India Loses $6 Billion Annually on Remittance Fees While Better Technology Sits Banned

What if I told you that India loses over $6 billion annually in unnecessary remittance fees? Despite being home to the world's largest diaspora and the second-largest remittance corridor globally, India remains locked out of the most efficient cross-border payment infrastructure ever built: stablecoins.

Every year, over $125 billion flows in and out of India through remittances.

The numbers tell a stark story. Every year, over $125 billion flows in and out of India through remittances. This includes $107 billion inbound according to World Bank 2023 data, plus over $20 billion outbound driven by students, freelancers, service exports, and family transfers under the Liberalized Remittance Scheme.

Yet behind these massive flows lies an infrastructure that feels decades old. Transaction fees average 3-6%. Settlement times stretch 1-3 days. Hidden FX spreads add another 1-2% depending on the route. For millions of Indian families and workers abroad, this translates to thousands of dollars lost annually to an inefficient system.

Stablecoins could revolutionize this landscape overnight. These blockchain-based digital dollars settle in seconds, cost fractions of traditional rails, and operate 24/7 without banking intermediaries. But in India, they remain largely unusable due to regulatory barriers that may be costing the country more than they protect.

The Regulatory Wall

The Reserve Bank of India has maintained a clear and consistent position since 2022: RBI-regulated entities cannot deal with or provide services for Virtual Digital Assets, including stablecoins like USDT, USDC, or DAI.

This creates a peculiar situation. RBI-regulated banks, NBFCs, and payment aggregators can pay out rupees on behalf of offshore entities and interface with FEMA-compliant transactions. But they cannot touch, hold, settle, or store stablecoins directly. The domestic banking system is essentially firewalled from the stablecoin universe.

I am very uncomfortable with stablecoins. I frankly don't see any advantages and I see a lot of risks - RBI Governor Shaktikanta Das

RBI Governor Shaktikanta Das reinforced this stance in October 2024, stating bluntly: "I am very uncomfortable with stablecoins. I frankly don't see any advantages and I see a lot of risks." His concerns center on sovereignty: "Are we comfortable allowing private money to dominate the payment ecosystem or should we let fiat currency issued by sovereign governments do the same?"

The RBI's latest Financial Stability Report doubled down on these concerns, warning that excessive use of crypto assets "bypasses traditional financial channels, reducing the effectiveness of monetary policy interventions" and could "worsen fiscal risks." The central bank specifically flagged "run risks" associated with stablecoins as their integration with traditional financial systems creates systemic vulnerabilities.

The policy makes sense from a monetary sovereignty perspective. Central banks worldwide are grappling with how to regulate assets that could potentially bypass their control over money supply and financial stability. But the current approach may be throwing the baby out with the bathwater.

The Growing Regulatory Divide

While the RBI maintains its hardline stance, cracks are appearing in India's regulatory consensus. The Securities and Exchange Board of India has suggested a different approach entirely, proposing that cryptocurrency oversight should be distributed among multiple regulators rather than banned outright.

According to a government panel reviewing crypto policy in 2024, SEBI believes it could monitor cryptocurrencies that function as securities and initial coin offerings, while the RBI would regulate fiat-backed assets like stablecoins. Insurance and pension-related crypto assets would fall under other specialized regulators.

This multi-agency approach represents a fundamental shift from prohibition to regulation - exactly the kind of nuanced framework that could accommodate stablecoins for specific use cases like remittances.

The government itself appears to be actively reconsidering its position. Economic Affairs Secretary Ajay Seth announced in July 2024 that the government would release a discussion paper by September, but this has been delayed multiple times. Most recently, in February 2025, Seth told Reuters that the government is reviewing the paper again "to reflect changing international regulations."

"More than one or two jurisdictions have changed their stance towards cryptocurrency in terms of usage, their acceptance, where do they see the importance of crypto assets," Seth explained. "In that stride, we are having a look at the discussion paper once again." The review follows U.S. President Trump's crypto-friendly executive orders and suggests India recognizes it cannot operate in isolation from global regulatory trends.

Meanwhile, the market reality undermines the effectiveness of current restrictions. Despite a punitive 30% capital gains tax and 1% transaction levy, crypto adoption in India continues growing rapidly. Major Indian exchanges like CoinDCX and CoinSwitch now serve 16 million and 20 million users respectively - a combined user base approaching 40 million Indians actively using crypto despite regulatory hostility.

The Offshore Workaround Problem

Some fintechs have built compliant rails using offshore structures. They establish nostro/vostro accounts for INR-USD settlements, maintain offshore wallets in Dubai or Singapore, and use SWIFT plus local payout mechanisms to serve Indian customers.

You end up replacing Western Union with a web3 interface, but you're still paying bank-like fees.

But here's the fundamental issue: these structures still rely on traditional correspondent banking infrastructure. They add FX markup, settlement risk, and compliance costs. You end up replacing Western Union with a web3 interface, but you're still paying bank-like fees.

The promised advantages of stablecoins – speed, cost efficiency, and programmability – get lost in translation. Users comply with FEMA requirements but don't see meaningful improvements in their daily experience. It's innovation theater rather than genuine progress.

India's CBDC Leadership

To be fair, India isn't ignoring digital money innovation. The country leads globally in Central Bank Digital Currency development. The Digital Rupee has been piloted across retail applications via wallet apps and QR codes, as well as wholesale interbank transactions.

The Digital Rupee is designed for domestic digitization rather than cross-border efficiency

But the Digital Rupee, in its current form, addresses different problems. It's designed for domestic digitization rather than cross-border efficiency. It's non-programmable and non-interoperable with existing crypto infrastructure. Most importantly, it doesn't solve the remittance cost problem unless India builds bilateral CBDC corridors with major trading partners.

