Indian Government Shed Light on Proposed Crypto Regulation
Since leaked information regarding India’s cryptocurrency bill emerged, there have been constant discussions about what it entails. Four different government bodies have been asked about their involvement in the drafting of the bill. South Korea went through a similar situation, causing confusion to the public.
RTIs Filed Seeking Answers
Since local media started reporting on the leaked information of India’s unannounced cryptocurrency bill, numerous discussions have ensued over what it entails.
A number of Right to Information (RTI) applications have been filed regarding the proposed regulation and, so far, four different government bodies have replied. They are from the Department of Economic Affairs (DEA), the Reserve Bank of India (RBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Investor Education and Protection Fund Authority (IEPFA) under the Ministry of Corporate Affairs (MCA).
These RTI applications were filed in response to media reports of a draft bill entitled “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019,” which two major Indian news outlets, The Economic Times and Bloombergquint, reported on. News.Bitcoin.com recently provided a preliminary analysis of the bill’s leaked content.
Background – Who Is Actually Drafting the Bill
The Indian Ministry of Finance has explained several times that an interministerial committee under the chairmanship of Subhash Chandra Garg, Secretary of the Department of Economic Affairs and Finance Secretary, had been constituted with representatives from concerned departments to consider all aspects of cryptocurrency. The committee would then produce a report with recommendations for the country’s regulatory framework for cryptocurrency.
Replying to questions from Lok Sabha on Dec. 28 last year, the Ministry of Finance detailed:
The committee, with representation from Meity [Ministry of Electronics and Information Technology], RBI, SEBI [Securities and Exchange Board of India], and CBDT [Central Board of Direct Taxes] is working to develop a framework for regulating cryptocurrencies.
Suggestions Include Banning and Regulating
The Garg committee received numerous recommendations regarding what should be in the cryptocurrency bill. In the Finance Ministry’s summary report of its key activities for the calendar year 2018, published at the end of March, the ministry revealed:
Various options for treating virtual currencies and crypto assets including banning/ regulating are being examined by the committee.
The Anti-Crypto Camp
The news of the ban recommendation has spread far and wide. One government body in particular, the IEPFA, has been vocal about its anti-crypto views. The Economic Times quoted the IEPFA’s CEO on April 26 as saying: “When it comes to investor protection, the IEPFA has to take a stand against certain things … We think that cryptocurrency is a Ponzi scheme and it should be banned.”
On June 17, local news outlet Coin Crunch India reported that it had received a reply to an RTI application filed with the IEPFA by its founder, Naimish Sanghvi, regarding the department’s plan to ban cryptocurrency. The IEPFA confirmed that “A meeting on this subject was held under the chairmanship of CEO, IEPF Authority on 24.01.2019 with all concerned i.e. Department of Economic Affairs, CBDT, CBIC [Central Board of Indirect Taxes and Customs] and MCA,” adding:
It was unanimously decided in the meeting that Department of Revenue and Department of Economic Affairs may immediately take steps to completely ban sale, purchase and issuance of all forms and types of cryptocurrencies. In the meeting, it was discussed that it has features of Ponzi scheme.
The Economic Times, which reported on this meeting three months after it took place, noted that the MCA raised several crypto-related concerns “in its feedback to the Department of Economic Affairs.” This suggests that the IEPFA’s proposal was among a number of recommendations which the Garg committee received.
The Pro-Crypto Camp
While the alleged Indian crypto ban proposal has received much attention, it was not the only recommendation that the Garg committee considered, as explained in the finance ministry’s summary report.
A number of government departments are in favor of regulating cryptocurrency. For example, policymakers gathered at Blockchain Summit India in February where cryptocurrency regulation was discussed. Among participants were the Department of Science and Technology, the State Government of Uttar Pradesh, the Ministry of Commerce and Industry, the Ministry of Law and Justice, the Ministry of Human Resources Development, and the Department of Information Technology.
