The history of the Economic Survey of India dates back to 1950-51. For the first decade of its publication, the document was part of India’s annual national budget documents. In the 1960s, the authorities separated it from the budget documents and began submitting it one day before the Union Budget.
This year’s Economic Survey was released on January 31 by India’s Chief Economic Adviser (CEA), V Anantha Nageswaran. An economic survey aims to paint a holistic picture of the current economic condition of the country. It details the prevailing trends in key macroeconomic segments, including agriculture, foreign exchange reserves, industry, infrastructure, etc. It also covers the country’s position in areas including healthcare, poverty, climate change, human development, etc.
It also offers insight into potential challenges the economy might face in the future and discusses ways to overcome those challenges.
Here we intend to discuss the developments around cryptocurrencies in the current economic scenario of India as presented in the Economic Survey 2022-23. And in case you want to find out about crypto regulation and taxes in India, click here.
The core approach to cryptocurrencies
Economic Survey’s current focus towards cryptocurrencies revolves around understanding regulations between countries. He began discussing crypto assets in the document with a mention of the FTX debacle. It was indicative of the fact that the Indian government spent time and effort to understand the vulnerabilities in the crypto ecosystem as it exists today.
The nature of crypto assets
In its opening paragraph on cryptography, the document pondered the need for a common approach to regulating the ecosystem. Here, he highlighted crypto assets as “self-referential instruments” that do not “strictly pass the test of being a financial asset.” Explaining the reason for such a “disqualification,” the document said that crypto assets have no intrinsic cash flows attached to them.
The document referred to the opinion of US regulatory agencies on crypto assets here, saying that even “US regulators have disqualified Bitcoin, Ether and various other crypto assets as securities.” He also referred to the joint statement on crypto assets issued by the United States Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (OCC) on January 3, 2023.
For the benefit of our readers, we will analyze this statement and what it was trying to convey.
Highlights of the US joint statement
The joint statement issued by the US authorities was about the risks of crypto assets for banking organizations. These risks included the risk of fraud and scams, legal uncertainties related to the operations of crypto service providers, inaccurate or misleading representations and disclosures by the crypto asset business, and more.
He also discussed the remarkable levels of volatility in the market, the susceptibility of stablecoins, and how their reserves could hurt a bank’s risk profile and the risk of contagion within the crypto-asset sector.
Since the Government of India Economic Survey cited the joint statement in its paper, it might well be assumed that the Indian authorities are also aware of these risks and vulnerabilities and consider them areas to be addressed.
To conclude this segment, the Government of India Economic Survey deems crypto assets and the ecosystem attached to them to be ‘geographically ubiquitous’. Consequently, he wants to look forward to a common approach established throughout the world.
Different national policies examined
The Economic Survey looked at the European Union, Japan, Switzerland, the United Kingdom, Albania, and Nigeria to provide a global perspective on what is happening to crypto assets around the world. The selection of countries arouses curiosity as it involves a mix of developed and developing economies. Perhaps the goal is to avoid getting a biased analysis.
In the next few segments, we’ll look at each of these cases.
European Union and MiCA
While talking about EU regulations, the Economic Survey mentioned the impending Markets in Crypto Assets (MiCA) regulations.
MiCA, as defined by the European Union itself, aims to establish transparency in the crypto world by establishing disclosure requirements for the issuance and admission to trade of crypto assets. In addition, it would lay the groundwork for the authorization and supervision of crypto asset service providers, including issuers of asset-referenced tokens and e-money tokens. It would also define the legal limits within which the issuance, trade, exchange and custody of crypto assets can be carried out safely for their users.
There are four broad objectives that MiCA wants to achieve. First, the legal coverage is intended to be exhaustive. Second, he believes that a comprehensive and transparent legal framework would support growth, adoption, and innovation in the crypto ecosystem. Third, through MiCA, the EU wants to ensure that consumers and investors are adequately protected. Finally, the fourth aims to improve financial stability as some crypto assets “become widely accepted and potentially systemic.”
