While Narendra Modi is sworn in as India’s Prime Minister for a consecutive third term, the nation’s Web3 industry is hoping the new government will establish a forward-thinking regulatory framework for blockchain, digital assets, and the emerging tech industry, while balancing innovation with protection.
Seventy-three-year-old Modi and Members of Parliament (MPs) set to be part of the Council of Ministers in the new government were sworn in on June 9. In what was the world’s biggest election with about 970 million registered voters, India held its seven-phased voting process from April 19 to June 1 to elect 543 members of the Lower House of Parliament, or Lok Sabha. Modi’s government won a rare consecutive third term–extending his 10-year rule for another five years—a feat matching only with the electoral record of India’s first Prime Minister, Jawaharlal Nehru.
“With India poised to become the world’s third-largest economy, and the Web3 sector likely to be a key contributor to the growth of the digital economy, we believe there is an urgent need to build upon the regulatory progress made over the past few years that can help the country transition from a global IT service superpower into an IT product superpower,” Dilip Chenoy, chairman of Bharat Web3 Association (BWA), an industry body formed to promote and grow the local Web3 industry, told CoinGeek.
India has embraced emerging technologies to boost economic growth and global presence. The world’s biggest democracy recently approved over $1.24 billion for the IndiaAI Mission, slated over the next five years, aimed at bolstering the country’s artificial intelligence (AI) ecosystem, innovation and entrepreneurship. Modi‘s government also intends to leverage AI to achieve its Viksit Bharat (developed India) goal by 2047, utilizing emerging technologies like AI and blockchain as key catalysts for growth.
“Over the next five years, if promoted efficiently, India has the potential to become a leader in the Web3 space, making up for the opportunities missed during the Web2 era. The next 100 days are key for laying a strong foundation,” Chenoy added.
The Bharat Web3 Association is requesting the newly elected government to recognize and include the Web3 sector within the various startup initiatives to ensure that fledgling Web3 firms receive the same benefits and support as other tech startups, promoting growth and innovation within the sector. This will also help recognize Web3 as a legitimate and pivotal sector within the technological and economic landscape of India.
“When India initiated discussions on a coordinated global approach to crypto assets during the G20, very few jurisdictions had a regulatory framework in place. However, over the term of India’s presidency of the G20, 42 different countries discussed or passed crypto regulations and legislation, offering regulatory clarity on crypto assets. It is thus imperative that India follows a twin approach,” Chenoy said.
The Association also suggests setting up regulatory sandboxes and safe harbor initiatives across India to promote Web3 startups, similar to the regulatory sandbox established in some states. A regulatory sandbox provides a controlled environment for startups to experiment with and innovate Web3 technologies compliantly, without the immediate burden of regulatory compliance, helping foster a thriving innovation ecosystem.
“We have been sitting on the fence on our crypto policy since 2017,” said Raj Kapoor, founder of India Blockchain Alliance.
“We have had robust discussions in the last few years and then during the G20 Presidency, we have made significant strides in working collaboratively with other countries to create a robust framework. Now, I urge the government to prioritize establishing a resilient, forward-thinking regulatory framework for blockchain, crypto, Web3, and the emerging tech industry,” Kapoor said.
Some of the suggestions Kapoor has for the new government are defining the legal status of digital assets, setting transparent compliance requirements, and ensuring uniformity across jurisdictions to prevent regulatory fragmentation.
“I urge the government to support research and development through funding and create regulatory sandboxes that allow startups and established companies to experiment without the full regulatory burden. Protecting consumers and investors should be a key focus now, necessitating stringent measures against fraud and cyber threats, alongside rigorous data privacy standards,” Kapoor pointed out.
While the Reserve Bank of India (RBI) has released a detailed framework for a regulatory sandbox for innovative fintech startups to test their products, Chenoy of BWA said the RBI should also come out with a similar regulatory sandbox for Web3 startups as well.
“We have missed the Web1 and Web2 bus, but with the right approach, we could board the Web3 bus and be the leaders in this space,” Kapoor added.
Stringent taxation
India, the world economy’s beacon of hope, imposes one of the harshest taxation regimes on digital asset trading—a 30% flat tax on all digital asset income with no provision to offset losses and a 1% tax deducted at source (TDS) on all transactions above Indian Rupee 10,000 ($120). Last year, the South Asian nation introduced a penalty equal to TDS for non-deduction, interest of 15% annually for late payment, and even a jail term of up to six months.
“In the immediate future, things will move slowly as the electoral dust settles, the new government is sworn in and ministries allocated. As a signatory to the G20 ministerial declaration, we will only see a concrete regulatory framework emerge in India by the end of this year or early next year,” Rajagopal Menon, Vice President of WazirX, one of India’s largest digital asset exchanges, told CoinGeek.
“We can see the tides turning in the U.S. with the approval of the spot Ethereum ETF [exchange traded fund]. We hope that there will be a ripple effect in India as well,” Menon added.
The newly elected Indian government will table the final budget for this year in July when the virtual digital asset industry expects some positive announcements for the sector. India passed an ‘interim’ budget on February 1 in Parliament–put together to manage expenses and revenues until a new government was formed after elections–where the finance minister remained silent on requests from the digital asset industry to lower taxation.
“We hope that the new government will address the pain points faced by investors of crypto in India. Specifically, the 1% TDS on every transaction and the inability to offset losses against gains discourages investors. These changes could contribute to a more favorable environment [and encourage] innovation and growth in the sector,” Edul Patel, co-founder of digital asset investment platform Mudrex, told CoinGeek.
“With increasing crypto adoption in India, the government is likely to extend regulatory clarity. Recently, we have seen SEBI being open to oversight crypto trades. All these point towards regulatory clarity and developments in the coming years,” Patel added.
Watch: India posed to become leaders in Web3
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