India's crypto regulation has influenced foreign investment, ranging from deterrence to cautious optimism. Despite teething issues, the trend is towards openness and systemic thinking.
India's crypto policy yo-yoing has been characterized by one of caution, controlling steps, and about-turns. As the home of the fifth-largest economy in the world and financially and technologically booming financial hub, foreign investment developments are heavily attributed to India's crypto policy to control. The current paper discusses the role of India's crypto policy towards foreign investment, elaborating on the challenge, opportunities, and way ahead.
The Reserve Bank of India (RBI) had previously in April 2018 issued a notice prohibiting banks and financial institutions from dealing or offering services to individuals or organizations trading in virtual currencies. The move crashed the crypto activity severely and scared foreign investors who feared regulatory ambiguity.
But then in March 2020, the RBI ban was struck down by the Supreme Court of India on grounds of being disproportionate and without empirical data of harm being caused by cryptocurrencies. This landmark ruling reignited interest in India's crypto sector, and foreign investors started entering the market cautiously.
In the Union Budget 2022, the government of India signaled that they were going to impose a 30% levy on virtual digital assets (VDAs) receipts and 1% Tax Deducted at Source (TDS) on every crypto trade. The move in conferring legality upon cryptocurrencies at least on paper did ruffle foreign investors in as far as over-exposure to taxation and its effect on the trading volume.
Tax policy forced Indian crypto exchanges to experience a steep drop in trade volume, with some falling by more than 70% in a matter of days after the announcement. Foreign investors, especially those with exchange operations or investment in Indian crypto firms, took it as a cue and started being wary of future investment.
One of the biggest issues for international investors has been uncertainty over whether there is a full regulatory framework under which cryptocurrencies are functioning in India or not. While the government has made significant progress in legalizing and taxing VDAs, uncertainty still exists over their legality, scope, and service providers' responsibilities.
This policy ambivalence has built up a "wait and watch" strategy on the part of overseas investors eager to invest in India's giant market but don't because of fears of change in policy. Ambiguity in fixed rules also makes it harder for foreign players to stick to it and measure risks.
More encouraging news more recently still, however, indicates a better foreign investment environment for foreigners in India's crypto market. America's biggest crypto exchange, Coinbase, in April 2025 indicated back to India after receiving regulatory permission to become registered with India's Financial Intelligence Unit (FIU), an anti-money laundering regulator. This comes after India's early resistances to crypto currency began to fade, with the country poised to open arms to foreign invasion into the crypto market.
Coinbase's return is also good news for other foreign investors as a sign of future regulatory clarity and receptiveness. Other large exchanges such as Binance have also been similarly enrolled by the FIU following offshore exchanges being confronted with regulatory enforcement, demonstrating India's altered stance towards foreign crypto actors once more.
In comparison to Southeast Asian counterparts, Indian crypto policy regulation has been more conservative. Singapore and the Philippines have taken direct regulatory guidelines, being pro-innovation and directing vast foreign investment into the cryptocurrency industry.
India's very high tax and regulatory risk, however, have so far acted as a dampener to foreign investors. India's large consumer market and increasingly digital platform are otherwise robust drivers for luring foreign investors, provided regulatory clarity significantly improves.
To enable foreign investment in its crypto space with its full potential, the following needs to be done:
1. Clear Regulatory Framework: Adequate regulation to regulate the use, trading, and taxation of cryptocurrency will give the much-needed confidence to foreign investors.
2. Reasonable Taxation Regulations: Rationalizing the existing tax policy in accordance with investment- and trade-friendly policies will increase the involvement of foreign players.
3. Stakeholder Consultation: Foreign investors as well as industry stakeholders can be onboarded to help develop a policy that provides a balance between innovation and risk management.
4. Global Partnership: Regulators across the world can be co-ordinated to help provide ease of implementation of best practices as well as bring Indian policies to global standards.
India's crypto regulation has influenced foreign investment, ranging from deterrence to cautious optimism. Despite teething issues, the trend is towards openness and systemic thinking. By removing regulatory uncertainty and creating a facilitative ecosystem, India can emerge as one of the global hubs of crypto innovation and investment.