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India's GDP print out & India's central bank's positive stance on crypto

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@karamyog
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The much-awaited GDP figure for India's economy for FY20-21 was finally released yesterday. For the full financial year, India's GDP contracted by 7.3% (compared to 4% growth for FY19-20). The last quarter of FY20-21 witnessed a growth of 1.6%.

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The released numbers were better than forecasts. Most investors had already written off the last financial year, hoping for things to normalize this year. With how things are panning out, hopes from this year are also dwindling. There has been nothing positive on the vaccination front and industrialized states such as Maharashtra, Karnataka, and Tamil Nadu, all remain in lockdown. In fact, the Covid-19 caseload in the latter two states still remains high. Last week itself, news of factories shutting down in Tamil Nadu surfaced, adding to investor worries.

The better the estimated numbers have been driven by an exceptional performance by the construction sector which grew by 14% in Q4. Utilities which include gas, electricity, water supply performed better with 9.1% growth. On the other hand, services comprising hotels, trade, transport contracted by 2.3%. Source

The ongoing lockdowns will surely hit discretionary spending in urban areas. Job losses are adding to the problem and are likely to hit overall consumer spending really hard. Estimates vary in India about job creation. This report suggests that 97% of households in India have seen a reduction in income. As global economies see increasing demand in the near future, India's inflation problems could get worse. Crude oil is the biggest factor. With falling income, and higher spending, I do not see a happy consumer for a long time to come. Key to India's growth coming back is how fast we vaccinate. Unfortunately, there is no news to cheer us up on that front.

I keep comparing India's condition to other G7 economies, but our neighbor Bangladesh has overtaken us in terms of per capita income. That is not only because we have suffered badly but also because long-term thinking and better policy have led to Bangladesh's roaring success since its creation in the 70s.

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Not all is gloom. In a big relief for India's strong and growing crypto community, and to my surprise, India's central bank has clearly stated that Indian banks that are not providing banking services to crypto investors and exchanges by giving reference to RBI's 2018 circular are NOT doing the right thing. It stated that the central bank's circular has been set aside by the highest court in India.

However, while the news is positive, 100% clarity is still not there. If one looks at the whole matter from a bank's point of view, then the reason for closing the business account of exchanges or warning customers was happening because they have no proper clarity from the central bank. Even now, the only thing the central bank has done is to ask banks not to refer to its 2018 circular. Does that provide clarity to banks about whether they should allow crypto transactions. Not at all. No bank would want to have its foot in the mouth when something wrong happens.

The only way to solve this crypto conundrum in India is for politicians to come up with proper regulations about crypto. Unless there are laws that define crypto as an asset class, RBI has no power under any law to allow/regulate crypto transactions. India's tax authorities do not know how to tax gains from such investments. Moreover, those in power and with money will not like that an average citizen was smarter than them in identifying a pathbreaking tech and made a lot of money from it. The easiest way out for everyone is to ban it.

India's crypto regulation drafting will be a slow affair. I am sure very few people at the top get it. Take, for example, this article written by one of India's most educated politicians. Shashi Tharoor's list of achievements is inspiring. However, even this article says that India should not miss this bus of innovation, because other countries are accepting it. Why can we as a nation not be a leader and see the innovation. Most diehard fans of bitcoin are not a fan because someone else is a fan. They did their due diligence and know that getting rid of counterparty trust is an insane innovation. The rest of the article talks about why blockchain is great and how it can do wonders. Again, blockchain is not very useful without decentralization. So if the very best do not get it, then India is bound to fall behind in this technology race and it will be a long time before we see anything solid and positive on the regulatory front.

Posted Using LeoFinance Beta