India will soon roll out its own digital currency as part of its 2022-23 budget plan. Besides that, the country will also impose a 30% tax on profits acquired from virtual currencies. These measures will be part of the new fiscal policy announced recently by the finance minister of India as part of the new year’s budget. Moreover, the digital currency will be backed by the Reserve Bank of India and will be based on blockchain technology.
According to the government, the current measures are to regulate the crypto currency segment in India, which is still largely unregulated. Similar to other nations, the transactions in cryptocurrencies in India are also witnessing an exponential rise. Between 2019 and 2021, the market grew nearly 600%, placing India as one of the fastest-growing cryptocurrency markets globally.
Ms Sitharaman, in her budget speech, announced that the government would launch its digital currency within a year.
According to her, “The introduction of Central Bank Digital Currency will give a big boost to the digital economy. The digital currency will also lead to a more efficient and less costly currency management system.”
The announcement of a state-backed digital rupee came with the imposition of a 30% tax on the profits of digital assets. While the government is hopeful that the measures will stabilize the dynamic cryptocurrency segment of the country, many experts have warned that it could have a negative impact too.
India has been too strict on the use and transactions of digital currency in the country, going as far as banning them in September last year. However, this year with the budget announcement, it has taken a slightly less severe stance allowing to hold crypto assets while imposing heavy taxes on it.
The CBDC, or in simple terms, the virtual rupee, will be launched by the Reserve Bank of India. CBDC will be a legal tender issued by the central bank. It will be similar to fiat currency, just in digital format. With CBDC, the government aims to allow users to enjoy the benefits of both digital as well as traditional banking and currency systems. The Indian government, on Many occasions, has flagged the use of cryptocurrency owing to the alleged possibility of its use in money laundering, tax evasion, etc.
The government hadn’t yet clearly conveyed how it would place the digital rupees in sync with the traditional banking system. A formal announcement from the government about the usage and transaction of the new digital currency is still due. However, the digital rupee will be synonymous with fiat currency, so many experts believe it will further streamline digital transactions, catapulting the digital economy.
There is no exact date for the launch of India’s digital currency; however, the government hopes to roll it out within a year. According to the finance minister, the digital rupee will be introduced within a year, boosting the digital economy. The objective is to create a framework supportive of the present digital scenario while still abiding by the traditional banking system.