India’s Crypto Policy Divide Deepens as RBI Pushes for Tighter Curbs

India's latest internal policy discussions on cryptocurrencies reveal more than renewed calls for tighter restrictions—they highlight a growing reality facing governments worldwide: regulating digital assets increasingly requires balancing competing priorities across multiple agencies.

According to government documents reviewed by Reuters, the Reserve Bank of India (RBI) has reiterated its preference for a cryptocurrency policy "leaning towards prohibition," arguing that banks and financial institutions should be prevented from holding or gaining exposure to cryptocurrencies and privately issued stablecoins.

Meanwhile, India's tax authorities have raised a different concern. Rather than focusing solely on financial stability, the department warned that transactions conducted through offshore exchanges and private wallets are becoming increasingly difficult to monitor, complicating tax enforcement and the identification of beneficial owners.

The differing perspectives illustrate that India's crypto debate is no longer simply about whether digital assets should be allowed. Instead, it reflects a broader policy challenge seen across major economies: determining which government institutions should lead crypto oversight and how innovation can be balanced with financial stability, taxation and consumer protection.

One Asset Class, Multiple Policy Priorities

India has remained in regulatory limbo since the country's Supreme Court overturned the RBI's effective banking ban on cryptocurrencies in 2020. Although the government has repeatedly considered legislation governing digital assets, it has yet to introduce a comprehensive regulatory framework.

Instead, cryptocurrencies continue to operate within a grey area. India taxes crypto gains at 30% and requires exchanges operating locally to register with government authorities, yet no dedicated legal framework defines how digital assets should be supervised.

The latest internal documents suggest that different government bodies continue approaching the asset class through distinct policy lenses.

The RBI continues to view cryptocurrencies primarily as a financial stability risk, warning that privately issued digital assets and stablecoins could undermine monetary sovereignty and expose the banking system to contagion during periods of market stress.

Tax authorities, meanwhile, are focused on compliance challenges. According to the documents, fewer than one-quarter of the 645,000 individuals who conducted cryptocurrency transactions during the financial year ending March 2023 reported those activities on their tax returns. Officials also warned that offshore exchanges, peer-to-peer transactions and private wallets complicate tax collection and enforcement.

Separately, India's Ministry of Corporate Affairs is examining accounting standards for virtual digital assets, adding another dimension to the government's ongoing policy discussions.

A Global Pattern of Regulatory Fragmentation

India is not the only jurisdiction where crypto oversight spans multiple government agencies.

In the United States, responsibility for digital assets has long been divided among the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Treasury Department and banking regulators. While recent legislative efforts have sought to provide greater clarity, questions over regulatory jurisdiction continue to shape the country's evolving digital asset framework.

Europe has taken a different approach through the Markets in Crypto-Assets (MiCA) regulation, creating a harmonized framework intended to reduce fragmentation across EU member states.

The UAE has similarly established dedicated regulatory structures, most notably Dubai's Virtual Assets Regulatory Authority (VARA), alongside Abu Dhabi Global Market's Financial Services Regulatory Authority (FSRA), providing specialized oversight for digital asset activities while supporting innovation within defined regulatory boundaries.

Against that backdrop, India's ongoing debate illustrates the complexity of governing digital assets through existing institutional frameworks that were not originally designed for blockchain-based financial systems.

Stablecoins Add Another Layer

The RBI's latest position also underscores the growing importance of stablecoins in national policy debates.

The central bank warned that foreign currency-backed stablecoins could weaken monetary sovereignty, while rupee-backed stablecoins could affect seigniorage revenues—the income governments generate through currency issuance—and create financial stability risks during periods of market stress.

These concerns echo debates taking place globally as jurisdictions develop rules for stablecoins. While the United States recently advanced dedicated stablecoin legislation and Europe has incorporated stablecoin provisions into MiCA, several emerging markets remain cautious about privately issued digital currencies that could compete with sovereign monetary systems.

The Bigger Question Is Governance

India's latest internal discussions demonstrate that crypto regulation has evolved beyond a binary choice between banning or allowing digital assets.

As digital assets become more integrated into global financial markets, governments are increasingly confronting broader questions of institutional governance: Which agencies should oversee the sector? How should monetary policy, taxation and financial innovation be balanced? And can existing regulatory structures adequately supervise blockchain-based financial services?

For India, those questions remain unresolved.

For the broader crypto industry, however, the country's policy debate reflects a wider trend. The future of digital asset regulation may depend less on whether governments support cryptocurrencies and more on whether their institutions can coordinate a coherent regulatory framework that balances innovation with systemic risk.