“The summit is targeted towards enabling Indian government and ministries to speed up the process of developing a ﬂourished blockchain and cryptocurrency ecosystem,” the summit’s website describes. At the event, policymakers discussed how to “speed up the process of regulating cryptocurrency,” Janina Lowisz, Marketing VP at Cashaa, the event’s fintech partner, told news.Bitcoin.com. An announcement was made at the end of the summit stating that “The regulation is planned to be implemented by end of financial tenure.”
Last week, Indian government-backed educational platform Swayam started listing a course on cryptocurrency and blockchain which was previously offered through the NPTEL website. This 12-week undergraduate course entitled “Blockchain Architecture Design and Use Cases” will run from July 29 to Oct. 18.
RBI Distancing Itself From Ban Proposal
The RBI is part of the Garg committee which drafted the long-awaited Indian cryptocurrency bill, so it is a natural conclusion that the central bank would be informed of any decisions made by the committee. The RBI is currently recognized globally as the sole regulator for crypto assets in India, as outlined by the Financial Stability Board in its report to the G20.
However, in its reply to an RTI application filed by Varun Sethi, founder of Blockchain Lawyer, the central bank claimed that it did not have any knowledge of the aforementioned bill. This RTI reply was received on June 4.
The RBI stated that it did not receive a copy of this draft bill, which The Economic Times claims had been “circulated to relevant government departments,” or any written correspondence from other ministerial departments or the central government officially about this bill. It also never sent out an official communication to other departments on this matter.
Moreover, the RBI said “no” to the question of whether it had conducted an “internal meeting in this matter to discuss, deliberate and decide the plan of action ahead of how to ban cryptocurrencies and regulate official currency bill.”
Sethi proceeded to ask: “Did RBI also endorse to any other government department, the same idea of [a] complete ban on sale, purchase and issuance of all types of cryptocurrencies.” The central bank replied “no.” The bank added that it did not receive “any written communication / copy of such endorsement from any other government department in this matter.”
Regarding the claim made by The Economic Times that “A number of government departments including the Department of Economic Affairs (DEA), Central Board of Direct Taxes (CBDT), Central Board of Indirect Taxes and Customs (CBIC) and the Investor Education and Protection Fund Authority (IEPFA) have endorsed the idea of a complete ban on the ‘sale, purchase and issuance of all types of cryptocurrency,’” the RBI emphasized:
RBI did not receive any communication in this regard from the above mentioned government departments.
The IEPFA did not name the RBI as one of the participants in its January meeting, according to its reply to Sanghvi’s RTI application. This could explain why the central bank denied any knowledge of or involvement in the proposal resulting from the IEPFA meeting.
Two Other RTI Replies
Two other RTI applications were filed regarding the above-mentioned bill. One was a second RTI filed by Sanghvi — this time with the DEA. “On May 20, 2019 DEA rejected the RTI application citing ‘Section 8(1)(i)’ as the reason for rejection,” he shared.
Section 8(1)(i) of The RTI Act 2005 states that “the decisions of the Council of Ministers, the reasons thereof, and the material on the basis of which the decisions were taken shall be made public after the decision has been taken, and the matter is complete, or over … those matters which come under the exemptions specified in this section shall not be disclosed.”
The Economic Times article was clear that the IEPFA submitted its feedback to the DEA. However, as the Ministry of Finance confirmed in its report, there were various options considered by the Garg committee, including banning and regulating.
The other RTI application was filed with the IRDAI by journalist Ashish Bhatnagar. He cited the Bloombergquint article which claims that the government may constitute a separate board to monitor crypto transactions consisting of representatives from various ministries such as the IRDAI, the Pension Fund Regulatory and Development Authority, the RBI, and the SEBI. Bhatnagar asked if the IRDAI had been part of the committee drafting the cryptocurrency regulation. The response he received was “No information available.”
A Lesson From Korea
It is not uncommon for government departments to disagree with one another. A classic example is what happened in South Korea last year when a government department announced, without consulting other departments, a plan to ban cryptocurrency trading and shut down crypto exchanges.
