5 Reasons Why Indian Govt. May Ban Cryptocurrency

Shyam Sewag
5 min readApr 21, 2021


5 Reasons Why Indian Govt. May Ban Cryptocurrency

India, being a developing economy, looking for every possible way to propel its growth. Going cashless/paperless from being highly dependent on the fiat currency is one of such moves to propel the growth. But with the constant rise in the popularity of Cryptocurrency there were speculation on whether India will accept it as a mode of exchange or not. Since the questions were raised, the Central Financial body was leaning towards the unacceptance side. Recent developments of a Bill which can ban these cryptocurrency have somewhat cleared the air around speculation. But if you are a person who wanted to invest in cryptocurrency then it is important to know the prominent reasons why Indian Govt. may ban Cryptocurrency.

What is Cryptocurrency?

Before understanding the prominent reasons for banning the cryptocurrency, we must understand what is cryptocurrency? The cryptocurrency, at its core, it is a digital algorithm based currency encrypted by one of the best encryption technology. Majority of the cryptocurrencies are decentralised. This means that no government has any control over it.

These cryptocurrencies have their own database and ledger keeping mechanism known as ‘Blockchain’. There are e-wallets to keep the cryptocurrency and transactions are made through these wallets. One of the greatest advantages of cryptocurrency is the factor of anonymity. It gives the holder complete anonymity while transacting. Hence, it is difficult to trace back the owner and beneficiary.

Here Are The Reasons Why Indian Govt. May Ban Cryptocurrency:

Lack Of Control By Central Authorities

The framework of cryptocurrency is pretty complicated and decentralised. By decentralization, no financial or regulatory body has any control over it and hence its a landmine in the financial world. At this point of time when India is gaining momentum in the manufacturing sector through its initiatives like Make In India and PLI (Production Linked Incentive) schemes, it will not want an uncontrolled force like cryptocurrency.

Because if the people start mobilising their money and investments towards cryptocurrency then the governments will not be able to control it and it will leave the government with less funds to support these initiatives. On the other hand the financial sector of India is not currently developed enough to take on these advancements. Some of the developed economies are promoting the use of cryptocurrency because of the available infrastructure and willingness to take the risks.

RBI (Reserve Bank of India) which is the apex financial body of India, has been highlighting the risks that cryptocurrencies pose to the economy and why it is not suitable to be implemented in the country.

Governors’ Opinion On Cryptocurrency

RBI Governors play a major role when it comes to formulating financial policies and what is in interest of the banking and financial system of India. Over the years we have come across RBI Governors’ opinion about the cryptocurrencies. Here are some of the excerpts which can serve a potential reason for banning the cryptocurrencies:

Raghuram Rajan had posed numerous concerns over the functioning of cryptocurrencies like Bitcoin and Libra (which was supposed to be launched by Facebook). The concerns were on how the ledger is maintained and who can determine the value of currency.

Urjit Patel, in 2017, had informed the Parliamentary panel that an inter-disciplinary committee had been formed to discuss the legalities of cryptocurrencies. This meant that the RBI was keeping a close watch on the numerous transactions which were being made using cryptocurrencies like Bitcoin, Ethereum, Litecoin, etc.

Shantikanta Das the current RBI Governor (in 2021) has expressed his opinion about the stand on cryptocurrency. He also suggested the prospect of an RBI issued digital currency may be introduced when the time will be right. He has also mentioned that RBI is in concurrence with the government when it comes to financial stability aspect.

Problem Of Taxation

Another potential reason for banning the decentralised cryptocurrency is the problem of taxation. The government collects the taxes in two ways direct and indirect. The direct tax is collected through means like income tax and wealth tax. Whereas the indirect taxes are collected from purchase and sell of goods/services (GST), import duty, excise duty, etc. Now, the cryptocurrency eliminates all the intermediaries and central authority resulting in no tax revenue for the government.

In addition to that, the anonymity granted through cryptocurrency makes it difficult to trace the ownership of the money. As a result, it will be difficult for the Income Tax Department to trace the source of funds/income of an individual subsequently creating a discrepancy in the tax liability. Currently, the Income Tax Department can keep a track because of the PAN (Permanent Account Number) and AADHAAR Card which are required for major financial transactions.

This problem will remain in place unless a mechanism is put into place through which the Tax department can determine your tax liability. Along with it the governments can come up with policies to impose indirect taxes on transactions made through cryptocurrency.

Potential Of Money Laundering

In one of my blogposts I have elaborated the potential risks of cryptocurrency towards money laundering. Over the years, we have come across so many scandals involving money laundering and frauds. Financial regulators are rigorously working towards formulating effective policies to curb the financial frauds, money laundering and terrorist financing activities.

But, cryptocurrencies can open a completely new Pandora’s box for people involved in such illegal activities and there is a high possibility of these currencies being misused for anti-social activities. There are existing evidences of cryptocurrencies being used for money laundering activities. ‘Silk Road’ is one of such examples. Therefore, cryptocurrency’s threat of potential money laundering may lead the Indian Governments to ban it.

Lack Of Awareness Among General Public

Lastly, the success or failure of an initiative or policy depends on how the general public. For example, demonetization in 2016. People initially faced challenges in adopting digital payment methods like Google Pay, Phone Pay, Paytm, etc. Even though they were existing with a firm background and under a regulatory framework. Till date, we find people who experience difficulty in managing payments through those means. They still prefer the paper currency.

Cryptocurrency is still an alien concept for many. 6 out of 10 people might tell you that they have not heard about cryptocurrency but they want to buy Bitcoin without even understanding that Bitcoin itself is a cryptocurrency. Whereas the framework is so complicated that only few people understand the depth of it. Even the organizations are planning to invest heavily to simplify the processes and put it in a user friendly manner.

Therefore, the last potential reason for banning the cryptocurrency would be lack of awareness in the general public. If people are not aware then scammers can easily scam these people and escape with their money. Before cryptocurrency such scammers could be traced to a large extent in order to recover the amount. But if such scams happen through cryptocurrency then even the police department will have to put unimaginable efforts to trace down such scammers.

These reasons why Indian govt. may decide to ban the cryptocurrency or try to modify the structure to regulate the same and introduce a variant in the near future. Until then it is safe to say that one must steer away from the web of cryptocurrency till a conclusive decision is made by RBI and the Government of India.



Shyam Sewag

Budding blogger. Interested in finance and global economic affairs.