Indian Finance Minister Nirmala Sitharaman has explained why the Finance Ministry has not followed the same course as the Reserve Bank of India (RBI) in its approach to the digital asset market.
She provided this clarification in a written reply to parliament to answer five questions raised by Shri Thirumaavalavan Thol, a member of the lower house, the Lok Sabha. The House member asked whether the RBI had given specific instructions or recommended regulatory frameworks for digital assets and whether the government had similar or contrary plans.
Sitharaman noted that the RBI has issued several notices warning digital asset investors. The central bank also in 2018 banned banks from facilitating transactions related to digital assets, but the ban was lifted by the Supreme Court in 2020, she added.
She added that the Ministry of Finance agrees with the central bank that digital assets are not considered money. This is for several reasons, including that they only have value as speculative assets and are not backed by any government.
Regardless of this split opinion, the Ministry of Finance does not support the RBI’s persistent recommendation to ban digital assets. Indeed, a decision to prohibit or regulate digital assets will only be effective if there is international collaboration due to their borderless nature.
“Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any regulation or prohibition legislation can only be effective after meaningful international collaboration on risk-benefit assessment and evolution of common taxonomy and standards,” she said. .
India’s indecision affects the digital asset market
Currently, both entities have continued to implement enhanced digital asset regulations. The RBI has tightened digital asset KYC and AML/CFT requirements for regulated entities to ensure that digital asset businesses are not served while leaving the prospect of a ban hanging over the market.
Similarly, the Ministry of Finance recently introduced a 30% unrealized gains tax and a 1% TDS regime which has wreaked havoc on the Indian digital asset market. According to reports, the government is also considering a 28% GST tax, while failing to provide proper legal recognition for digital assets.
Notably, this indecision has forced investment in India’s digital asset sector to slow. A recent study by PwC shows that funding for digital asset startups in India fell by 40% in the second quarter of 2022, falling to $6.8 billion.
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