected to dominate the department’s resources, leaving little to no time for other priorities.
“During the budget meeting, the Treasury Department puts all the top officials in charge of the sector so that no one does their normal duties,” said Vivan Sharan, a technology and policy expert who has worked with the government in the past.
The budget meeting is expected to last at least until the end of April.
Subhash Garg, a former secretary of the Treasury Department’s economics department, told CoinDesk that he did not see how the ministry could create a budget while working on the cryptocurrency bill.
“It cannot be speculated that the bill will arrive during the July monsoon session. There are much deeper problems. I don’t know if the government is expanding the scope of the bill. It could take longer and maybe it should take longer, ”Garg said.
Past trends in major bills and reports suggest that Prime Minister Narendra Modi will make a final decision on the regulatory framework in the face of conflicting views from stakeholders.
In November 2021, Modi, who reportedly held several rounds of talks on the subject, hinted at a vision for cryptocurrency regulation when he said: “We must also work together to shape global standards for emerging technologies such as media, social networks, and cryptocurrencies. used to strengthen democracy, not to undermine it. ”
However, for the next month, the prime minister’s office will likely be busy drafting the Indian president’s opening speech for the first session of the new year, the budget session.
Politicians will also face competing priorities in the upcoming elections in five states, including possibly the most important elections in Uttar Pradesh, India’s most populous state.
These elections, currently scheduled for February or March, could result in delays in achieving political consensus discussions. This could shorten the budget session of Parliament, as happened in 2021. At that time, “due to demands from the presidents of various political parties in both houses,” the session was shortened “to allow the participation of deputies in the process. electoral”. in certain states / UT. ”
The upcoming elections are likely to divert attention and reduce the cryptocurrency law review time.
Parts of the government are also focused on January 26, 2022, Republic Day, when the country celebrates and celebrates the date of its constitutional entry into force.
The Indian government also seems to want more international input on regulations and frameworks for cryptocurrencies. It has already decided to examine the regulatory measures envisaged by other countries and the development of global standards for cryptocurrencies. The Treasury Department has also contacted the Bank for International Settlements (BIS) to monitor its legislation as it seeks to broaden consultations on the matter.
Signs from the International Monetary Fund (IMF) also suggest a similar approach. On Dec. 9, the IMF underscored the need to start “now” to tackle a “daunting task” and called for “comprehensive, coherent and coordinated” global regulations that provide “rules of the day” to leverage underlying crypto technology and at the same time. time to reduce your risks. ”
IMF chief economist Gita Gopinath called for a cryptocurrency regulation rather than a ban in India earlier this month.
She brings senior government officials there, including Modi. She also met with officials from NITI Aayog, an Indian government think tank on public policy that discussed regulatory frameworks for cryptocurrencies, according to a person who had direct knowledge of the meeting.
The RBI, an essential institutional actor for inquiries and which has expressed its desire for a total ban on all private cryptocurrencies, is also closely monitoring inflationary pressures and the impact of COVID-19 on the economy.
The RBI should also be vigilant in its regulatory and supervisory role in relation to regulated entities such as banks and non-bank financial corporations (NBFCs), as the full impact of COVID-19 on these institutions has yet to be seen. of credit. The great uncertainty that hangs over him is the threat posed by the Omicron variant.
Although the RBI is adequately equipped with specialized departments for these tasks, there is not yet a fintech department, but only a department, so the questions of effectiveness and long-term commitment remain open.
India is caught between the urgent need to regulate cryptocurrencies and the precise formulation of the bill through wide-ranging discussions that take time.
This cheat 22 situation can be seen at the RBI board meeting last week. The board members asked for a presentation on RBI’s position on cryptocurrencies because “the sense of urgency for the different quarter’s increases and therefore the timing of the presentation is not aimless,” said at least one person with experience. The other suggested that the presentation be “part of the comprehensive and comfortable dialogue between the government and the RBI on cryptocurrencies.”
RBI has told its board of directors that it intends to ban all cryptocurrencies, a position that has not changed since its 2018 notice that imposed a similar ban until the Supreme Court of India overturned it last year.
Although the prevailing view at the board meeting was that cryptocurrencies “cannot be ignored” and that “a lot of consideration is required from all parties involved” before regulations can be implemented, two people familiar with the matter said.
“The Indian government is still grappling with several open issues, including capital controls and taxes, arising from the complexity of crypto business models and the technology behind them,” Sharan said.
Widespread consultation is the government’s mantra for the future, and the government tends to pass laws only when there is some kind of national consensus, motivated by stakeholder consensus. Five experts, who spoke to CoinDesk separately, agree with the three sources who said that the crypto law could last until at least May.
“I don’t see the government introducing the bill in parliament without first seeking public comment,” said Rashmi Deshpande, a legal expert who has worked with crypto advocates and issued opinions. on his behalf to the government.
“Remember that the Supreme Court ruling removed RBI for failing to consult with stakeholders before banning banks from offering cryptocurrency exchange services,” Deshpande said.
This would follow a greater balance between the reach of cryptocurrencies and global trends and a design around cryptocurrencies. It would also correspond to the geopolitical development of a new world order with an expansionist China.
India faces a number of international security threats affecting not only Pakistan but also increasing tensions with China. So the concern is whether the cryptocurrency path can be used to raise more international security concerns.
India is also concerned that a Chinese digital yuan could pose an economic threat to India’s own CBDC (central bank digital currency). China’s concern is that India has missed the artificial intelligence bus and may miss out on a digital revolution that cryptocurrency could deliver.
India’s regulatory framework aims to counter the growing conflicts over cryptocurrencies and their potential militarization.