India’s cautious stance on cryptocurrencies may evolve soon. In April 2018, the central bank barred lenders and financial intermediaries from dealing with crypto exchanges or users.
The Supreme Court overturned that ban in 2020. Now, officials are drafting a discussion paper due in July to explore crypto’s benefits and risks, with special attention on stablecoins.
Historical Context
The 2018 ban aimed to protect consumers and the banking system. It forced many Indian crypto platforms to halt operations. Traders and exchanges challenged the rule in the Supreme Court.
In March 2020, the court struck down the ban, calling it disproportionate. Since then, the government has not set clear rules, leaving investors uncertain.
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Draft Discussion Paper
Officials in the Department of Economic Affairs are leading a working group on crypto policy. Its first draft is expected in July. Sources say the paper will list use cases for different tokens without making firm rules.
It will draw lessons from U.S. legislation and suggest varied treatments for Bitcoin, stablecoins and other assets. One option under review is whether stablecoins should be regulated as part of global payments.
The paper will outline where cryptocurrencies can add value. Stablecoins may speed up cross-border payments and lower costs. India receives $130 billion in remittances each year.
At current fees of $3 to $5 billion, even a shift to stablecoins could cut costs to $0.3 to $0.5 billion. Real-time transfers similar to UPI could boost remittance flows to $200 billion, according to Edul Patel, co-founder of Mudrex crypto exchange.
Tax Notices and Market Oversight
The Central Board of Direct Taxes has begun sending notices to thousands of people who traded on unregistered platforms or peer-to-peer wallets. The move marks the government’s effort to enforce tax rules on crypto gains. This action comes as India lacks a formal crypto law but aims to ensure that traders report income properly.
The Supreme Court questioned the government about its slow pace in framing crypto rules. The justices warned that without supervision, digital assets like Bitcoin face misuse.
They urged authorities to speed up the process and issue clear guidelines soon. The court’s remarks add pressure on policymakers to move quickly.
Neutral Tone and Future Steps
Sources say the discussion paper will remain neutral. It will start conversations with industry experts, academics and the public. The paper is only the first of several drafts.
Officials expect two to three more versions before any rules take shape. Broad consultations will help identify risks and opportunities before adopting regulations.
India’s draft paper on cryptocurrencies signals a shift from ban to cautious engagement. By focusing on stablecoins and use cases such as remittances, authorities aim to balance innovation with consumer protection.
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