India testing the waters on digital currency

Question: Is e-currency going to be a reality in India in the near future? What are the prospects of this currency gaining ground in smaller cities and rural areas?

ANSWER: The Reserve Bank of India is following a gradual approach and is testing the Central Bank Digital Currency (CBDC). Snack bars, fruit sellers, mom and pop stores, and small mobile phone shops have emerged as the testing ground for the digital currency which is expected to transform the way financial transactions will be undertaken across the country. The QR code of the CBDC is displayed at the shops alongwith other digital payment options. A pilot project of the RBI began in December 2022 and has so far been responsible for around a million transactions carried out in five cities with 5,000 merchants being enrolled. Eight banks, including the State Bank of India, are participating in the project. RBI has also launched a massive outreach programme across cities roping in students, academicians and other users of digital currency. The digital rupee is meant to complement, rather than replace, the present forms of money. CBDCs are an electronic form of sovereign currency and hence imbibe all the features of the physical currency. Therefore, the degree of anonymity would be a key component of the CBDC. Currently, as many as 18 G20 countries are experimenting with the CBDC at the pilot stage.

Question: Many foreign angel investors are funding start-ups in India. Thus, the ownership rights of these start-ups may, in many cases, end up with foreigners who will also have access to intellectual property rights. Is this not detrimental to the country’s interest?

ANSWER: With a view to retain intellectual property (IP) of the innovators within India, the Indian government and regulatory authorities are taking collective action to promote ‘reverse flipping’. This means that Indian start-ups will be encouraged to acquire shares of the holding companies of angel investors and thereafter either dissolve the foreign company or retain the controlling interest in such company. At present there is a tendency to have overseas holding companies domiciled in countries with a favourable legal environment and having benign taxation policies. In order to ensure that the intellectual property and critical data remain in India, the Economic Survey of India, which was released in end-January this year, has stressed the need for simplifying tax laws and mitigating tax litigation. Laws similar to those in Singapore, the UAE and Netherlands are proposed to be introduced in India which would incentivise Indian start-ups to store the intellectual property in the country itself. Therefore, suitable tax exemptions need to be introduced in India to prevent capital gains from being taxed both in the hands of the company and employees who have availed of stock options.

Question: Despite various assurances, very little is done to reduce automobile pollution. Citizens living in all major metros are exposed to health hazards. Is anything being done about this?

ANSWER: A cleaner burning version of petrol is being introduced in India where petrol is blended with ethyl alcohol. Ethanol is a bio-fuel which is made naturally by fermenting sugar derived from sugarcane or other organic matter like food grains. This is being introduced in India as part of the carbon reduction commitment. Currently, petrol has 10 per cent ethanol content which would be increased to 20 per cent. This fuel will be initially available in fifteen cities. It has been found that ethanol is a less polluting fuel and offers equivalent efficiency at a lower cost than petrol. Joint studies conducted by international institutes and R&D centres indicate improvement in relative efficiency upto 20 per cent. Studies have shown comparable volumetric fuel economy with a substantial reduction in carbon monoxide. Ethanol blending has helped to lower polluting emissions both from two-wheelers and four-wheelers.

H. P. Ranina is a practicing lawyer, specializing in tax and exchange management laws of India.

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