'India should not lose out on benefits of crypto', say experts after RBI, FM's red-flags

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India should not deprive itself from the benefits of cryptocurrencies, experts said, a couple of days after Union Finance Minister Nirmala Sitharaman reiterated the Reserve Bank of India's apprehensions on the unregulated virtual currencies.

Sitharaman, in a statement issued in the Lok Sabha on July 18, said the RBI is of the view that cryptocurrencies "should be prohibited". The central bank has marked concerns over its potential "destabilising effect" on the monetary and fiscal stability, she added.

The experts and industry players whom Moneycontrol spoke to stressed that despite the regulatory concerns, the government should consider the benefits that can come through the widespread usage of cryptocurrencies.

"What we are saying is that the governments across the world are figuring out how to regulate crypto. Hence while the asset class is being regulated globally, India should not lose out on its benefits," Rajagopal Menon, Vice President at WazirX, said.

"India must take a step to collaborate and understand the best practices so that we do not lose out in the longer term. Developers are working towards a vision of creating the next Facebook and Google in Web3 from India and the government can benefit immensely by helping these entrepreneurs realise their goals," he added.

Menon was of the view that India should take an example of countries that have already regulated the crypto sector and see how they have benefited in job creation, economic growth and empowering entrepreneurs.

According to Mridul Gupta, COO at CoinDCX, cryptocurrencies are "borderless asset" and global regulations would foster "mass adoption".

"2021 has been a landmark year for both the blockchain and crypto industry. We have seen increasing adoption across the board, from institutions as well as retailers. Regulators and policymakers are also starting to pay closer attention to the space, with the view to provide greater clarity and introduce safeguards, all without stifling innovation," Gupta said.

Heavy Tax Rates, TDS 'big blow'

The levy of heavy tax rates, along with TDS, has dealt a major blow to the crypto segment, the experts said.

Under the next taxation rules, proceeds from the sale of cryptocurrency in India now attracts a 30 percent tax. From July 1, an additional 1 per cent TDS is also applicable on the transfer of such assets.

The TDS, combined with the heavy tax rates, resulted in a "big blow to the crypto segment in India", Ashish Anand, Founder & CEO of Bru Finance, claimed.

The adverse effect is reflected in the transaction volume "going down by more than 90 percent in last few months", he said.

Anand, however, added that the unregulated status of cryptos is good for exchanges' operations as they are at a "very nascent stage".

Anand also compared the current stage of cryptos with the MFI sector in the early 2000s or the NBFC segment in the early 1990s, where regulatory arbitrage allowed these financial industries to flourish. The regulations were brought in only after these industries had created a significant presence, he pointed out.