The Indian government, including the finance ministry and the Reserve Bank of India, is leaning against passing a law to fully regulate cryptocurrencies, a government document prepared this month shows, Reuters reported.
The stance, taken in India, reflects a worry that formally recognising crypto could give the market legitimacy and push it toward becoming a systemic risk and take over the country’s UPI system.
Instead of a full legal framework, officials plan to keep partial oversight and rely on existing rules and taxes to limit risks.
Government leans away from full regulation
A recent government note says regulating cryptocurrencies would give them a form of legitimacy. That, the paper warns, might let the sector grow into something that could affect the wider financial system.
The note quotes the RBI as saying that, in practice, controlling crypto risks through regulation would be hard. At the same time, the document argues that an outright ban would not stop peer-to-peer trades or activity on decentralised exchanges.
Regulatory tradeoffs and practical limits
The paper sets out a clear choice, that full regulation could make crypto seem mainstream. That could encourage more people and more money to flow into the market.
A ban could slow speculative trading but would not stop onchain transfers or offshore platforms. Officials say the current mix of rules, taxes, and oversight helps limit risk to the formal financial system for now.
Global context shapes thinking
The government notes that countries vary in their approach, and the United States has moved toward clearer rules for stablecoins and wider crypto use, while China remains broadly hostile to private crypto but is exploring a central bank digital currency.
Other markets, such as Japan and Australia, are building regulatory frameworks, but do so with caution. India’s leaders say the lack of a single global model makes it hard to choose one path.
The current Indian regime remains limited
Right now, crypto platforms can operate in India if they register locally and meet anti-money-laundering checks. The government has also applied heavy taxes on crypto gains.
These steps have kept a formal link between crypto and the banking system limited. The RBI has repeatedly warned about crypto risks, and those warnings have helped cool ties between banks and crypto firms.
Market size and tax take
The document says Indians hold about $4.5 billion in various cryptocurrencies. That amount is not seen as large enough to threaten financial stability at present. Still, the government has collected significant tax revenue from crypto.
Taxpayers paid about Rs 705 crore, roughly $80M, for the financial years 2022-23 and 2023-24 after a 30% levy on profits under section 115BBH of the Income Tax Act.
Past efforts and future steps
India drafted a bill in 2021 that would have banned private cryptocurrencies, but did not move the measure forward. During its G20 presidency in 2023, India pushed for global coordination on crypto rules.
Plans to publish a discussion paper in 2024 were delayed, with officials saying they would wait for clearer action in the United States before setting their own next steps.
Enforcement and limits of a ban
The document highlights a key reality, that a ban can target onshore exchanges and local platforms. But it cannot fully stop decentralised trades or cross-border transfers.
That gap limits how effective a ban would be at protecting users or the financial system.
For now, the mix of registration rules and heavy taxes acts as a brake on speculative trading. It also keeps many crypto activities outside the formal banking system.
Platforms that meet local checks can still run, but the overall environment remains cautious and uncertain for investors and firms.
Parliamentary note and officials’ silence
The finance ministry and the RBI did not immediately respond to requests for comment on the document. Lawmakers were told that virtual digital assets and cryptocurrencies are not regulated under current Indian law.
Officials have also flagged steps taken against illegal offshore exchanges in response to parliamentary questions.
India’s more cautious path reflects a decision to curb systemic risk without trying to fold crypto into the core financial system. The approach leaves room for targeted controls and taxes while avoiding the broad legal recognition that could spur rapid growth.
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