India's crypto entrepreneurs have long sought to set up shop outside the nation's borders, citing a hostile response to the industry from regulators.
The nation's new proposed tax law – which would impose a staggering 30% capital gains tax and a 1% tax deducted at source (TDS), coupled with an ongoing lack of clear regulation for crypto companies – may exacerbate this brain drain.
Should India proceed with implementing its tax bill in its current form, industry advocates fear developers and startup founders will launch their products in friendlier jurisdictions, which would result in an acceleration of crypto brain drain from India – a potentially irreversible human resource and financial loss for the nation.
India’s brain drain
Earlier this month, Sandeep Nailwal, co-founder of one of India's most famous crypto firms, the layer 2 protocol Polygon, said “the brain drain is absolutely crazy.” Nailwal is based in Dubai, rather than India.
Brain drain includes both entrepreneurs setting up shop outside of the country, and to a much greater extent, Indian developers joining companies based in crypto-friendly nations.
Although there is little data or research to support the brain drain theory, the trend is apparent to industry executives.
Sathvik Vishwanath, co-founder and CEO of Unocoin, a prominent Indian crypto exchange, said that although there is no data to support brain drain, the issue is real.
“More than half of the Indians into crypto have settled in Dubai. From my nine years in the business, depending on the number of founders, HNIs, customers and how big the industry is my educated guess would be 30,000 people. Maybe two-thirds would be high-net-worth individuals and the remaining would be crypto professionals who have tried to become entrepreneurs there,” Viswanath said.
Unocoin’s parent company was registered in Singapore in 2013. Since then, Viswanath claims to have met more than 200 Indian entrepreneurs in crypto.
“Not even 10 said they would register their companies in India. The entire ecosystem is moving. Forget about developers or traders, even marketeers,” Viswanath said.
An external government policy adviser, who requested anonymity because he is not authorized to speak with the press, said that “it appears that the industry has taken a position to collectively promote the narrative that India is going through a brain drain.”
A top industry executive, who was not authorized to comment on the record, denied allegations of a collective or coordinated campaign. Rather he said that the narrative is simple “unilateral messaging by exchanges and crypto-related companies” to reassert the “genuine nature of India’s brain drain.”
The policy expert said they heard anecdotal evidence of brain drain “particularly to countries like the UAE and Singapore as those are destinations that Indians are familiar with and are hospitable to entrepreneurs.”
The policy expert argued that the “exodus” is similar to the brain drain in India’s IT industry, which has witnessed this phenomenon for 30 years. The reason for the exodus is simple: The work culture in other countries is “more mobile (work from home is new to us but not to most IT entrepreneurs) and more sensitive to their operational environments,” the individual said.
The policy expert said “IT professionals are easy to lose when they feel uncomfortable or unwelcome,” but the concern here is that “India is getting left behind in the crypto race too after falling behind in the internet age.”
Back then India’s slow adoption resulted in tech talent leaving the nation. A lack of support for tech innovation failed to attract significant foreign and domestic investment in technology.
Unocoin’s Viswanath said that the crypto brain drain is different from India’s IT “exodus” because “this is new, salaries are 20% to 30% higher, and the growth rate for companies is exponentially higher.”
“Here the industry is fast-paced. Companies that were born two or three years ago are now unicorns. Their market capitalization is close to $10 billion. That kind of value creation is not possible in such a short period of time in other industries yet. This is about money and everyone wants in,” Viswanath said.
Another major Indian exchange, BuyUCoin is one of the few to be registered in India. Its approach was to build a platform by Indians for Indians, said Shivam Thakral, its CEO. Today, the leadership of BuyUCoin feels confused about its approach.
Thakral said young blockchain developers are in “high demand across the globe,” and if India does not provide a promising career path “they will be poached by foreign companies easily” resulting in the “biggest brain drain India has ever witnessed.”
“More than 30 of our engineers have left to work in countries like Dubai, San Francisco and Singapore due to the ambiguity around the crypto sector in India,” Thakral said.
According to Siddharth Sogani, founder and CEO of cryptocurrency research organization Crebaco, “developers are getting paid up to $150,000 abroad and in India, there is no respect for their talent.” “India will see the biggest brain drain in history in the next 8 to 12 months. Making #crypto difficult is not going to stop innovation. The smarties will move offshore! And you know what, these smarties will make billion-dollar enterprises in the crypto space!,” Sogani later said in a tweet.
CoinDesk spoke to more than 20 startup founders who echoed Sogani's comments, saying it is clear that India's crypto developers are seeking friendlier grounds.
Sogani explained that most of the well-known crypto companies in India, barring a few, have “holding companies abroad in crypto-friendly countries like Singapore where regulation is clear.”“A large chunk of foreign institutional investors, who were otherwise bullish on the India crypto story, have indefinitely postponed their plans to invest in India because of the regulatory uncertainty and unrealistic proposed tax laws,” BuyUCoin’s Thakral said.
A few days after Feb. 1, when India announced the tax proposals for cryptocurrencies (referred to as virtual digital assets or VDAs in the legislation), government officials opened their doors to gather information and “feedback.” These meetings happened both informally and formally but remained unpublicized by both the industry and government.
