RBI's Next Chapter: Can India Embrace Crypto Innovation? With the appointment of under-the-radar Sanjay Malhotra to replace Das as India's new and 26th central bank governor, crypto players are optimistic about the future

India's relationship with cryptocurrency is a dubious one. The country's approach to cryptocurrency taxation has evolved significantly but it might not be as straightforward and friendly as one might want.

Since 2022, players in the space have dealt with highs, in the form of G20 actively discussing crypto policy and Bitcoin and altcoin price surge, and lows, a 30 per cent tax on profits from Virtual Digital Assets (VDAs) and one per cent Tax Deducted at Source (TDS).

The former Reserve Bank of India's governor Shaktikanta Das has always maintained a cautious stance on the digital currency, often with deterrent advice, including calling it "instruments with no underlying value."

"Volatility, money laundering, and terror financing risks are inherent in these assets," he explained earlier this year. Despite a global trend towards regulating cryptocurrencies, Das maintained that India will not simply adopt measures taken by other countries, "While others might see a renewed cryptocurrency party, we see significant risks."

Bitcoin ETFs, crypto m-cap ballooning to USD three trillion, and Bitcoin crossing USD 100,000 for the first time failed to impress Das. His stance was backed by actions by the Financial Intelligence Unit (FIU) to issue a show cause notice to nine offshore crypto exchanges, including Binance, Kucoin, Huobi, Kraken, Gate.io, and Bittrex.

With the appointment of under-the-radar Sanjay Malhotra to replace Das as India's new and 26th central bank governor, crypto players are optimistic about the future.

Largely owing to Malhotra serving as the Revenue Secretary and his key role in implementing Prevention of Money Laundering Act (PMLA) guidelines for virtual digital assets (VDAs), he brings a unique perspective to the table for the Indian crypto community.

In contrast to the RBI's stand to virtually ban cryptocurrencies, as the Revenue Secretary, he made efforts to integrate crypto into the formal economy by requiring virtual digital asset service providers to register with the Financial Intelligence Unit, according to a government source, Economic Times reported. This softened the landing by mainstreaming crypto activities rather than outright banning them.

For Sumit Gupta of CoinDCX, Malhotra has an "in-depth understanding of the industry."

"His recent emphasis on consultation and collaboration during his press conference is particularly encouraging. We are optimistic that under his leadership, the Reserve Bank of India may adopt a more inclusive approach to engaging with the crypto industry," Gupta added.

At present, RBI is betting big on Central Bank Digital Currency (CBDC) as a recognised form of digital currency. "As I see it, CBDC has a huge potential in the coming years. In fact, it is the future of currency," said Das in his concluding words as the RBI Governor.

New possible perspective on crypto

Given India's potential to become a global leader in Web3, the RBI has a unique chance to introduce forward-thinking policies that harmonize innovation with regulatory safeguards. "A transparent, well-defined framework could stimulate the economy, attract blockchain investment, and position India as a global crypto innovation leader," said Dharamveer Singh Chouhan, CEO and co-founder, Zo World.

Edul Patel of Mudrex notes that the newly appointed chief can help address key challenges like taxation clarity, banking access, and fostering innovation while ensuring compliance.

Gupta adds "(Malhotra's appointment) can pave the way for productive dialogues and balanced policies that support innovation, safeguard consumer interests, and reinforce India's position as a leader in the global Web3 ecosystem."

Concurs Patel, "By encouraging open dialogues with the industry and aligning regulations with global standards, he could bring about a balanced regulatory environment while safeguarding against associated risks."

India's Chief Economic Advisor V Anantha Nageswaran recently noted that regulators should cooperative in innovations, such as cryptocurrency and online gaming. "In India, where there is extensive financial illiteracy, regulators need to distinguish between not standing in the way of moonshots and identifying sectors where we need to be more conscious of social costs and benefits, whether it is crypto, bitcoins, or online gaming," Nageswaran said at a Confederation of Indian Industry (CII) event.

While Malhotra has yet to publicly state his views on crypto, his past decisions and initial remarks as RBI Governor suggest a pragmatic approach, looking to balance regulation with the potential benefits of technological advancements in finance.