Cryptocurrencies should be classified as currency (not as legal tender) and the central bank, in consultation with the government, should be its regulator, according to Dr Bimal Jalan, former Governor, RBI.
He added that a blanket ban on cryptocurrencies isn't desirable and once it's classified as currency, the government can deliberate on the taxation aspects and at what tax rate capital gains on cryptocurrencies can be imposed.
"They (cryptocurrencies) are okay, but should be regulated and have transparency. A blanket ban is not desirable as they exist all over the world. A ban is not appropriate. What we need is a regulatory framework, ensuring transparency," Jalan told The New Indian Express. But without regulation, he believes it's better not to have cryptocurrencies at all.
RBI has maintained that cryptocurrencies were a serious concern and shouldn't be permitted given the challenges they can pose for macroeconomic and financial sector stability. Just recently, former RBI deputy governor R Gandhi too noted that the general consensus among many policymakers was that cryptos should be deemed as an asset, and not as a currency, payment instrument or financial instrument as there is no clear identified issuer.
"The central bank should be the regulator and make sure whatever is done in cryptocurrencies, the data is available to the public, which is not so today. Data should be public just as today we know how much money is introduced by RBI and by the government in terms of borrowings and others... the same thing should happen with crypto and digital currencies," Jalan added.
Governments are divided on categorising cryptos. If some countries like El Salvador have approved bitcoin as legal tender, others like China have imposed stringent regulations.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, seeks to create a facilitative framework for the creation of the official digital currency to be issued by the RBI. The Bill also seeks to prohibit all private cryptocurrencies, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
Meanwhile, speaking about his latest book India reckoning: Rewards and Discontents of Democracy, Jalan said the key priorities for the government include legal and administrative reforms. But foremost is taking policy decisions with reasonable consensus, not necessarily unanimously, but from across the political spectrum.
"In a democracy, it's of utmost importance that while public policy must be done, it shouldn't be done without consultation of other stakeholders," he noted.
On privatisation of banks, which he touched upon in the book, Jalan believes the timing isn't ripe for large-scale privatisation. Stating that 65% of the credit was through Public Sector Banks (PSBs), most of which are loss-making, he said the most one can do is to divest partial stakes rather than an outright sale of state-run banks. Moreover, without PSBs, infrastructure wouldn't get the kind of support that it's getting now.
As for economic growth, Jalan believes the sustainable 8% growth rate by 2025 can be done given India's edge over capital, technology, manpower, and technical expertise. "That's not happening right now, but over a period of time we can," he said adding that there was considerable optimism that by 2025, India will emerge as one of the three most important global economies.
Lastly, on fiscal deficit, he observed that though the 6-6.5% fiscal deficit target isn't very high and can be absorbed, the government should be cautious to ensure that it doesn't increase too much inflationary pressure.
"Unlike other countries, where fiscal deficit is very high and if that's the case we are printing money, which creates inflation. Fiscal deficit should be such that while inflation, growth in prices can increase in terms of real increase, money shouldn't be such that it becomes too high for others," he explained.