South Korean Justice Minister Park Sang-ki told reporters on Jan. 11 last year that his ministry was “preparing a bill to ban cryptocurrency trading through its exchanges,” many news outlets reported. Following his announcement, over $ 100 billion was wiped off global cryptocurrency markets.
However, Kim Dong-yeon, the South Korean Minister of Economy and Finance and Deputy Prime Minister at the time, told reporters the following day that “The issue of banning exchanges that the justice minister talked about yesterday is a proposal by the Justice Ministry.” On the contrary, he revealed that “discussion was underway on how the government could reasonably regulate cryptocurrency trading,” adding:
A balanced perspective is necessary because blockchain technology has high relevance with many industries such as security and logistics.
The Korean government took the justice minister’s action seriously. President Moon Jae-in quickly issued a statement declaring that Park’s remarks were “not a finalized decision,” which needed to be coordinated with other government ministries.
This matter was scrutinized in the Korean National Assembly many times. In February, Prime Minister Lee Nak-yeon said in the National Assembly:
The closing of [cryptocurrency] exchanges is not a serious consideration … It is one of the many possibilities.
Park soon stated publicly: “I apologize for the confusion.” Lee subsequently pushed for the government to implement a code of conduct to avoid similar problems occurring in the future. “Each agency should take necessary measures, such as supplementing the code of conduct for employees in charge of virtual currency issues,” the prime minister suggested.
Today, more than a year later, South Korea has neither banned cryptocurrency trading nor shut down local crypto exchanges, and the Korean government continues to discuss better crypto regulation.
Influence From Other Countries
The Indian Ministry of Finance also revealed in its summary report that the Department of Revenue had been working with the Financial Action Task Force (FATF) on its guidance on crypto assets. The report reads:
Department of Revenue has been actively involved in the working papers being developed by the FATF on various issues (such as virtual currency, proliferation financing among) which will act as guidance for the member countries.
The FATF is expected to release this new guidance on June 21 at the completion of its plenary week which is going on right now.
Recently, India’s new finance minister, Nirmala Sitharaman, attended the G20 Finance Minister and Central Bank Governors Meeting in Fukuoka, Japan, where crypto regulation was discussed. India, along with other G20 countries, has reaffirmed its support for the FATF’s recommendations.
India will also participate in the G20 summit on June 28-29 in Japan, a country where cryptocurrency is welcome and legal as a means of payment. Japan has legalized 19 crypto exchanges and over 140 companies have expressed interest in market entry, the country’s top financial regulator told news.Bitcoin.com. Recently, big players have entered the space including Yahoo Japan which launched its own crypto exchange and Rakuten, the country’s e-commerce giant.
Time to Make a Difference, Finance Minister Is Listening
While Garg himself has reportedly said that the report containing the recommended crypto regulation is ready to be submitted to the finance minister, a bill has not been introduced or approved. Any draft bill will have to go through many approval steps before it becomes law.
Sitharaman, who succeeded Arun Jaitley, tweeted on June 5:
Grateful for every thought/idea that’s being shared by scholars, economists and enthusiasts through print, electronic, and on social media. I read many of them; also, my team carefully collates them for me. Value every bit. Thanks. Please keep them coming.
The Indian crypto community has been tweeting to Sitharaman and other lawmakers for positive crypto regulation. Nischal Shetty, CEO of local crypto exchange Wazirx, started his “India Wants Crypto” social media campaign about 230 days ago which has been increasingly gaining support from the community. “The objective of this campaign is to be heard by our lawmakers. India needs to be at the forefront of the crypto revolution,” he wrote. Furthermore, a petition has been started on Change.org for the government to accelerate the implementation of the crypto regulation and dispel rumors surrounding the matter. At the time of writing, over 2,300 have signed.
Meanwhile, the Indian supreme court is expected to hear about the report from the Garg committee as well as address the banking restriction by the central bank on July 23. The G20 summit will take place on June 28 and 29 while the FATF is set to release its new guidance for crypto assets on June 21.
How do you think India will finally regulate cryptocurrency? Let us know in the comments section below.
Images courtesy of Shutterstock, the Times, the Japanese government, and the Indian government.
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