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What's the article about?
- It talks about the legal status of Virtual Digital Assets (VDAs) in India.
Relevance:
- GS3: Indian Economy and related issues; Money-Laundering and its prevention;
- Prelims
Context:
- Recently, the government issued a notification bringing transactions involving crypto assets under the Prevention of Money Laundering Act.
- It laid out the nature of transactions to be covered under PMLA.
- These are as follows:
- Exchange between virtual digital assets and fiat currencies;
- exchange between one or more forms of virtual digital assets;
- transfer of virtual digital assets;
- safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets;
- participation in and provision of financial services related to an issuer’s offer and
- sale of a virtual digital asset.
What are Virtual Digital Assets?
- In general terms it basically means cryptocurrencies, DeFi (decentralised finance) and non-fungible tokens (NFTs).
- Prima facie, it excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets, and hence aimed at specifically taxing cryptocurrencies.
- According to the Finance Act, “virtual digital asset” means any information, code, number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise and can be called by whatever name.
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Analysis:
- The advent of new technologies often evokes formation of extreme Acts by the governments. It is, therefore, heartening to see India taking a measured approach to regulating virtual digital assets.
- The aforesaid notification is a step in the right direction. Such rules are already applicable to banks, financial institutions and certain intermediaries in the securities and real estate markets.
- Extending them to virtual digital assets provides virtual digital assets platforms with a framework to diligently monitor and take actions against malpractices.
- A standardisation of such norms will go a long way in making the Indian virtual digital assets sector transparent. It will also build confidence and assurance in the ecosystem, and give the government more oversight on virtual digital asset transactions, which will be a win-win for all.
Way Forward:
- This is also significant, given India’s presidency of the G-20. The finance track of the G-20 is spearheading critical discussions on establishing a global regulatory framework for virtual digital assets. India’s leadership and experience is key here.
- There is also an opportunity to consider the steps taken by other G-20 nations. In Asia, Japan and South Korea have established a framework to licence VASPs, while in Europe, the Markets in Crypto-Assets (MiCA) regulation has been passed by the European Parliament.
- Even as India spearheads global coordination, ushering greater oversight on the domestic virtual digital assets ecosystem could provide much-needed assurance to everyday users as well as regulators.
- Going forward, a progressive regulatory framework will instil the animal spirit in India’s innovation economy and establish India’s virtual digital assets leadership — a lot like how Rolls-Royce rekindled the British manufacturing industry in the early 20th century.
