A detailed policy submission placed before the Parliamentary Standing Committee on Finance has sought an expansive examination of India’s Virtual Digital Asset (VDA) ecosystem, raising serious concerns over consumer protection, regulatory arbitrage, offshore capital migration, tax leakages, and institutional accountability.
The submission, made by independent policy researcher Santosh Parashar, proposes a set of pointed questions for the Committee as part of its ongoing study on Virtual Digital Assets and the regulatory framework governing them.
The submissions questions how platforms that market themselves as “safe”, “trusted”, and even “zero-fee” can simultaneously rely on click-wrap contracts that disclaim fiduciary obligations, shift cyber-security and insolvency risks to users, and deny responsibility for hacks, scams, frozen withdrawals or loss of access.
The submission asks whether private contractual waivers drafted by digital platforms should be permitted to override established principles of consumer protection, informed consent and fair financial conduct particularly where retail investors are drawn into speculative markets without safeguards comparable to regulated financial institutions.
It also flags concerns over the alleged commercial exploitation of India’s sovereign KYC infrastructure, questioning whether identity verification systems designed for anti-money laundering, national security and banking compliance have effectively been repurposed by crypto entities for customer acquisition, behavioural targeting, referral-driven onboarding and speculative trading inducements.
Another major issue raised is the aggressive “zero-fee” marketing narrative adopted by exchanges. The submission argues that such positioning may have operated as a behavioural strategy to attract retail investors, while actual revenues were generated through spreads, futures, listing fees, subscriptions, liquidity arrangements and referral ecosystems. It calls for mandatory disclosures on revenue segmentation, retail profitability ratios and assessments of financial harm caused to users.
The policy note also questions the corporate structuring of crypto exchanges operating in India, alleging that many may be incorporated under software or technology-service classifications while substantively functioning as quasi-financial intermediaries engaged in custody of public assets, exchange of funds and speculative intermediation.
It asks whether such structuring enabled exchanges to secure the economic benefits of financial intermediation without being subjected to capital adequacy, licensing, governance and investor-protection norms applicable to regulated financial institutions.
The submission further calls for scrutiny of the Ministry of Corporate Affairs and other regulators, questioning whether adequate oversight was exercised over companies allegedly operating beyond their declared corporate objects.
A separate section focuses on offshore migration of crypto trading. Citing public-domain estimates, the submission claims a substantial proportion of Indian crypto activity may have shifted to offshore exchanges, potentially resulting in significant capital outflows, regulatory blind spots and tax leakages.
It points to estimates suggesting offshore crypto trading by Indian users may have crossed several lakh crore rupees, with potential losses in TDS and income-tax collections running into tens of thousands of crores.
The role of the International Financial Services Centres Authority (IFSCA) also needs policy attention, with questions raised about safeguards against regulatory arbitrage, opaque custody arrangements and offshore routing of Indian retail capital through fintech and digital asset structures.
The submission additionally seeks examination of crypto exchanges’ use of CSR campaigns, financial literacy drives, campus outreach and influencer-led awareness programmes, arguing that such initiatives may function as indirect investor acquisition mechanisms that create a perception of legitimacy despite continuing regulatory ambiguity.
The questions collectively urge Parliament Committee to examine whether India’s digital asset ecosystem has evolved into a parallel speculative financial architecture operating beyond conventional prudential oversight, and whether stronger inter-regulatory coordination is required among RBI, SEBI, FIU, ED, MCA, tax authorities and IFSCA.
The Standing Committee’s deliberations on VDAs are expected to be closely watched amid continuing policy uncertainty over India’s long-term crypto regulatory approach.
Note: This report is based on a policy submission made to the Parliamentary Standing Committee on Finance and reflects the views, concerns and public-domain analysis of the author. The issues raised do not represent findings or conclusions of the Committee, the Government, or any regulatory authority. It does not represent views of any Institution as well.