Reserve Bank of India still favors crypto prohibition to curtail tax evasion: Reuters

Indian regulators maintained a hawkish stance despite the growing embrace of digital assets and technology by governments worldwide.

Summary

Indian authorities, led by the Reserve Bank of India, are maintaining a hawkish stance that leans toward prohibiting crypto despite growing global adoption and millions of domestic investors.
The RBI opposes banks’ exposure to crypto and both foreign and rupee-pegged stablecoins, warning of financial contagion risks, loss of seigniorage and stress during market turmoil.
Tax officials noted the underreporting of crypto gains and the difficulty of tracking offshore and peer-to-peer transactions, while policymakers said crypto could worsen capital outflows and India’s external deficit.

Tokenization, stablecoins and strategic reserves. Crypto and blockchain are increasingly being embraced by governments and investment banks worldwide. Indian authorities, however, remain unimpressed, sticking firmly to their years-long opposition.

The Reserve Bank of India is continuing to push for a policy "leaning toward prohibition" and the country’s tax department is fretting over serious compliance gaps, according to government documents reviewed by Reuters .

The position persists despite India having nearly 39 million crypto investors out of a population of almost 1.5 billion, holding roughly $2.1 billion in digital assets as of May.

The RBI has long maintained that banks and financial institutions should be barred from holding, trading, or offering any exposure to crypto assets and privately issued stablecoins to prevent contagion risks to the broader financial system.

The central bank is also averse to rupee-pegged stablecoins, not just dollar-pegged tokens , warning that they could erode seigniorage and create stress points during periods of market turbulence.

CoinDesk reached out to the RBI for comment.

Tax authorities, meanwhile, are concerned about widespread underreporting. In the financial year ended March 2023, fewer than a quarter of the 645,000 individuals who transacted in crypto actually declared those gains on their tax returns.

Transactions executed on offshore exchanges and peer-to-peer platforms, especially those denominated in rupees, remain difficult to track, trace and tax.

Indian crypto investors have been operating in a regulatory grey zone since the Supreme Court struck down the RBI’s 2018 ban. It is neither outright illegal nor clearly regulated. A 2021 draft bill to ban private cryptocurrencies was never presented and policy discussions have been repeatedly delayed.

While the government has spoken of balancing innovation with risk management, the latest internal documents suggest key agencies are still not ready to embrace digital assets.

India’s reluctance can partly be explained by its heavy dependence on energy imports and persistent current account deficits. The fragility of this position was recently exposed when tensions with Iran drove oil prices higher, inflating the energy import bill and pushing the rupee to record lows. Authorities are concerned that widespread crypto adoption could accelerate capital outflows, bypassing traditional banking channels and worsening the external deficit.

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Why it matters :

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