India has held a long standing position of not being keen to work with virtual currencies. The central bank of India, RBI has categorically stated that banks will never provide services to individuals and businesses that are dealing with Bitcoin or settling in virtual currencies. Even though earlier in April, the RBI had set up a regulatory sandbox for fintechs that may include blockchain startups and tools but explicitly excludes any crypto-related projects such as cryptocurrency or crypto asset services; crypto trading, investing or settling; or initial coin offerings, as well as a few more traditional financial services. The central bank is looking for projects related to smart contracts, which retail payments, money transfer services, digital identity, mobile payments and financial inclusion that is listed as a form of “innovative technology” that may fall within the sandbox’s parameters. RBI has long looked down on cryptocurrency projects, banning Indian banks from conducting any business with crypto startups after issuing numerous warnings against such activity.
The uncertainty looming above the regulations of virtual currency in India have been accelerated after reports of draft legislation, “Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019” as stated in the Economic Times.
The bill proposes a 10-year prison sentence for those individuals found mining, generating, selling, holding, transferring, disposing of, dealing with or issuing cryptocurrencies. The draft law which has been in the works for a while now also proposes to make holding cryptocurrencies a non-bailable offense which essentially marks the end of hopes that the newly elected government would change its long-standing anti-cryptocurrency stance.
Given the high chances of cryptocurrencies being misused for money laundering, various government bodies such as the Income Tax Department and the Central Board of Indirect Taxes and Customs (CBIC) appear to be endorsing the blanket ban on cryptocurrencies. The draft also suggests the government working on an official digital currency for India called ‘Digital Rupee’.
Last month, Facebook unveiled plans for Libra. When it launches in 2020 or later, it will be a stablecoin — a digital currency that doesn’t fluctuate much because it’s supported by established government-backed currencies and securities. “Design of the Facebook currency has not been fully explained,” Economic Affairs Secretary Subhash Garg said in an interview in New Delhi. “But whatever it is, it would be a private cryptocurrency and that’s not something we have been comfortable with”. Just as the top government official expressed skepticism about its newly announced cryptocurrency Libra or Calibra, a Facebook spokesperson has effectively ruled out it’s rolling in their largest market where the networking giant is already preparing for a countrywide rollout of its Whatsapp Payment services. “Calibra will respect the legislation, but we are looking to see if the legislation can be updated,” said Alexandru Voica, a Facebook representative in London.
This hostile stand by the government has dug the grave of several startups such as Zebpay or Koinex exchange citing RBI restrictions. Even though the banking ban has been challenged in the Supreme Court, lack of clear direction has made it impractical and economically infeasible for various startups and investors in cryptocurrencies to take a plunge into it. Both the government and the central bank have virtually outlawed cryptocurrencies after it barred banks from dealing in them. While the Reserve Bank of India has placed restrictions, the government is drafting a law with stringent penalties on their use.