India Maintains Tough Crypto Stance Despite Global Shift Toward Tokenization and Stablecoins

India is maintaining its cautious approach to cryptocurrencies even as governments, central banks, and major financial institutions worldwide increasingly explore tokenization, stablecoins, and digital asset reserves. According to government documents reviewed by Reuters, the Reserve Bank of India (RBI) continues to support a policy that leans toward restricting crypto rather than embracing it.

The RBI believes banks and financial institutions should not be allowed to hold, trade, or provide exposure to cryptocurrencies or privately issued stablecoins, arguing that such assets could pose contagion risks to the broader financial system. The central bank also opposes rupee-backed stablecoins, warning they could weaken seigniorage revenue and create financial stress during periods of market volatility.

India’s strict position remains unchanged despite the country being home to nearly 39 million crypto investors. As of May, Indian users collectively held an estimated $2.1 billion in digital assets, highlighting the growing popularity of cryptocurrencies among retail investors.

Meanwhile, tax authorities are raising concerns over compliance. Government records show that in the financial year ending March 2023, fewer than 25% of the 645,000 individuals who traded cryptocurrencies reported their gains on tax returns. Officials also face challenges tracking transactions conducted through offshore exchanges and peer-to-peer platforms, particularly those settled in Indian rupees.

India’s crypto market has operated in a regulatory grey area since the Supreme Court overturned the RBI’s 2018 banking restrictions. While cryptocurrency trading is not illegal, lawmakers have yet to introduce a comprehensive regulatory framework after a proposed 2021 bill to ban private cryptocurrencies stalled.

Government officials continue to emphasize balancing innovation with financial stability, but recent internal documents indicate regulators remain skeptical of digital assets. Concerns have also grown over India’s reliance on energy imports and persistent current account deficits. Officials fear wider cryptocurrency adoption could accelerate capital outflows, bypass traditional banking channels, and add pressure on the rupee during periods of economic uncertainty, reinforcing the government’s conservative stance on crypto regulation.