The evolution of Bitcoin, Ethereum, and other cryptocurrencies has been given the same importance as the internet in the 90s. Ethereum is the second unique crypto that gave birth to an entire sector called ‘decentralized finance’ (DeFi). People have a keen interest in crypto news and always have their eyes on the fluctuating Bitcoin price, Ethereum price, and the values of other cryptocurrencies. But have you ever thought that these digital currencies could help rank India as the third-largest economy in the world?
Let’s see how it can help India achieve a $5 trillion economy by 2025.
After introducing the digital currency bill this year, India happens to be one of the most notable emerging economies. Currently, it is in the 7th position with a nominal GDP of $2.72 trillion, and it is expected to leave the United Kingdom behind in the coming years.
In 2019, Prime Minister of India, Narendra Modi, envisioned making India a $5 trillion economy by 2024-25. If India achieves that target, it would become the third-largest economy in the world. Considering the current economic performance of India, it seems very challenging to achieve that dream with a 1.3 billion population. As a matter of fact, crypto adoption could be the key to India’s economic future.
What is India’s current position?
When India adopted economic liberalization in 1991, it helped India expand its economy at that time. This economic reform helped India to achieve the status of a developing country, but later it failed to come up with similar reforms. Otherwise, it would have propelled itself to become a fully developed country today.
If India aims at achieving a $5 trillion economy by 2025, its minimum annual growth should be at least 10.8% annually. The GDP growth of India has slumped drastically from 8% last year to 5% in the second quarter of 2019. Due to the lower sales growth, manufacturing growth in India decreased sharply, causing factories to shut down.
The increasing unemployment rate in India is another reason that has slowed down its economic growth. In October 2019, India’s unemployment rate was 8.5 percent, the highest in three years. The foreign portfolio investors who were the net sellers of Indian stocks have withdrawn over $3.2 billion from the Indian capital markets.
After receiving all these lower-than-expected results, India has been taking a series of measures to boost its economy. Since the Covid-19 pandemic has not only affected India’s economy but also the economies of all the emerging countries negatively, it will take some more years for India to achieve its envisaged vision.
But right now it has got another big chance to live up to this potential if it adopts another radical monetary innovation, ‘Bitcoin’. The two major events that occurred in March 2020, i.e., the Supreme Court’s historic verdict and Covid-19, boosted crypto adoption in India.
WazirX has spread across the Indian market and witnessed excellent growth since then. Several Indians lost their jobs, and this led them to invest in cryptocurrency. They became traders, technical analysts, or crypto influencers and started earning their side income.
Globally, many institutional investors, such as hedge funds in the US and other giants like PayPal and Square, are making their entry into crypto. All of this encourages Bitcoin adoption.
Why only Bitcoin adoption?
The world’s most powerful innovation, Bitcoin, came up with the idea of democratizing exchange without having control from any single authority. It’s been 11 years since it came into existence. Since then, it has maintained its position as ‘the best-performing asset class’ and, most importantly, Bitcoin is on its way to achieving the status of digital gold in the coming year. Every day or we can say every 10 minutes, the network of Bitcoin gets stronger than before.
The rise in the prices of Bitcoin and Ethereum will have a notable impact on India’s flat currency. Countries that have the weakest economic policies and currencies are more vulnerable to economic failure. This negative impact of Bitcoin on flat currencies is the reason why countries are hesitating to adopt it. But the government should consider these two topmost cryptocurrencies as an opportunity and not a threat. If India aims at achieving a $5 trillion economy, a $1.7 trillion market cannot be ignored because it exists because of cryptocurrencies.
The governor of the Reserve Bank of India (RBI), Shaktikanta Das, stated that the central bank would continue to have serious and major concerns regarding cryptocurrencies. It should be noted that cryptocurrencies are under regulatory observation and the government is still considering whether to allow them fully or not.
How cryptocurrency can help India achieve its $5 trillion economies?
