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The Crypto Effect : Framework, challenges & The way forward

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SHASHWAT MISHRA – Mumbai Uncensored, 15 January 2022

2021 was a year full of buzz around cryptocurrency in India, apps coming up with private cryptocurrency(bitcoin), people investing in bitcoins, government twice was close to come up with a law banning all private cryptocurrency, but no material step was taken in this area. It becomes imperative to understand all about cryptocurrency and the article aims to give a detailed analysis on cryptocurrency, its challenges and the way forward. 

What is cryptocurrency?

A cryptocurrency is a medium of exchange similar to a Rupee or any other currency. The difference is while a rupee or a dollar exists in a physical form which is a printed note, cryptocurrency is held in an electronic form based on a technology named blockchain. Blockchain is nothing but a decentralized ledger in an electronic form which contains “blocks” in other words transactions across a peer-to-peer network, which means without an involvement of a third party. 

Bitcoin is the world’s best known cryptocurrency which is considered to be the largest in terms of market value followed by Ethereum. If we talk about how cryptocurrency works, it needs to be understood in the context of a fiat money (currency with authorized permission and regulation), for example a rupee is regulated by the Reserve Bank of India which ensures that the money in circulation is genuine and is recorded. In the context of a cryptocurrency, a chain of private computers execute this process and solve complex cryptographic puzzles, this is done to authenticate the transaction, this process is called mining. 

TRADING IN CRYPTOCURRENCIES

To trade in cryptocurrency, one needs to first buy a cryptocurrency, there are two ways in which a cryptocurrency can be brought, firstly, you can buy crypto coin from someone and the second, is to mine your own cryptocurrency. Buying happens in either an exchange facilitated transaction or a peer-to-peer transaction. Talking in the context of India, the simplest way to trade in cryptocurrency is through one of the exchange and trading platforms which includes, WazirX, CoinDCX, CoinSwitch Kuber etc.

To trade in cryptocurrency by using INR, the user needs to register on one of the exchange platforms mentioned above, and complete a KYC process, then if the user is buying cryptocurrency for the very first time will need to load INR money in their wallet of their cryptocurrency exchange. 

FRAMEWORK ACROSS COUNTRIES & INDIA

El Salvador has become the first country to recognize bitcoin as a legal tender, China on the other hand has imposed a complete ban on cryptocurrency. It becomes imperative to look at some of the other jurisdictions around the world and their regulatory framework regarding cryptocurrency.  

In the United States, The federal government does not recognize cryptocurrency as a legal tender, the two major regulators i.e. US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are playing catch up while regulating the digital currency market, their objectives are two fold, firstly, protecting the investing public and secondly, maintaining market stability. 

In the United Kingdom, Her Majesty’s Revenue and customs department has not considered crypto assets as a currency. Furthermore, it has noted that cryptocurrency does not qualify to be any form of investment activity. 

In Canada its regulator, Canada Revenue Authority (CRA) though does not recognize it as a fiat currency but treats it like a commodity used for payment and investment purposes and the same is subject to taxation. 

Israel through its legislation, Supervision of Financial Services Law includes digital currency within the definition of financial assets. The Israel tax Authority demands 25% on profits made through exchange and trading of cryptocurrency.  

India though has not come up with any policy or legislation either regulating or banning cryptocurrency, however, before the winter session of parliament last year there were conjectures that the government may come up with a law banning all private cryptocurrencies, but nothing concrete happened, which has led to uncertainty amongst investors in the Indian crypto market. The Reserve Bank of India (RBI) though, has given some hints as to what would a regulatory framework on cryptocurrency in India look like. 

The RBI is expected to come up with Central Bank Digital Currency (CBDC) a digital currency that can be transacted using platforms based on blockchains and would be regulated by RBI. However, this is just a form of digital currency, but the broader question is what should be a comprehensive policy related to cryptocurrency? Mr. Hemant Batra a renowned public policy expert and a lawyer while speaking to Mumbai Uncensored has provided his detailed insight and expertise on the policy regarding cryptocurrency, he says, “public policy can be of two types, firstly, a policy which brings or initiates a reform in any sector or segment within the society and second, is a policy brought about to formalize a change which has already happened. The Indian cryptocurrency market has now become very big with involvement of billions of dollars in the market hence, it is now unattainable and irreconcilable for the government to completely ban all sorts of cryptocurrency and its trading and investment. India is absolutely ready to accept cryptocurrency with a regulatory system based on global requirements as per the guidelines issued by IMF (International Monetary Fund). Banning cryptocurrency will lead to damaging the financial statistics of all nations”  

