India gears up for sweeping crypto regulations with new consultation paper

The Indian government is preparing to introduce comprehensive regulations for the crypto sector, local media reported on Aug. 22.

Sources familiar with the matter said the first step of the plan is to release a consultation paper in the coming weeks that will invite feedback from stakeholders. The initiative highlights the government’s commitment to establishing a regulatory framework for digital currencies in India.

The development follows Finance Minister Nirmala Sitharaman’s statement in October 2023, where she emphasized that G20 nations had reached a consensus on the need for unified crypto regulation.

Sitharaman stated at the time:

“Globally, there is now an understanding that we must coordinate our regulatory approaches to cryptocurrencies. However, each country will also need to tailor these regulations to fit their specific legislative environments.”

Consultation paper

A panel led by the Secretary of the Department of Economic Affairs (DEA) is spearheading the effort to draft the consultation paper, which is expected to be published between September and October.

The paper is expected to cover various aspects of crypto regulation, including identifying responsible regulatory bodies, outlining the necessary components of a regulatory framework, and proposing a timeline for implementation.

The initiative is part of India’s broader strategy to mitigate the risks associated with cryptocurrencies, particularly in emerging economies where financial stability concerns are heightened.

In September 2023, Economic Affairs Secretary Ajay Seth indicated that the G20 discussions had laid the groundwork for national-level policies. He acknowledged the significant risks that cryptocurrencies pose, especially in developing markets, and stressed the importance of building robust regulatory mechanisms.

Preliminary steps

India has already taken preliminary steps toward regulating the sector and established new registration requirements for crypto firms looking to operate in the country.

In 2023, the government banned nine offshore crypto platforms, including Binance, for violating the 2002 Prevention of Money Laundering Act (PMLA). The exchange recently re-entered the Indian market after successfully complying with the new registration requirements set by the Financial Intelligence Unit.

Crypto usage in India has seen significant growth despite regulatory uncertainties and a stringent tax environment. As of 2024, an estimated 115 million Indians are involved in crypto investments, which constitutes about 15% of the population aged 18 to 60.

This makes India one of the largest markets for digital assets globally. Young investors, particularly those under 30, are driving this growth, with many viewing digital assets as a long-term investment opportunity.