India Crypto Policy

Syllabus: Science and Technology

Source:  IE

Context: A Trump-linked US firm, World Liberty Financial Inc (WLFI), has signed an MoU with Pakistan’s Crypto Council to develop a crypto-based financial system, prompting geopolitical and security concerns for India.

About India Crypto Policy:

Pakistan’s Crypto Pact with WLFI:

• MoU Signed: Pakistan’s newly-formed Crypto Council and WLFI have agreed to introduce stablecoins, monetize rare earth assets, and position Pakistan as a regional crypto hub.
• High-Level Support: Endorsed by PM Shehbaz Sharif and Army Chief Asim Munir, the deal includes use of blockchain for financial inclusion and trade.
• Diaspora Link: Pakistan is leveraging its US-based diaspora to connect with Trump’s team and global crypto investors.

Strategic Risks to India:

• Terror Financing via Crypto: The decentralized and pseudo-anonymous nature of cryptocurrencies makes them ideal for illicit financing, raising concerns akin to hawala networks, as highlighted by FATF.
• Cross-border Laundering Risk: Crypto assets can bypass formal banking channels, enabling money laundering across jurisdictions—a threat amplified by Pakistan’s crypto pivot.
• Geopolitical Influence Operations: Through crypto deals like the WLFI-Pakistan MoU, Islamabad is leveraging tech diplomacy to gain US favor, which could reduce India’s strategic tech advantage in the region.
• Diaspora-led Influence Shift: Pakistan is actively using its US-based tech diaspora to establish crypto alliances—contrasting India’s diaspora focus on traditional tech sectors.
• Strategic Oversight Parallels: Just as India underestimated Pakistan’s nuclear capability in the 1970s, ignoring the early-stage crypto pivot could similarly allow adversaries to reshape financial power balances.

India’s Regulatory and Strategic Crypto Vacuum:

• Tax Without Law: India taxes crypto (30% + 1% TDS) but has no legal framework—flagged by the Supreme Court in May 2025.
• User Boom, No Oversight: With 100+ million users (Triple-A), there’s no central regulator, exposing users to scams.
• Cybersecurity Gaps: Lacking compliance norms, India faces major frauds—e.g., ₹900 crore GainBitcoin scam.
• No Investor Safeguards: Unlike SEBI or RBI, crypto lacks grievance redressal or risk protection.
• Slow CBDC Rollout: The RBI’s e₹ pilot lacks clear links to private crypto, limiting India’s digital currency leadership.

Way Ahead for India:

• National Crypto Strategy: Develop a centralized strategy combining monetary, cybersecurity, and geopolitical objectives.
• Regulatory Clarity: Establish a Digital Asset Regulatory Authority to streamline compliance, prevent misuse, and guide innovation.
• Financial Intelligence Monitoring: Enhance FIU-IND tracking of crypto-linked transactions to identify risks and track terror financing.
• Global Alignment: Coordinate with G20, FATF, and IMF for global crypto standards and cross-border data-sharing.
• CBDC Push: Accelerate RBI’s e₹ project, giving India a sovereign edge in digital currency without undermining the banking system.
• Awareness Campaigns: Educate youth and investors about legal status, risks, and financial literacy in crypto.

Conclusion:

India cannot afford to overlook the emerging crypto-geopolitical nexus involving Pakistan and the US. With over 100 million users, India must urgently develop a clear, forward-looking crypto strategy that ensures national security, financial integrity, and technological leadership.

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