India is preparing to enact legislation that would outlaw privately issued cryptocurrencies, like bitcoin, within the country. Simultaneously, the proposed law aims to establish a regulatory structure for the development of a state-backed digital currency, as outlined for consideration during the current parliamentary budget session.

According to the agenda (PDF) available on the website of the lower house of parliament, the legislation intends to “ban all private cryptocurrencies in India,” while permitting “certain exemptions to foster the foundational technology [blockchain] behind cryptocurrency and its applications.”

The legislation also intends to “establish an enabling environment for the issuance of the official digital currency” by the nation’s central bank, the Reserve Bank of India, as detailed in the agenda.

Back in 2018, a governmental committee in India suggested a prohibition of all private cryptocurrencies, proposing penalties of up to a decade in prison for those found in violation. The committee also advised the government to investigate a digital form of the national currency and methods for its implementation.

The Reserve Bank of India (RBI) stated at the time that such a measure was essential to prevent the isolation of the country’s financial infrastructure. The RBI also maintained that Bitcoin and comparable cryptocurrencies could not be classified as legal tender due to their lack of physical form, metallic composition, or governmental endorsement. This 2018 directive from the central bank caused considerable disruption to numerous local businesses and startups involved in cryptocurrency trading, with most either ceasing operations or shifting their focus to different markets.

This directive faced legal challenges from various exchanges and investors, who brought a case before the Supreme Court. Last year, the court ruled in their favor. However, this decision did not alter the underlying policy established by the earlier circular.

“Given that the government is contemplating the introduction of this bill during the current parliamentary session, we are confident they will carefully consider the perspectives of all interested parties before reaching a final decision,” stated Sumit Gupta, co-founder and CEO of CoinDCX, a cryptocurrency exchange operating in India.

“We are currently engaging with other stakeholders and will actively pursue a more comprehensive discussion with the government to demonstrate how we can collaboratively build a thriving and well-regulated ecosystem,” he added.