The Indian government doesn’t consider cryptocurrencies legal tender but will adopt the blockchain technology to encourage the digital economy, finance minister Arun Jaitley said on Thursday.
“The government does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system,” he said in his budget speech in parliament.
However, Jaitley said the government will explore the use of the blockchain technology proactively for ushering in a digital economy.
“(A) distributed ledger system or the blockchain technology allows organisation of any chain of records or transactions without the need of intermediaries,” he said.
Jaitley’s comments echo the Reserve Bank of India’s warnings against bitcoins and other cryptocurrencies over the past few months as the value of these currencies soared last year. The government has even equated cryptocurrencies with “Ponzi schemes”, which offer unusually high returns to early investors.
“The remark on cryptocurrency underscores what the RBI has already indicated. Businesses engaged in this will have to evaluate future prospects, but it has always been uncertain how Indian conservative monetary and fiscal policies will view this alternative form of currency,” said Sameer Sah, associate partner at Khaitan & Co.
These currencies, however, have slumped over the past month due to greater regulatory scrutiny in several countries including Japan, China and South Korea. Bitcoin, which had surged past $20,000 in December, has fell to nearly half its level.
Last month, the Indian income-tax department had said that it had sent tax notices to thousands of people dealing in cryptocurrencies after a nationwide survey showed more than $3.5 billion worth of transactions had been conducted over a 17-month period.
Discouraging digital currencies
Jaitley’s budget comments on cryptocurrencies and blockchain drew mixed reactions from the Indian industry.
Some industry executives, including operators of digital currency exchanges, said Jaitley’s statement doesn’t mean trading of cryptocurrencies will be declared illegal and that all it means is cryptocurrencies can't be used to buy a product or pay for a service.
Nischint Sanghavi, head of exchange at coin currency exchange Zebpay, told VCCircle, that the finance minister’s statement is being “misreported” that bitcoin is illegal. “That is not true. We are on board and offer full support to the Government’s effort to eliminate use of crypto assets in illegitimate activities,” he said.
Kartik Shinde, partner of cybersecurity and financial services at EY India, said that the move to not consider cryptocurrencies as legal tender will help eliminate risks related to the use of crypto assets in India. “While the choice to invest in cryptocurrencies will be open to end users, the government is taking proactive measures to curb frauds and illicit transactions,” he said.
Some industry executives said that, cryptocurrencies should be regulated, instead of being banned.
“Rather than restricting cryptocurrencies, they can be regulated to prevent any adverse impact while exploring blockchain side by side,” said DD Mishra, research director at Gartner.
However, some feel that the budget speech is a precursor to oncoming regulations on cryptocurrencies.
“The budget statement clearly indicates the government will now either come out with a legislative mechanism or make suitable amendment in existing legislation to ensure that dealing and trading in cryptocurrency is made illegal and to penalise entities and individuals who are involved in trading and circulation of cryptocurrency,” said Monish Panda, founder, Monish Panda & Associates.
The finance minister's statement to encourage the use of blockchain in the payments space was widely welcomed.
Already, the Indian government’s policy think tank, Niti Aayog, is believed to be testing waters to employ the blockchain technology in education, health and agriculture.
“The government’s commitment to blockchain technology will encourage the promotion of digital payments across the country, thereby making India truly digital,” said Bipin Preet Singh, founder and CEO of wallet firm Mobikwik.
Ajeet Khurana, head of the Blockchain and Cryptocurrency Committee of India, said that the budget speech “was a clear indication of how important and widespread this technological innovation” has become in India.
However, some experts believe the implementation of blockchain will need a revamp in the technology infrastructure. “The intention to adopt blockchain for payments ecosystem or going digital for toll collections shall mean that the existing technology infrastructure shall need to be upgraded,” said Vishal Jain, partner at Deloitte India.
However, Anupam Mittal, founder and CEO at People Group, wasn’t impressed. “The budget has used all the buzzwords like AI, blockchain and cryptocurrencies but the speech was thin on substance in these areas,” he said.