MC Interview: Crypto should be taxed like any other asset, says Sanjeev Sanyal

Sanjeev Sanyal said that India is trying to spread the use of the financial messaging system called Structured Financial Messaging System (SFMS) after the huge success of the unified payments interface or UPI

In an exclusive interview with Moneycontrol, Sanjeev Sanyal, a member of the Economic Advisory Council to the Prime Minister (EAC-PM), said that he is in favour of crypto as an asset in India.

"It should be clear that we do not think of cryptocurrency as a currency, but as an asset. In which case it should be taxed like any other asset, which is what we have done and I am in favour of it," said Sanyal.

He added that India is trying to spread the use of the financial messaging system called Structured Financial Messaging System (SFMS) after the huge success of the unified payments interface or UPI. Edited excerpts:

Do you think there is a place for things like crypto in India? Do you see a future for it here?

It should be clear that we do not think of cryptocurrency as a currency, but it should be an asset. In this case, it should be taxed like any other asset, which is what we have done and I am in favour of it. In one of the G20 declarations India is in favour of developing an international framework for regulating crypto assets, but any one country doing it on its own will not work. It has to be internationally coordinated.

How do you view the current state of the banking sector and its key challenges?

Over the last five years, the Indian banking system has been a huge clean-up basis of better capitalisation with new services improvement in creditor.

That clean-up has dramatically improved the balance sheets of banks and their profitability is up. The NPA (non-performing assets) ratios have come down significantly (across the board). And despite the shock of the COVID-19 phase, the Indian financial system generally, not just the banks, is in a much cleaner and better position than it has been in a long time.

This is particularly creditable given the global scenario where the increases in interest rates have caused a great amount of stress in banking systems in other countries like, for example, the US, and many medium-sized banks have gone bust. But in India, bank balance sheets continue to grow.

What are your thoughts on the Reserve Bank of India’s (RBI) decision to withdraw banknotes in the Rs 2,000 denominations?

This is a very common phenomenon around the world. Currency notes are introduced and after a while, currency notes are withdrawn and new ones are issued in different denominations, and so on. This introduction and withdrawal of currency notes is a very common phenomenon. Please go and look, for example, at the UK, they are doing it all the time, many other countries, Australia does it. This is a routine affair. I don't know why it should be a major issue.

How do you see inflation playing out considering the El Nino effect and rising prices of certain commodities?

India's inflation remains reasonably well controlled. There was an incident recently where it went up because of certain vegetable prices. But as you know, the prices of those vegetables have now come down sharply. So underlying inflationary pressures in India are well contained, which is broadly the assessment of the Reserve Bank as well. So I agree with the Reserve Bank of India's assessment.

The RBI has implemented various monetary policies to stabilise the economy. What is your perspective on the coordination between fiscal and monetary policy in India?

Monetary and fiscal coordination in India in the last few years has dramatically improved and I would say it's perhaps one of the best in the world. As you know, RBI governor Shaktikanta Das even got an award naming him the world’s best central bank governor.

We did not see the kinds of macroeconomic stresses faced by other emerging countries like Egypt, Turkey or Sri Lanka. In fact, all developed countries have faced major microeconomic stresses. In India, we are not facing those kinds of stresses, and that happens because the monetary and fiscal policies have worked together. So for example, in the US, we have a situation where in the last couple of years you had a lot of monetary tightening, but the fiscal policy continues to be very loose, which causes disbalance in the policy mix, whereas in India it has continued to be restrained and very balanced.

Where do you see India's digitisation initiative going after the UPI’s success?

We are trying to encourage the use of UPI outside of India as well. Recently, countries like the UAE (United Arab Emirates), for example, and others have accepted the use of the UPI. In addition to this, we are also spreading the use of our financial messaging system called SFMS (Structured Financial Messaging System) as well and we are popularising its use.

So, over time, it will spread and we hope that that will also go hand-in-hand with the wider use of the Indian rupee as well internationally and so on.