CONCERNS AROUND CRYPTOCURRENCY 

The next aspect is the challenges that cryptocurrency puts forth before the policy makers, these can be termed as “macro” consequence of cryptocurrency. First aspect is the challenge related to the monetary policy, former RBI governor Duvvuri Subbarao speaking at a public forum has expressed his concerns on cryptocurrency and its impact on monetary policy according to him, cryptocurrency may erode central bank’s control over money supply, “Crypto is backed by algorithms and there is fear that the central bank might lose control over money supply and inflation management. There are also concerns that crypto will disrupt the monetary policy,” he said, “Crypto can jump capital controls; fiat money is linked to the reserve currency,” his indication was towards “stablecoins” whose value is tied to a fiat currency by maintaining equivalent reserves (“currency board” exchange rate regime). 

The next challenge is fiscal, that is cryptocurrency being used as a tool for tax evasion as it would be very feasible for a crypto investor to invest his untaxed money in purchasing bitcoins and similar would be a case in money laundering wherein “proceeds of crime” could easily be invested in any of the cryptocurrency exchange and trading platforms. Mr. Batra on this point states, “FATF (Financial Action task force) and IMF have expressed their serious concern about this issue, there are certain sets of cryptocurrency that are based on very private blockchains wherein one cannot identify the nation from which such virtual currency is operating and there are cases investigated globally wherein there has been a direct link between financing illegal and terror activities through crypto exchanges. To tackle this scenario, the government has to introduce regulatory regimes not on the cryptocurrency but crypto service providers.” 

On the point of cryptocurrency being a very lucrative investment avenue Mr. Batra says, “investment in government bonds and securities, SEBI controlled mutual funds, financial securities might take a hit as people will not take risk in investing smaller companies and thus, they will either invest in blue chip companies or in cryptos”. Thus, cryptocurrency in India has now become a major factor in the financial as well as the economic realm and now what is needed is a comprehensive regulatory framework which ensures investor protection as well as market stability of crypto. In the budget session scheduled to start from 30th January; the Union Budget will be presented on February 1st, the government is expected to come up with a law on cryptocurrency, it would be very interesting to see how the law is formulated.

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Open Network for digital commerce

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How ONDC aims to change the Indian e-commerce industry.

Khushi Shah – Mumbai Uncensored, 3rd June 2022

The lockdown brought about a dramatic growth of e-commerce in the past few years, which has hampered the business of physical retailers.With super high class companies who have invested billions of dollars in research and development in India we have been going through the abuse of ‘aggregator superpower’ a monopolising model of e-commerce. Allegations by CAIT and others have ranged from predatory pricing and prioritising certain sellers to the foreign ownership of Amazon and Flipkart. 

An attempt by the Indian government is being made to break down giant monopolies like amazon, flip kart, swiggy and so on with the introduction of ONDC which is supposed to be as revolutionary as UPI itself. It will not just be limited to products but also to services such as mobility, grocery, food order and delivery, hotel booking and travel, and many others. 

ONDC is an open technology network based on open protocol which is expected to digitise the entire value chain, standardise operations, promote inclusion of suppliers, derive efficiencies in logistics and enhance value for consumers.

 The official government note was circumspect. “ONDC is a globally first-of-its-kind initiative that aims to democratise digital commerce, moving it from a platform-centric model to an open network,” it said. “[It] will enable buyers and sellers to be digitally visible and transact through an open network. No matter what platform or application they use.”

E-commerce is a complex business where every business has its unique supply chain and processes and standardisation is a challenge. It would require reconfiguration, including a complete revamp of their systems and losing advantages like control over the user interface and consumer behaviour insights. For the government however it will provide better control over what is sold and bought. In UPI, a recent government stipulation set a market share limit of 40 per cent for any service provider, which immediately dampens the growth of a market leader PhonePe which is owned by Walmart outside India.

In a marketplace-centric model, a buyer first selects a platform and then searches for a product there where then platform acts as an intermediary for the buyer and seller. In the new model, the buyer will search for the product first and then pick the right seller offering that item. The platform the seller is on becomes secondary. It aims at promoting open networks developed on open-sourced methodology, using open specifications and open network protocols independent of any specific platform. This provides all the small and medium fishes in the ocean with an opportunity to grow big, and simultaneously give a boost to Make in India.

