Crypto Crackdown Still Preferred by RBI Amid Ongoing Tax Evasion Fears

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Indian regulators remain firmly cautious on cryptocurrencies, even as global governments and financial institutions increasingly adopt digital assets and blockchain technologies.

While trends like tokenization, stablecoins, and strategic crypto reserves are gaining traction worldwide, Indian authorities continue to resist, sticking to their long-held skepticism.

Documents reviewed by Reuters show the Reserve Bank of India (RBI) still favors a policy “leaning toward prohibition,” while tax officials flag serious compliance gaps.

This stance holds despite India’s large crypto user base—around 39 million people—holding roughly $2.1 billion in digital assets as of May.

The RBI has repeatedly argued that banks and financial institutions should not hold, trade, or provide exposure to cryptocurrencies or privately issued stablecoins, citing risks to financial stability.

It also opposes rupee-backed stablecoins, warning they could weaken monetary control and create vulnerabilities during market stress.

CoinDesk has contacted the RBI for comment.

At the same time, tax authorities are concerned about widespread underreporting. In the financial year ending March 2023, fewer than 25% of the 645,000 crypto traders declared their gains.

Tracking transactions on offshore exchanges and peer-to-peer platforms—especially those conducted in rupees—remains a major challenge for enforcement.

Since the Supreme Court overturned the RBI’s 2018 ban, crypto has operated in a regulatory grey zone in India—neither fully banned nor clearly regulated. A proposed 2021 bill to prohibit private cryptocurrencies was never introduced, and policy progress has repeatedly stalled.

Although the government has emphasized balancing innovation with risk management, recent internal documents suggest key agencies remain hesitant to fully embrace digital assets.

India’s cautious stance is also shaped by macroeconomic concerns. Its reliance on energy imports and persistent current account deficits make it vulnerable to external shocks. This was highlighted when tensions with Iran pushed oil prices higher, increasing import costs and pressuring the rupee to record lows.

Officials fear that broader crypto adoption could accelerate capital outflows, bypass traditional banking channels, and further strain the country’s external balance.