India’s Crypto Policy Deadlock May Finally Be Breaking

The Indian government's approach to regulating cryptocurrencies has been inconsistent for years, focusing primarily on taxation and anti-money laundering compliance. However, recent recommendations from a parliamentary panel may signal a shift towards creating a comprehensive regulatory framework.

The Parliamentary Standing Committee on Finance proposed an interim self-regulatory framework for the VDA sector and sought greater clarity on how digital assets should be classified under the proposed Securities Markets Code. Industry executives believe these recommendations represent Parliament's strongest acknowledgement yet of the regulatory vacuum surrounding India's crypto sector.

Industry stakeholders suggest that different categories of digital assets, such as cryptocurrencies, stablecoins, tokenised securities, and other blockchain-based assets, perform fundamentally different economic functions and should be regulated accordingly. They propose classifying digital assets into three buckets: tokenised securities and real-world assets; payment-oriented assets like stablecoins; and crypto-native assets like Bitcoin and Ethereum.

The committee's emphasis on a technology-neutral Securities Markets Code could remove ambiguity around tokenised securities, allowing them to qualify as securities provided they satisfy the criteria laid down under the code. This clarification could give issuers and market infrastructure institutions greater confidence to experiment with tokenised bonds, funds, and other real-world assets.

The proposal for an interim SRO has received broad support from industry executives, although most see it as a bridge rather than a permanent solution. The quality of regulatory supervision will matter more than the breadth of SRO's independent powers.