India’s crypto bill will still have a few hurdles to clear before becoming a law, even if the Cabinet approves

India’s crypto bill will still have a few hurdles to clear before becoming a law, even if the Cabinet approves
India's Finance Minister, Nirmala SitharamanBI India via Canva
  • India’s Finance Minister Nirmala Sitharaman reiterated that the country’s new laws around cryptocurrencies are currently awaiting approval from the Union Cabinet.
  • The Union Cabinet is India’s highest decision-making body.
  • However, this does not necessarily mean that the new laws will come into existence any time soon.
India is racing to keep up with the cryptocurrency craze in the country. India’s Finance Minister Nirmala Sitharaman reiterated that the new regulations around cryptocurrencies in India — the Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 — are waiting on approval from the Cabinet before it can be introduced into the Parliament. She had stated this earlier as well, ahead of the Monsoon Session in July this year.

The Union Cabinet is India’s highest decision-making body. Only the Prime Minister, Narendra Modi, and other ministers of rank are a part of the Cabinet. The supreme body needs to give the green light before the new laws can be introduced for debate in Parliament.

Cabinet note is ready on cryptocurrency. I am awaiting [sic] Cabinet to clear that.

India’s Finance Minister Nirmala Sitharman told reports on August 18

Those in the know, requesting to remain anonymous, told Business Insider that the government is most likely mulling over a softer stance given the recent surge in crypto adoption and awareness within the country.

This means that it's possible that the Cabinet will not approve the bill in its current form, as seen in the draft ahead of the Budget Session of Parliament in February.

The massive surge in Bitcoin’s price earlier this year, coupled with high inflation, has led young investors to invest in cryptocurrencies as an alternative financial instrument, despite their reputation for being heavily volatile.

This is partly due to crypto exchanges like WazirX, CoinDCX, CoinSwitch Kuber, and others garnering new funding. And that funding is going towards heavy-weight sponsorships in the mainstream — like the Euro Cup and the T20 cricket tournament between Sri Lanka and India — which is driving awareness among the masses.

What happens if the Cabinet does not approve India's crypto bill?

If the bill is rejected by the Cabinet, then it’s possible that things will have to start from scratch all over again, especially if the Indian government is looking to take a softer approach to cryptocurrencies.

“The government seems to be still in the process of determining the way forward, which may through either an existing committee or a new one with industry consultation where required," Rameesh Kailasam, the CEO of IndiaTech, told Business Insider in an earlier interview.

The way the passing of a bill works in India is that a committee is assigned to draft the bill. The committee is headed by one, or in this case, multiple ministries.

Given the vast application of cryptocurrencies — even though the Ministry of Finance’s Department of Economic Affairs is leading the charge — other stakeholders like the Ministry of Electronics and Information Technology (MeitY), the Securities and Exchange Board of India (SEBI), and the Reserve Bank of India also are a part of the process.

Once the committee has drafted the bill, it then needs to be approved by the Finance Ministry. Once they approve it, it goes over to the Ministry of Law for another layer of endorsement to ensure it ticks all the boxes and doesn’t include any language that could get the government into trouble.

Only once the bill has cleared both those thresholds does it make its way to the Cabinet. The ministers then discuss the bill to ascertain if any changes are required. If they feel the bill isn’t up to the mark, it will be sent back to the Finance Ministry.

If not, the bill is presented to the public for comments before being introduced into the lower house of Parliament, the Lok Sabha. They then have three readings of the bill before it is passed to the upper house, the Rajya Sabha.

Even then, the bill nevertheless needs approval from the President before it is eligible to come into effect.

Depending on the changes suggested, it’s possible that the bill may not clear the Cabinet approval stage of the process. They could request for the Finance Ministry and other stakeholders to form an entirely new committee to draft a new version of the bill. They could even ask for a change at the helm with a department other than the Department of Economic Affairs — that, however, is unlikely.

“The government seems to be looking at this afresh considering that there needs to be a different take on how to regulate cryptocurrencies rather than push for an outright ban” said Kailasam.

How could a new crypto bill in India be different from the old one?

The original committee that drafted India’s crypto bill was headed by Finance Secretary Subash Chandra Garg. Other members included MeitY Secretary Ajay Prakash Sawhney, SEBI Chairman Ajay Tyagi, and RBI Deputy Governor BP Kanungo.

The version of the crypto bill proposed by them, the draft of which was released ahead of the Budget Session of Parliament in February, bans all ‘private’ cryptocurrencies and lays out a plan for India’s apex banking institution to launch its central bank digital currency (CBDC).

Under the draft Bill, mining, holding, selling, issuing, transferring or use of cryptocurrency is punishable with a fine or imprisonment of up to 10 years, or both.

Excerpt from the Draft Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019

The definition of ‘private’ cryptocurrencies was however ambiguous. Most speculate, as per the comments of RBI governor Shaktikanta Das, that this covers all cryptocurrencies traded on exchanges including Bitcoin, Ether, Dogecoin, and others.

The RBI has major concerns with respect to private cryptocurrencies. We have conveyed these concerns to the government. The government will examine the issue and act accordingly.

Reserve Bank of India (RBI) governor, Shaktikanta Das, during the RBI’s Monetary Policy press conference on 6 August 2021

This, however, does not mean that the central bank is proposing to ban the underlying blockchain platforms. One can ban Ether but the Ethereum blockchain, which facilitates the implementation of smart contracts, does not necessarily have to be pulled down.

But, if the government is looking to take a softer stance, in line with the Supreme Court’s judgement in 2020 that abolished the RBI’s ban on cryptocurrencies, a new bill will likely have to be drafted. And, that process will again take its own sweet time cutting through the red tape.

This means, just because the crypto bill is awaiting approval from the Cabinet, that it’s a done deal — especially as more and more Indian citizens are investing in cryptocurrency.

For a more in-depth discussion, come on over to Business Insider Cryptosphere — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.

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