Key facts
- The Reserve Bank of India (RBI) is pushing for a policy that leans toward prohibiting cryptocurrencies.
- Indian tax authorities are concerned about widespread underreporting of crypto gains.
- Transactions on offshore and peer-to-peer platforms are difficult to track and tax.
- The RBI has long argued that banks should be barred from crypto exposure to prevent financial contagion.
- Authorities worry that widespread crypto adoption could accelerate capital outflows and worsen the external deficit.
The Reserve Bank of India (RBI) continues to advocate for a prohibition on cryptocurrencies, citing concerns over tax evasion, financial contagion, and potential capital outflows, according to Reuters. Despite a growing number of domestic investors and global adoption, Indian authorities remain hesitant to embrace digital assets.
Internal government documents reviewed by Reuters indicate that the RBI is pushing for a policy that leans toward prohibition. The country's tax department is particularly worried about compliance gaps, noting that in the financial year ended March 2023, fewer than a quarter of the 645,000 individuals who transacted in crypto declared their gains. Transactions on offshore exchanges and peer-to-peer platforms, especially those denominated in rupees, are proving difficult to track, trace, and tax.
The RBI has long argued that banks and financial institutions should be barred from holding or trading crypto assets and privately issued stablecoins to prevent contagion risks to the broader financial system. The central bank is also wary of rupee-pegged stablecoins, warning they could erode seigniorage and create stress during market turbulence.
Indian crypto investors, numbering around 39 million and holding approximately $2.1 billion in digital assets as of May, have been operating in a regulatory grey zone since the Supreme Court overturned the RBI's 2018 ban. A 2021 draft bill to ban private cryptocurrencies was never presented, and policy discussions have been repeatedly delayed.
Authorities are also concerned that widespread crypto adoption could accelerate capital outflows, potentially worsening India's external deficit, especially given the country's reliance on energy imports and its persistent current account deficits.