Why estimates of India's crypto-owning population could be exaggerated

As the debate around regulating-or even banning-private cryptocurrency grows, it is important to know how big India's crypto market really is

Last month, a not-so-popular cryptocurrency exchange claimed the number of people who own cryptocurrency in India has crossed 100 million. That’s a huge number and there are more reasons for it to be unrealistic, than a reasonable estimate. 

What makes the number highly improbable? To put the 100 million in the right context, let us look at how many Indians are registered in various financial channels.

Let's take the direct tax base first. In India, there are about 84.5 million income tax payers, and this includes both, individual tax payers and companies. The number includes those who file the return, and even those who do not, but end up paying tax deducted at source. 

Now, can there be more crypto owners in India than the number of tax-paying individuals? Of course, it is true that paying tax requires a minimum income threshold. Then there are rebates and deductions (current) which essentially means that a person with net taxable annual income of Rs 5 lakh needn't pay income tax at all. 

A cryptocurrency owner can technically be anyone—a taxpayer or otherwise. So technically, there could be more cryptocurrency owners than taxpayers in India. 

But is that likely? The answer tends to be negative. Less than 7 per cent of individuals in India pay income tax because most of the others—more than 1.25 billion people including children and elders—do not have incomes above the threshold of Rs 5 lakh a year. India’s per capita income is $2,191 according to IMF (2021), and Rs 1.28 lakh per year (per capita net national income at current prices) according to official statistics. 

Lower incomes mean lower savings, and a weaker ability and tendency to invest. And a further minuscule chance to invest in cryptocurrency. 

Life insurance is a financial product that is universally available, and most developed societies are fully insured, so the direction in any emerging market economy like India is generally towards ensuring the whole population has life insurance. 

In India, as of October 2021, only 99 million lives were covered under life and group life insurance policies. (The number of policies is lower than the number of lives covered as a single policy can cover multiple lives for instance a family of dependents). 

For such a vital financial product, less than 8 per cent Indians are covered for life. 

Can there be 8 per cent Indians who own cryptocurrency assets? Again, this looks highly unlikely in a scenario of low financialisation in India. 

As of date, almost every family in India has at least one cell phone. There are nearly 800 million internet users in the country, according to TRAI. Further, decades of efforts to bank every household of India has ensured that most families in India have a bank account, even though their usage and utility is debatable. 

But financialisation in terms of insurance has still not happened with the same rigour, and has a long way to go when only one in 12 people is insured for life. 

What could probably come closest to crypto investments numerically--closer than income tax or insurance base--is stock market investments. 

But even that number is smaller than 100 million. There are 50 million unique investor accounts registered with the National Stock Exchange (NSE) as of mid-2021. 

When 50 million Indians are investing in the stock market, would 100 million Indians be investing in crypto? Unlikely. 

Business Standard spoke to Nischal Shetty, founder of WazirX, India’s biggest cryptocurrency exchange. He said that there is no public data available on the number of crypto users in India. 

There are 10 million users on WazirX, based on which he estimated that the total number of users in the country could be 15-20 million. 

But he also said that user growth is now coming from tier-2 and tier-3 towns. 

As for how the policy around crypto should be, he said that there should be a grievance redress mechanism for crypto users, and a process like the KYC process in banking. 

A central bank digital currency has immense potential to improve the government’s welfare efforts, he told Business Standard.