After Budget’s ‘crypto signal’, India awaits reforms

In the Union Budget speech, Finance Minister Nirmala Sitharaman announced a 30% flat tax rate on any gains arising from the transfer of virtual assets, including cryptocurrencies and non-fungible tokens (NFTs).

But first some background. Cryptocurrency (Crypto) consists of a digital denomination designed to serve as a medium of exchange via a distributed computer network (a blockchain) that any central authority such as a government or a bank can exercise and maintain. does not depend. This announcement by the Finance Minister now leads to the belief that crypto is legal in India.

a sign of optimism

This presentational move effectively reaffirms the role of cryptocurrency and related technologies in India’s financial-cum-economic system as a genuine affirmation. There may be changes in the future that, down the road, legalize and formally legitimize the activities of crypto start-ups and enable them to access the necessary support systems that may not have been available previously. Such a statement also heralds reforms aimed at removing ambiguity among the stakeholders concerned.

Now is the time that crypto hits the country, but like all innovation, this splash must be carefully managed to prevent creative destruction and systemic liabilities. While critics are right to hold that a 30% flat tax rate is a harsh rate, it is a premium and price to be paid in return that effectively outweighs the prospects for a complete ban on crypto by the central government. is out. ,

Additionally, while higher tax rates would inevitably hinder investors’ desire to convert cryptocurrencies to national fiat currencies, this could, in turn, open more doors for technically savvy and innovation-minded investors. The extremely high tax rate and the fact that losses cannot be compensated will prompt investors to turn to alternative means of storing and transacting transactions in cryptocurrencies, which involve significant losses as they return to the rupee.” switch”. An unintentional upside of this is the possible conversion and redistribution of crypto-funds from one form to another.

will help in innovation

Such changes will include DeFi (decentralized finance) activities such as staking, lending and providing liquidity, etc. DeFi (or “decentralized finance”) is an umbrella term for “financial services on a public blockchain. With DeFi, most things backed by a bank can be done – earn interest, borrow, lend, buy insurance, trade derivatives, trade assets, and much more – but it’s fast and doesn’t require paperwork or any third parties. As is usually the case with crypto, DeFi is global, peer-to-peer (ie directly between two people, and is not routed through a centralized system), pseudonymous and open to all. The processes outlined above will spur innovation in the Indian DeFi space; they will help build our crypto-financial ecosystem in the long run Will go a long way in doing that.

More generally, the adoption of cryptocurrencies and virtual assets can enable faster and cheaper transactions than banks and new forms of wealth creation without centralized intermediaries – which are subject to accidental or intentional capture by vested interests. While crypto is yet to become fully mainstream, one can easily see that we are in a phase of transition, as new investors and innovators in the crypto ecosystem stomp their feet to test the waters.

potential concerns

The community of small and medium-sized enterprises (SMEs) and low-end high-net-worth individuals – the community most likely to benefit from decentralized finance – will be the hardest to access the ecosystem given the substantial constraints. Presented by tax rates. Unless radical reforms are made to liberalize the system through positive incentives and infrastructural setup – it is unlikely that the community we are talking about is likely to benefit from the system ( in light of the burdens they will face). Participation will be unlikely for at least a few more years to come.

Additionally, there is a fundamental lack of clarity in aspects other than taxation when it comes to India’s crypto policy at large. While the finer details remain to be seen only after the cryptocurrency bill is passed, there appears to be a push to treat crypto as purely an asset class rather than a currency. The consolation given by the government in the form of the Reserve Bank of India’s CBDC, or Central Bank Digital Currency, would certainly help the adoption of digital currencies, but, equally, defeat the core purpose of cryptocurrency, which is decentralization. As a thriving and dynamic democracy, India deserves an empowered and organized middle class of consumers, investors and crypto-minded citizens to contribute towards a brighter and better political future for all in India. This can affect their citizens’ engagement and economic activities with cryptocurrencies.

corrections are the answer

The solution lies with systemic, genuine reforms. The obvious candidate for such reforms would be lowering tax rates in the future, although this should be weighed against considerations relating to government revenue and the need to curb the speculative bubble that has emerged in relation to currency. While these are by no means short-term risks, they can pose medium to long-term risks, although arguably, the solution here does not lie with taxing crypto entirely, but with introducing more stringent regulations where appropriate. Crypto has potential. Become a source of illegal political money or black money.

exploit other information

The second improvement is the incorporation of insights from experienced partners from the international community; The key should be to rest with these individuals engaging for their insight and advice on best practices associated with cryptocurrency policy making. How can we advance change in financial structures without rocking the socio-political boat? How can we navigate the potential security quagmire and challenges presented by crypto? How can we ensure that our infrastructure is intact and able to meet the needs and demands of crypto consumers? These are questions that only a synthesis (through organic dialogue and collaboration) of domestic and foreign talent can answer.

Systemic reforms are by no means easy, but they are important as an amplifier of the successes that India has already made in the field, and as an accelerator of India’s progress in cryptofinance and blockchain social policy making. are important. There is a better and brighter future for all the parties involved.

Salem Dharanidharan is Executive Coordinator at Dravid Professional Forum and Co-Founder of Oxford Policy Advisory Group. Brian Wong, a Rhodes Scholar and D.Phil candidate for politics at Balliol College, Oxford, is also a co-founder of the Oxford Policy Advisory Group. Bethanwell Kuppusamy is a technology entrepreneur who is building Fantico, a well-known NFT platform