Before the existence of cryptocurrencies, countries used to consider gold as a robust store of value. Back in 1944, when 44 countries signed on to the Bretton Woods system and agreed to peg their currencies to the U.S. dollar, the USA became the powerhouse of the world economy and achieved the status of a superpower. At the time, the US dollar was also backed by gold. By adopting bitcoin, India has also got the chance to achieve the same kind of robust growth.
What the Indian government needs to do is to allow its citizens to directly invest in cryptocurrency assets legally through banking channels. The adoption of cryptocurrency will give rise to new businesses, entrepreneurs, startups, products and services, and innovations, or we can say it will give rise to a new market altogether. Just like it happened with the internet, smartphones, and other new technologies such as AI, it is happening with blockchain technology too in some countries like Singapore, Germany, and Switzerland. Just like other countries are adopting crypto, the government of India should also let it flourish in the country in a regulated manner.
If the Indian government gives its people access to invest in cryptocurrency through regulated channels, it will help increase the purchasing power of the 1.3 billion population. The present per capita income of India is just over $2,000, which is significantly lower when compared to other developed countries. Also, the doors of global high-performing markets are closed to average retail investors, so they have limited options in India’s equities and commodities markets.
The growth of blockchain technology will give rise to multiple companies. When the Indian government starts regulating Bitcoin and other crypto assets, there will be a lot of significant innovation, creating a plethora of crypto-related jobs in technological engineering, marketing, and many more.
If we talk about the devastating impact of Covid-19, blockchain has been generating job opportunities in India and worldwide. As of now, more than 300 startups have generated tens of thousands of job opportunities and millions of dollars in revenue and taxes. Indian blockchain firms are not left behind in creating job opportunities; and why wouldn’t they? – The industry is booming. Take the example of WazirX, India’s largest digital currency exchange, which grew over 12 times in the first 6 months of 2021.
No doubt that crypto adoption will help India achieve its $5 trillion economies, or maybe beyond that. It won’t be wrong if we say that it can help India become the powerhouse of the economy that it has the potential to be. But the Indian government added a twist by announcing a 30% tax on income from cryptocurrencies and other virtual digital assets. Let’s understand what the impact of the crypto tax could be on Indians.
Crypto tax impact on Indians
The Indian government, while presenting the union budget 2022, announced a 30% tax on the income generated from cryptocurrencies and other virtual digital assets. Not only this, but the government also announced that it would impose a 1% TDS on every crypto transaction from July 1, 2022. All these announcements seem to have a negative impact on Indian retail investors.
While taxation would bring legitimacy to the industry, such a high tax is declining the interest of Indians in cryptocurrencies. To begin with, cryptocurrency is not a form of gambling, lottery, or other gaming activity. It is both an asset class and an investment product. Trading crypto requires specific skills and it cannot be compared to gambling. So the tax rate should have been at least the same as it is for other asset classes. Such high taxation on cryptocurrencies may set back wider adoption and exchanges will lose volumes. The low volumes and trade will also decrease the amount of further trade, which in turn will generate low taxes for the government, low income for exchanges, and lower profits for traders.
If India does not reduce the tax and become crypto-friendly, the industry may leave the country. If something like this happens, the country may face a brain drain. The job opportunities that blockchain companies have created will no longer be available. Most skilled personnel will likely be moved overseas, especially to the more crypto-friendly countries.
There are certainly some positive and some negative impacts of the crypto tax on Indians. The government got a good source of income by imposing a crypto tax, and investors’ speculation, with crypto being a risky asset, can be seen as a long-term investment. However, a high tax rate will surely have a negative impact on Indians. The other major downside is that investors will not be able to set off any losses. The government needs to take the right action regarding cryptocurrencies and should chart out a digital-led growth strategy to become a $5 trillion economy by 2025.
*This story has been published by CoinChapter.com and the information contained in this article is for only informational purposes. It does not present any investment advice nor does it serve as a substitute for individual investment.*
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