Industry participants expressed concern that the new tax proposals would scuttle the potential of India’s burgeoning industry. The industry’s argument is that such rules would add to a perception that India is not a crypto-friendly place and as a result, the ongoing “exodus” of crypto industry and talent would be exacerbated.
The government expressed surprise at the rationale behind the claims that the 1% TDS was impractical, government officials not authorized to speak on the record told CoinDesk. They were also reluctant to believe that there was a crypto industry exodus.
These meetings have slowed down over the past two weeks. A top executive at a major Indian exchange, who requested anonymity to speak frankly about industry-regulator relations, said this “does not bode well” for the industry.
Activists have been trying to gauge public sentiment around the crypto taxes.
A change.org petition started by Aditya Singh, co-founder of Crypto India, urging “the government to reconsider & reduce crypto tax” has garnered over 100,000 signatures. “New crypto tax rules are too harsh & will hurt the entire industry if they are not changed. This will result in Brain Drain, kill trading, mining, and on top of that will create a lot of confusion. Only a few days remain before it becomes applicable. Urging the government to reconsider & reduce crypto tax,” Singh tweeted.
“I know of more than five major crypto projects that were founded in India but are now shifting or have already shifted abroad,” Singh told CoinDesk.
Reasons behind ‘exodus’
Coupled with the impending tax bill, another reason behind the exodus is a lack of clarity around how crypto companies are to be regulated.
It’s unclear whether crypto tokens amount to goods under the Foreign Exchange Management Act (FEMA), or how founders can launch businesses without policies governing their operations.
The second is compliance. Legal interpretations in the absence of any crypto-specific law give a disproportionate advantage to law enforcement authorities. Investigations and settlements can take up to five or six years. A slow and unfriendly crypto regulatory environment produces chartered accountants with inadequate backgrounds in blockchain and Web 3 and that is dangerous, according to an industry source who requested anonymity for fear of retribution from law enforcement. The third factor contributing to the exodus is external forward thinkers – crypto-friendly nations beating India and “whales,” or large crypto investors, happy to set up shop outside India. Both the nations and whales have incentivized opportunities through ease of doing business, speed and monetary compensation for developers and crypto entrepreneurs. Industry executives said it is cheaper to hire blockchain developers from India. They see Indian-founded Web 3 firms using India-based talent and offices, but these companies are registered in other countries due to better compliance clarity and investment opportunities. This is a loss of foreign direct investment to India.
According to insiders, the industry to some extent understands the government’s desire to seek global consensus and wider consultations before coming up with regulations.
What new founders want
Ashish Anand is a chartered accountant and the co-founder and CEO of Bru Finance, a platform that makes non-fungible tokens (NFTs) out of real-world assets and uses those NFTs as collateral for loans.
He chose to register Bru Finance, a public decentralized finance (DeFi) blockchain firm in the Caribbean islands. Anand says he set up shop abroad because India has no clear regulation, high taxes and NFTs are not clearly defined.
“We don’t want gray areas. TDS (tax deducted at source) should be removed. Instead, like the equity market, we may have something on the lines of securities transaction tax (STT). And TDS is not revenue for the government, STT is,” Anand said.
Bengaluru, India-based Nilesh Lalwani, who is setting up a Web 3 shopping platform in which shoppers can earn cryptocurrencies as cash back, is planning to register the venture in the British Virgin Islands, in the U.S. in Wyoming or in Dubai.
“India’s crypto policies are a long way to go and that’s why 99% of the companies launching tokens here have not registered the companies in India,” Lalwani said.
Lalwani, a professional with a digital payments background, said that before deciding on entering the crypto world he “spoke to at least 15 or 20 founders, and all said that you need an offshore entity.” Most of them registered in Singapore and Dubai.
Lalwani wants India to “adopt a model like Dubai, take proactive steps to understand how it is working on becoming a worldwide hub of crypto, and understand that Web 3 is the future.”
Girish Ahirwar, co-founder and managing director of Create Protocol, a multichain protocol for creators, set up shop in Dubai.
Speaking from a blockchain conference in Dubai where a month-long crypto-related conference is taking place, Ahirwar said in the past few months he has met more than a hundred Indian origin crypto founders and developers who have all left India.
“I talked to several lawyers. They were uncertain about the legalities and so they suggested moving out. If I have to play big I have to move out. It’s a long game since this tech is here to stay and will bring a paradigm shift in how the world will work,” Ahirwar said.
Vikas Ahuja, CEO at CrossTower India, is optimistic. He believes the exodus is short-term and the nation's talent pool is big enough to turn things around once clear regulation comes through.
“For short-term investors who are into day trading, margin trading, arbitrage trading, the 1% TDS becomes infeasible. The majority of the population is still waiting on the fence, once we see the bill then we should see exponential growth. India is very rich in talent. Most tech-savvy people are here. So, if India gets the right crypto framework, it can be the next Silicon Valley,” he said.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish, a cryptocurrency exchange, which in turn is owned by Block.one, a firm with interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets including bitcoin and EOS. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.