“It’s (Open Network for Digital Commerce) an idea whose time has come. We owe it to the millions of small sellers to show an easy way to participate in the new high-growth area of digital commerce,” Nilekani, the co-founder and non-executive chairman of Infosys, himself supported this platform. 

This makes it the most potent weapon the ruling dispensation has yet unleashed on India’s e-commerce duopoly.

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Pet breeders stand to lose license if unregistered

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Khushi Shah – Mumbai Uncensored, 24th May 2022

More than three years after the Prevention of Cruelty to Animals (Pet Shop) Rules, 2018, making it mandatory for pet shops to be registered with the respective State Animal Welfare Board (SAWB) companies still go one to flout laws.

On June 13, 2021 Corporation officials said they are now keeping a close eye on the pet trade and are ready to seize the shops if the owners do not get valid registration and trade licences.

As per the Prevention of Cruelty to Animals (Pet Shop) Rules, 2018, no person should sell or trade in pet animals, whether retail or wholesale, or establish operate a pet shop, or any other establishment engaged in sale, purchase or exchange of pets without obtaining a certificate of registration from the State Animal Welfare Board (AWB).

On 26th august 2021 the petitioner’s counsel Sanjukta Dey told the bench that she had visited shops in Crawford Market and Kurla as recently as three days ago and found violations of the earlier high court order, which had directed immediate closure of such illegal shops. The shops require permission from the State Animal Welfare Board and they had seen puppies being drugged and animals kept out in the sun or out in the rain with no food or water. Due to the continued lack of regulation, illegal pet shops have mushroomed all over the city. It is alleged that such establishments are keeping animals domesticated as well as wildlife from India and abroad in “utterly unhygienic conditions” and the life and liberty of thousands of animals are at stake as they languish and die in miserable conditions in unlicensed and unregulated pet shops. They are also often taken away from mothers a a young age.

May 23 (PTI) The Delhi High Court on Monday sought the Delhi government’s stand on a public interest litigation seeking directions on dealing with unregulated, unlicensed and illegal pet shops operating in the city.

“The non-implementation of the Prevention of Cruelty to Animals (Pet Shop) Rules, 2018 is a complete dereliction of duty by the respondents (authorities), and by doing so, the respondents’ actions are affecting animal welfare negatively and preventing the compliance of the Prevention of Cruelty to Animals Act, 1960 and the Wildlife (Protection) Act, 1972,” the petition filed through lawyers Supriya Juneja and Aditya Singla said.

Many pet shops and breeders operating in Mumbai are not licensed and the state urges pet owners to bring home pets only from licensed breeders.

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Govt. Plans to Cut Cooking Oil Tax

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The Indian market after seeing an unprecedented rise in the prices of edible oils plans to cut taxes on edible oil to keep the prices in check.

Khushi shah – Mumbai Uncensored, 5th May 2022

The war, combined with weather disruptions that limited harvests in other vegetable oil-producing regions, led to a supply shortage of sunflower oil. The ban by the world’s biggest palm oil producer and exporter on 28th April 2022, on the export on the widely used edible oil and all the conflicts between Russia and Ukraine that already upended the global agricultural trade in the world, sent oil prices skyrocketing in the market.

India is particularly sensitive to rising vegetable oil prices as it is dependent on imports for 60% of its needs. Inorder to keep the prices in check ,India, the world’s top importer of vegetable oils is planning to cut taxes on some edible oils to cool the domestic market after the war in Ukraine. 

India has tried to reduce prices in the past, including reducing import duties on palm, soybean oil and sunflower oil, and limiting inventory to prevent stocking the oil.[ In September 2021] The import taxes on palm oil had been slashed to 2.5% from 10 %, while soy oil and sunflower oil had been reduced to 2.5 per cent from 7.5 per cent. 

The reduction in these taxes were aimed at bringing down prices of the edible oils in India and boost consumption, effectively increasing overseas buying by the south Asian country.It would also bring down edible oil prices ahead of key festivals, when edible oil demand rises in the country

However, The moves so far have not been effective enough to cut down the rates of oil in the market 

India, the world’s top importer of vegetable oils, wants to reduce the agricultural infrastructure and development cess on imports of crude palm oil to below 5% . According to reports, it is said that the government is now considering reducing import duties on crude varieties of canola oil, olive oil, rice bran oil and palm kernel oil from 35% to 5% to help boost domestic supplies. The new tax amount is still being deliberated The cess is levied over and above basic tax rates on certain items, and is used to finance agriculture infrastructure projects. The base import duty on crude palm oil has already been scrapped.

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