Content :
- Growing pains
- Regulating India’s virtual digital assets revolution
Growing pains
India’s economic growth in 2024-25 shows mixed signals, highlighting the urgent need to accelerate development to meet its ambitious goal of becoming a developed economy by 2047.
Relevance : GS 3(Economy and Growth)
Practice Question : Examine the mixed signals in India’s economic growth performance for 2024–25. In light of these signals, critically assess the challenges and opportunities in achieving the goal of becoming a developed economy by 2047. (250 words)
Mixed Economic Signals (2024-25 Performance):
Q4 growth at 7.4% exceeded expectations and was the highest in an otherwise weak financial year.
- Annual growth hit a four-year low, causing concern despite quarterly optimism.
Sectoral Performance:
- Construction sector rebounded strongly, showing double-digit growth, a key employment generator.
- Agriculture also posted strong growth, another major employment sector.
- Services sector maintained steady and robust growth.
- Manufacturing growth slowed drastically to 4.8% in Q4 (down from 11.3% the previous year), indicating industrial challenges.
Underlying Growth Drivers:
- A significant portion of the 7.4% GDP growth was due to a 12.7% increase in net taxes, which inflated the statistical growth figure.
- Real economic activity growth without tax boost is closer to 6.8%, reflecting moderate underlying momentum.
Consumption and Investment Trends:
- Private Final Consumption Expenditure grew only 6% in Q4 — slowest in five quarters — despite expectations from the ‘Maha Kumbh effect’, indicating weak consumer demand.
- Capital formation improved significantly at 9.4%, helped by accelerated government investments, a positive sign for future capacity and infrastructure.
Government Perspective:
- Officials highlight 6.5% annual growth as fastest among major economies post-pandemic, contextualizing it as acceptable amid global “growth-scarce” conditions.
- However, this modest pace is insufficient relative to India’s development goals and growing domestic demands.
Development Aspirations vs. Reality:
- The government aims for a “Viksit Bharat” (Developed India) by 2047, needing consistent ~8% growth annually for at least a decade.
- Current growth trajectory (6.5% in 2024-25) is slower than required, suggesting the economy is lagging behind long-term targets.
Stability vs. Acceleration:
- Chief Economic Adviser’s comment on low inflation and stable growth implies less volatility and risk of slowdown.
- However, stability might also mean growth won’t accelerate significantly, which could hinder India’s developmental transition.
Key Takeaway:
- While there are positive signs of recovery and stability, India must urgently accelerate growth to meet its developmental ambitions and improve employment outcomes, rather than being complacent with “not bad” performance.
Regulating India’s virtual digital assets revolution
Context : India’s VDA Landscape: High Growth Amid Regulatory Ambiguity
- India leads in grassroots crypto adoption (Chainalysis 2024 report).
- Retail investors poured $6.6 billion into crypto; potential to generate 8 lakh jobs by 2030 (NASSCOM).
- India has one of the fastest-growing Web3 developer bases globally.
- Supreme Court (May 2025) questioned absence of regulation, remarking that “banning may be shutting your eyes to ground reality.”
Relevance : GS 3(Banking , Digital Asset)
Practice Question : Despite India’s leadership in virtual digital asset (VDA) adoption, regulatory ambiguity continues to dominate policy. Critically examine the challenges and suggest a way forward for effective VDA regulation in India. (250 words)
Regulatory Gaps and RBI’s Early Resistance
- RBI began voicing crypto concerns since 2013 due to lack of central backing.
- In 2018, RBI prohibited financial institutions from crypto dealings—overturned in 2020 by Supreme Court.
- India’s regulatory vacuum contrasts with strict capital controls and payment regulations.
Stop-Gap Measures: Taxation Without Regulation
- 2022 tax policies:
- 1% TDS on transactions > ₹10,000 (Sec 194S).
- 30% capital gains tax (Sec 115BBH), no loss offsetting.
- Intended to enhance transparency and curb speculation, but:
- Only 9% of VDA holdings are on domestic exchanges.
- Indians traded₹1.03 trillion (Jul 2022–Dec 2023) on non-compliant platforms.
- Loss of₹2,488 crore in tax revenue; TDS loss exceeds ₹60 billion.
Enforcement Challenges
- Efforts like URL blocking of non-compliant platforms have limited impact:
- Traffic rebounded post-block.
- Users employ VPNs, mirror sites, or shift platforms.
- Result: India loses tax revenue and regulatory control.
Role of VASPs (Virtual Asset Service Providers)
- International bodies (IMF, FATF, FSB) advocate risk-based, harmonised regulations.
- VASPs act as bridges for regulatory oversight and compliance.
- Indian VASPs are:
- Compliant, maturing rapidly, and cooperating with FIU-India.
- Improving AML/CTF mechanisms (recognized by FATF).
- Post-2024 hack (loss of $230M), enhanced cybersecurity, insurance funds, and industry-wide standards.
Policy Stalemate and the Way Forward
- Current regime imposes tax without a regulatory framework.
- This pushes users offshore, increasing risks and revenue loss.
- Need for:
- Balanced, pragmatic, and future-proof legislation.
- Empowering VASPs within clear domestic regulations.
- Harmonization with international best practices.
Conclusion: Mind the Gap
- There is a serious mismatch between ground reality and policy.
- Regulatory clarity is essential to harness economic potential, protect consumers, and enforce compliance effectively.
