India Today In-depth: Ahead of the G20 Summit, experts see India as a driver in crypto regulation

Amid the chaos of regulation globally, the global crypto market is breathing bearly as Bitcoin has plunged over 70 percent from its November 2021 peak of $69,000. Now, policymakers and industry experts are eyeing the upcoming G20 Summit (Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union) in November 2022, to talk about crypto regulation. Notably, in July 2022, the Financial Stability Board (FSB) of G20 released a statement pointing out that it is working on robust global regulations for crypto-assets. The FSB further commented that the said rules will be proposed by October this year.

The FSB is working to ensure that crypto-assets are subject to robust regulation and supervision. The FSB will report to the G20 Finance Ministers and Central Bank Governors in October on regulatory and supervisory approaches to stablecoins and other crypto-assets, the FSB said in a statement.

Is this an opportunity for India?

In July 2022, the finance minister of India, Nirmala Sitharaman, called on the G20 countries to bring crypto within the Automatic Exchange of Information framework. Interestingly, over 100 countries have adopted the Common Reporting Standard under the framework.

Member of Parliament, Priyanka Chaturvedi, while speaking to India Today, said she believes that this should be part of the debate in the G20 discussion. “Our Prime Minister and Finance Minister are continually talking about the collation of like-minded people who create a framework to share the information. As Web3 is an emerging technology, its existence cannot be denied. DeFi (Decentralised Finance) should not be denied. Also, it will create a broader regulatory framework, and G20 is the right platform to begin this discussion,” she said.

As per industry estimation, in India, there were over 10 million crypto users in February 2022. The Indian government introduced 30 percent taxation on Virtual Digital Assets (VDAs) which has dealt a significant blow to the crypto industry. Major crypto exchanges witnessed between 70-90 percent drop in their trading volumes.

“For a thriving Web3 ecosystem, technologists and entrepreneurs need regulatory certainty and enabling frameworks to build innovative use cases aimed at solving problems at scale. Its, therefore, incumbent upon governments, state and central, and regulators to provide the right environment to web3 startups,” says Sharat Chandra, Co-Founder, India Blockchain Forum.

However, Sumit Gupta, CEO and Co-Founder of CoinDCX, an Indian crypto exchange, said that the G20 Summit is likely to see an emphasis on the need to regulate cryptos and other digital assets as there has been a long-standing demand from the industry.

“The Finance Minister in the Parliament said virtual digital assets are by definition borderless and require international collaboration to prevent regulatory arbitrage. So, any legislation for regulation can be effective only after significant international collaboration. In this context, multi-lateral alignment is an important first step for effective regulation that creates a healthy environment for the crypto space,” he said.

Gupta further noted that Indias presidency provides a unique opportunity to envision a vibrant Web3 ecosystem as a cornerstone of evolving global regulation and policy.

On the other hand, contradictory to the view of some industry experts, former finance secretary of India, Subhash Chandra Garg, doesnt think of the G20 Summit as a major event in terms of regulations for cryptos and other digital assets.

“G20 is supported by FATF(Financial Action Task Force) on matters connected with cryptocurrencies and virtual digital assets. The agenda for G20 Summit in November is still not public. Given the fact that the G20 Summit agenda mostly flows from the working of G20 Ministers and Working Group meetings, the only relevant place where some deliberations seem to be taking place is the Digital Economy Working Group (DEWG). FATF issued guidelines for dealing with cryptocurrencies and virtual digital assets some months back,” he said.

“Until the US develops its stance on cryptocurrencies and virtual digital assets, I dont think there will be any significant movement in this matter,” Garg added.

India’s role in crypto regulation

Recently, India received the Chairmanship of the G20 Digital Economy Working Group (DEWG). However, does that affect India’s crypto decision-making in any way? Former finance secretary Garg said that the Digital Economy Working Group, in different form and focus, has been in operation in the G20 system since 2017, the year of the German Presidency. “Indonesia, upon assumption of G20 Presidency this year, sought to focus DEWG on the central role of digital transformation in the broader context of economic and social development,” he said.

Experts noted that a digital-related issue has already been in the G20 for a long time, but it has not led to any significant impact on the functioning of digital assets. Following this, could crypto and virtual digital assets suffer the same fate?

“India is on record to say that there needs to be a global perspective on the issue of defining crypto as currency, asset class or commodity and rules to monitor its impact on macroeconomics, fiscal stability in terms of cross-border transactions. India is also clear to insist on KYC and AML norms,” said Dr. Aruna Sharma, a former member of RBI high committee.

Will India be the driver of the emerging tech industry?

India is slotted to become the next chairman of G20 by the end of 2022. Some policy experts believe that the government has not been proactive in introducing new policies, legislative measures and regulations, barring the introduction of taxation on capital gains on crypto and some emerging decentralised database technologies.

“Harsh capital gains taxation regime instituted by the last budget, further compounded by the global rout in cryptocurrencies in the last six months, has completely upended the decentralised database technology scene in India,” said Garg.

Former policymakers also pointed out that to be a driver for the emerging tech industry, much bolder and futuristic ideas would have to be shaped and presented before the world; this will not be easy.

“The issues related to emerging technologies, like sharing technological development and their regulations with the help of other countries, remain central to the further development of many sectors of the Indian economy. India is assuming the chairmanship of G20 for a year this December, which holds importance for the country. India can take many initiatives through multilateral negotiations for its advantage with the common goal of G20 countries,” says Dr. Sudhanshu Kumar, Economist/Associate Professor at the Centre for Economic Policy and Public Finance.

“India is in favour of reform the way developments in digital technologies are shared among different countries. Therefore, we can expect that India will attempt to push for better regulation that discourages using cryptocurrencies. On the other hand, issues related to digital infrastructure use could be the critical agenda,” added Kumar.

Can India become the next big Web3 hub?

Web3 industry experts in India believe digital tokenisation is integral to the Web3 economy. The clarity in terms of token classification, asset tokenisation, rationalised taxation for digital assets and exemptions provided to startups with respect to data localisation and governance would unlock revenue opportunities for entrepreneurs as well as the exchequer.

Given the massive push to expand the digital infrastructure in India, it is expected that demand for technology-driven activities in the economy will go up. “Hence, there are enormous business opportunities for those who are into advancements in new technologies. At the same time, the significant pool of young professionals is an additional advantage for India. Therefore, we can say that India will be the hub for Web3 and many other new technologies,” says Dr. Sudhanshu Kumar.

Aruna Sharma, noted that we missed some opportunities in Web2 and have the ability to lead and drive Web3.

A few crypto industry people believe that it is evident that the government has decided to take a practical approach toward crypto. “The government won’t make things easy for the industry, but at the same time, no drastic action such as a ban will happen. For India to become the next digital hub for Web3 technologies, an overhaul of the government’s policy would be required. When the government realised the potential for drones for agriculture, the entire policy was revamped overnight. We are hopeful that something similar will happen for crypto,” says Rajagopal Menon, Vice President, WazirX, a crypto exchange.

Experts have given different views on the issue of India’s driving the digital bus. Some have argued that it is a crucial opportunity for India that it might miss at the time of Web2. Well, all eyes are on the G20 this year.

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