Since MiCA was carefully scrutinized by the Government of India Economic Survey, in the future, it might target the legal and regulatory integration of the industry for the sake of good growth and a protected environment for consumers.
Japan and Payment Services Law
When discussing the situation in Japan, the document made a mention of the Payment Services Law. A brief look at this act should help us understand what Japan’s crypto scene could inspire in the Indian system.
Cryptocurrencies and utility tokens in Japan are regulated as crypto assets under the Payment Services Law. Business operators are required to register as Crypto Asset Exchange Services (CAES) providers. It is crucial to note that Japanese law does not treat crypto assets as money, nor does it equate them with fiat currencies. No crypto assets in Japan are backed by the Japanese government or the Central Bank of Japan.
Japanese crypto regulations also require providers to have adequate frameworks for customer asset segregation, cybersecurity and operational management, KYC, internal audits, and minimum capital requirements.
Swiss Financial Services Law and Token Categorization
Reviewing Switzerland’s regulatory framework, the Economic Survey report takes note of the country’s token categorization into payment tokens, utility tokens, and asset tokens. It also mentions the role of the Financial Services Law in harmonizing prospectus requirements across all securities.
It would be pertinent to mention here that the Swiss government enforced a law that has been popularly called the Blockchain Law on August 1, 2021. The aim was to offer a legal basis for cryptocurrency trading in the country. The law also aimed to increase legal certainty for investors in events such as bankruptcy by providing for the segregation of crypto assets and protecting investor interests.
In a unique example of operational stuff, the Blockchain Law aimed to create a new license category for distributed ledger technology or blockchain-based trading systems under the supervision of FINMA, the Swiss Financial Market Supervisory Authority.
UK “Ultimate Guide to Crypto Assets”
As noted in the Economic Survey, the UK Financial Conduct Authority’s Final Guidance on Crypto Assets kept utility and exchange tokens, unbacked crypto assets, out of the prudential and regulatory realm. The Survey also noted the findings of the UK Crypto Assets Task Force, which found that misleading advertising and a lack of adequate information resulted in consumer protection issues.
Albanian Law on DLT-Based Financial Markets
India’s Annual Economic Survey mentioned Albania’s Fintoken Law, which helped legalize crypto assets in the country for investment purposes in May 2020. The document emphasized Albania’s crypto licensing regime. Under this regime, the licensing of crypto asset service providers relies heavily on third party agents, licensed as “Digital Token Agents”.
Nigeria’s Shift in Crypto Policies
The Central Bank of Nigeria had initially rejected crypto assets legal tender status. However, in May 2022, the Securities and Exchange Commission published “New Rules on the Issuance, Offering Platforms, and Custody of Digital Assets,” with SEC competition mechanisms and requirements laid out in detail.
Looking at existing regulation around the world, the Economic Survey of India, which lays the foundation for the country’s annual fiscal budget and monetary policies, called for comprehensive and consistent global standards in the crypto market. He also advocated for faster resolution of delays in standardizing AML/CFT obligations.
By setting a comprehensive global standard, the economic survey paper also highlighted the importance of having standard taxonomies and reliable data to address contagion effects.
The paper has also taken note of the volatile nature of the crypto market, noting that the valuation of the global crypto market dropped from “nearly US$3 trillion in November 2021 to less than US$1 trillion in January 2023.”
The report admitted that monitoring and regulating cryptocurrencies could be tricky. He highlighted that despite its promise of decentralization, the crypto market had seen the rise of unregulated intermediary entities and new centralized intermediaries such as exchanges, wallet providers, and crypto conglomerates.
He stressed that global standards applicable to unbacked crypto assets are insufficient to mitigate system risks and vulnerabilities. He highlighted the regulatory gaps in the areas of issuance, transfers, exchanges and storage by non-bank entities. He also said that traditional financial regulation strategies might prove insufficient to address the needs of the multitude of crypto-actors, such as miners, validators, and protocol developers.