How smart policymaking can help India fulfill it’s trillion dollar ambitions
PremiumIn this article, Sumit Gupta, CEO & Co-Founder of CoinDCX talks about how crypto and blockchain are still nascent industries in India, and greater development and innovation can only happen with continued dialogue between policymakers and the industry. Read on to know more!
India has always had an ambivalent relationship with cryptocurrency over the years. Despite its bumpy journey towards acceptance, we have seen signs that the government and policymakers are warming up to the promise of digital assets in recent months. However, the growth of blockchain technology and its myriad use cases far outpace the evolution of our policies, and it is clear India needs to recalibrate its approach to crypto policymaking – redefining the use of regulations to promote innovation, as opposed to functioning as pure guardrails – to unleash the full potential of blockchain.
Case in point, while the Indian government has given crypto a tacit nod of approval, recognising them as virtual digital assets (VDAs) taxing crypto related transactions at 30 percent, the taxation on digital assets is still significantly higher as compared to developed economies with flourishing crypto ecosystems. In this regard, policymakers need to look at how this high tax rate may lead to unintended consequences such as capital flights and a major barrier to encouraging adoption and innovation. Furthermore, as investors try to make sense of how their digital assets fit into their overall wealth management strategy, more clarity can be provided to them with regard to tax deductible at source (TDS), and the tax is applied and deducted in crypto-to-crypto trades.
That being said, crypto and blockchain are still nascent industries in India, and greater development and innovation can only happen with continued dialogue between policymakers and the industry. The government’s stance towards crypto is encouraging, and the way forward involves greater transparency and smart policymaking that will turn India’s crypto and blockchain ecosystem into one that is legitimate, credible and respected internationally.
Taxation: A Double-Edged Sword
Crypto’s phenomenal growth last year has given retail investors and small businesses greater wherewithal when it comes to trading and fundraising, this has encouraged the growth of a vibrant micro business ecosystem. Just like any other new business, fledgling businesses and crypto startups require supportive and pro-business legislation to foster a conducive environment for growth. While many of these small businesses welcome the government’s tacit acknowledgement of crypto, the newly introduced tax on digital assets comes with limitations that prevent crypto trading businesses from setting off or carrying forward losses to offset a profit. For these fast-growing and ambitious companies, this can determine their survivability in a hyper-competitive global market, thereby impeding the development of India’s blockchain and crypto sector more broadly.
The onerous rules may even motivate illicit ways to evade tax and could act as a deterrent for crypto companies to establish a base in India in order to avoid the country’s high tax. These unintended consequences may see India lose out to neighboring crypto-friendly countries with more favorable regulations. Countries like Dubai, Singapore and Thailand are attracting significant inflows of capital, talent and technology because of their pro-innovation policies, and their gains are often at the expense of countries like India, with our ready pool of world-class tech talents and entrepreneurs.
This is a critical issue for India to address, and to ensure our country maintains the strength and vigor of our tech sector, it is necessary for policymakers to look at the crypto tax holistically, understanding its far reaching impact on our tech industry. To this end, it is ideal, and even necessary to tax crypto fairly, aligned to how we tax other forms of assets in the country. By doing so, crypto in India would have a level playing field and a fighting chance to thrive internationally.
Realizing India’s Potential to be Crypto Capital of the World
India has always had a vibrant and thriving tech sector, bringing in over US$227 billion in revenue in the recent financial year. The country also proffers a burgeoning startup landscape and stands as the third-largest startup ecosystem in the world with 14,000 new startups established between 2021 to now. As a hotbed for tech innovation, India has all the ingredients to become the crypto capital of the world.
Even in the uncertainty of regulatory pushbacks and threats of bans, India saw the inception of two crypto unicorns in 2021—with CoinDCX leading the pack to become the first in the nation to surpass the valuation of US$1 billion. Funding in India’s booming crypto sector is also fast accelerating, crossing over half a billion in investments last year. With India’s crypto ecosystem slated to grow to US$241 million by 2030, adding more than 800,000 jobs, it is a prominent and influential sector that cannot be overlooked. Especially as the country sets its sights on becoming a US$5 trillion economy and a global economic powerhouse by 2025, the digital asset sector would play a strong driving force behind powering India towards its ambitions.
Crypto’s Promising Start in India Must Not Be Squandered
While the road ahead for India’s crypto industry is a promising one, a critical hurdle is the information asymmetry in the understanding of the technology, with policymakers as well as the general public. To this end, DCX Learn was launched to make crypto and blockchain education more accessible to the public, fostering greater understanding and bridging the gap between innovators, users and policymakers. We have seen promising results so far, and the growing discourse and sophistication of discussions around digital assets in India bodes well for crypto and blockchain technology in India.
Looking ahead, a crypto bill with more concrete policies to support the industry would be paramount to establishing a stronger ecosystem and promoting greater tech innovation. The crypto industry is inching towards becoming a regulated industry therefore, a close relationship between regulators and the sector would establish a safe and secure ecosystem fit for innovation and progress.
With the speed that the crypto industry is developing, India needs to be a step ahead of the competition. Only with more clarity and open dialogues between regulators and innovators can India’s crypto industry rise and serve as a lynchpin to India’s economic ambitions.
This article is authored by Sumit Gupta, CEO & Co-Founder of CoinDCX
