In the wake of India’s general elections, Prime Minister Narendra Modi’s coalition has clinched a majority in parliament, albeit with a fractured mandate. This unexpected result has reverberated across the financial landscape, causing the Sensex to plummet by over 4,500 points in a single day, leading to substantial losses for investors. As Modi gears up for his third term, the Indian crypto community, which had been closely monitoring the political developments, remains cautiously silent. Investors are hopeful that the new cabinet will rekindle discussions around crypto regulations in India under Modi 3.0.
India currently imposes one of the highest tax rates on crypto gains, with a 30% levy. This stringent stance has been a source of frustration for the domestic crypto community, as the government and central bank have maintained a skeptical view towards cryptocurrencies. Despite this, the Indian government has shown a positive attitude towards blockchain technology and overall Web3 infrastructure, recognizing their potential in governance and regulated private sector businesses.
The country’s apex public policy think tank, NITI Aayog, has been conducting pilot projects utilizing blockchain technology since 2019. These projects span various fields, including pharmaceutical and fertilizer logistics, land records, and university certificate records. In 2021, the Ministry of Electronics and Information Technology (MeitY) released a white paper outlining India’s strategy for blockchain development in the coming years. This backdrop raises the question of whether the new coalition government will soften its stance on cryptocurrencies and what vision it holds for Web3 development in India.
One notable change in this election is that Modi did not secure a strong mandate as in the previous two general elections, where his Bharatiya Janata Party (BJP) had emerged as the single largest majority party. The current scenario means the Modi government will now rely more on coalition partners for passing bills and making significant policy decisions. There is also speculation that the new cabinet may see a new finance minister, replacing the current minister, Nirmala Sitharaman, who has been critical of cryptocurrencies.
While strong-mandate governments are often seen as more capable of making major policy decisions, a fractured mandate involving coalition parties could create opportunities for political negotiation and liaisoning. This could potentially benefit the crypto community in India if it leads to more liberal regulatory policies.
To understand the journey of cryptocurrencies and Web3 development in India over the past five years and to anticipate what might be expected in Modi’s third term, it’s essential to look back at key developments. In 2019, an inter-ministerial committee set up by the Modi government proposed a blanket ban on private cryptocurrencies in India, suggesting penalties for any citizen engaging in crypto activities. This proposal, known as the “Banning of Cryptocurrency and Regulation of Official Digital Currency” bill, praised decentralized ledger technology (DLT) or blockchain for its potential applications in banking, insurance, and other sectors to enhance transparency and efficiency. The committee also encouraged the development of a centralized digital currency.
Although the Indian parliament did not implement the proposed ban, it introduced a 30% tax and 1% tax deducted at source (TDS) on crypto gains. The Reserve Bank of India (RBI) also issued a directive preventing all regulated banks from dealing in cryptocurrencies, citing concerns over consumer protection, market integrity, and money laundering. This move led to a significant outflow of crypto investors from the country.
Despite the regulatory hurdles, the Indian government has continued to explore blockchain technology for its governance applications. The Ministry of Corporate Affairs (MCA) has described cryptocurrency as operating on false inducements of massive returns, likening it to Ponzi schemes. Meanwhile, Finance Minister Nirmala Sitharaman has stated that while crypto assets can be traded, the government has not regulated them and does not plan to change this stance immediately.
Experts believe that despite its skepticism towards cryptocurrencies, the government has been supportive of overall Web3 development. Blockchain technology is seen as a solution to governance issues like corruption, high operational costs, inefficiency, and lack of transparency. The government is investing in Web3 infrastructure, with blockchain being adopted even in tier 3 towns and villages in India. Abhishek Singh, co-founder and CEO of SecureDApp, emphasizes that Web3’s decentralized nature empowers individuals, fostering a more equitable digital landscape regardless of who is in power. He believes the new government will likely build regulations supporting its adoption, given Web3’s rapid growth and potential for economic and societal impact.
Crypto enthusiasts in India have been advocating for several reforms, including reducing the TDS from 1% to 0.01%, reevaluating the taxation on virtual assets, providing clarity on the regulatory framework, and creating special economic zones to foster Web3 growth. However, there is no mainstream political party or politician currently championing their concerns. Even if the newly elected government introduces radical policy decisions, crypto is unlikely to be an immediate priority based on past performance.
Nonetheless, the fractured mandate allows room for debate over existing laws and regulations. The Indian crypto community is hopeful that their concerns will eventually be heard by political parties, potentially leading to more favorable regulatory policies. The coming days will be crucial in determining how the new government approaches the complex and evolving landscape of cryptocurrencies and Web3 development in India.