Recent discussions around Project mBridge and potential collaboration with UAE, Singapore, and UK central banks offer hope. But these initiatives are years away from implementation at scale.

The Cost of Exclusion

The scale of missed opportunity becomes clearer when examining actual usage patterns. India's UPI system processes 500 million transactions daily, demonstrating the country's appetite for efficient digital payments. Yet for cross-border flows - where efficiency matters most - Indians remain trapped in an expensive, slow system.

Consider what India is missing by maintaining the current approach. Every month, millions of transactions that could settle in seconds for pennies instead take days and cost hundreds of dollars in fees. This isn't just inefficiency – it's a regressive tax on working families.

Take Priya, a software engineer whose parents live in a small Kerala town. When she sends $1,000 from Bangalore to help with medical expenses, traditional rails cost her over $50 in fees and FX spreads. The money takes two days to arrive. Her parents often need to travel to the nearest bank branch to collect it.

With stablecoins, this transaction could cost under $10, settle in minutes, and arrive directly in her parents' digital wallet. Multiply this across 20 million overseas Indians, and the savings reach billions annually.

The exclusion particularly hurts India's growing digital economy. The 36 million Indians now using crypto exchanges despite regulatory hostility signal massive pent-up demand for better financial infrastructure. These users - freelancers, remote workers, and small exporters who serve global clients - often struggle with payment collection. They resort to expensive platforms or complex offshore structures that eat into their earnings.

The irony is stark: India built UPI, the world's most successful instant payment system, yet bans the technology that could extend similar efficiency to international transactions.

A Balanced Path Forward

India doesn't need to embrace crypto speculation to benefit from stablecoin infrastructure. Several middle-ground approaches could unlock the technology's benefits while maintaining regulatory oversight.

The Infrastructure Advantage India Already Has

India's robust banking and NBFC network could solve stablecoins' biggest practical problem - seamless conversion between fiat and digital money. Rather than seeing stablecoins as competition, Indian banks could become the essential on/off ramps that make stablecoin remittances practical for everyday users.

Consider the workflow: An Indian worker in Dubai converts dollars to USDT through a regulated exchange, sends it instantly to India via blockchain rails, and their family receives rupees through their local bank within minutes. The stablecoin handles the cross-border transfer efficiently, while banks manage the fiat conversion, customer onboarding, and compliance requirements.

This could be taken even further if India were to develop its own regulated stablecoin or integrate approved stablecoins with the Digital Rupee infrastructure. Imagine a scenario where the remittance hits a local digital wallet as either converted rupees or a rupee-backed stablecoin, and the recipient can immediately pay bills, shop, or send money to relatives using UPI. This would create seamless integration between international transfers and India's domestic digital payment ecosystem - combining the global reach of stablecoins with the local convenience of UPI.

Such integration would leverage India's existing digital payments leadership while solving the cross-border efficiency gap. A family in rural Kerala could receive money from their son in Singapore and use it instantly to pay electricity bills, school fees, or medical expenses through the same UPI interface they already know and trust.

This approach preserves banks' customer relationships and revenue streams from foreign exchange services while dramatically improving the user experience. Banks would remain the crucial intermediaries for AML/KYC compliance, ensuring transactions meet regulatory requirements. The RBI maintains oversight of the banking system while users benefit from lower costs and faster settlements.

NBFCs, with their focus on underserved segments, could be particularly well-positioned to serve smaller remittance flows that traditional banks often ignore. This could extend financial inclusion to rural families who currently struggle with expensive and cumbersome traditional remittance channels.

Regulatory Framework Options

Sandbox Approach: The RBI could launch a controlled pilot program allowing select regulated entities to facilitate stablecoin-to-fiat conversions for inbound remittances. These could be limited to established stablecoins with transparent reserve backing and regulatory compliance in major jurisdictions.

Whitelist Framework: Rather than a blanket ban, India could create a whitelist of stablecoins that meet specific criteria: regulatory compliance in home jurisdictions, transparent reserve audits, and integration with Indian AML/KYC systems. This would differentiate utility-focused digital money from speculative assets.

Bilateral Corridors: India could work with key trading partners to create regulated stablecoin corridors. A UAE-India stablecoin bridge, for instance, could handle significant trade and remittance flows while maintaining full regulatory oversight on both ends.

Smart Contract Integration: For approved use cases, smart contracts could automate FEMA reporting and ensure transactions comply with existing regulations. This could actually enhance oversight rather than undermining it.

Learning from Global Examples

Other major economies are finding ways to harness stablecoin benefits without compromising monetary sovereignty. Singapore has created clear frameworks for stablecoin payments. The EU's MiCA regulation provides a path for compliant stablecoin operations. Even traditionally conservative jurisdictions like Hong Kong are exploring controlled adoption.

These approaches recognize that stablecoins, when properly regulated, can coexist with traditional monetary systems. They offer efficiency gains without necessarily threatening financial stability or monetary policy effectiveness.

The Opportunity Cost

Every month that passes without progress represents lost opportunities. Indian workers abroad continue paying excessive fees. The country's fintech sector falls behind in building next-generation payment infrastructure. Global businesses may route transactions through other jurisdictions with more flexible frameworks.

Perhaps most importantly, India risks losing its position as a leader in digital payments innovation. The country that gave the world UPI and became a model for financial inclusion could find itself excluded from the next generation of payment rails.

Building Modern Infrastructure

The solution isn't about embracing crypto culture or abandoning financial oversight. It's about building modern infrastructure that serves India's economic interests while maintaining appropriate safeguards.

A regulated stablecoin regime could reduce the cost of living for millions of Indians abroad, accelerate export growth for the country's service economy, and boost FX reserves by eliminating intermediary spreads. These benefits extend far beyond the crypto community to touch every Indian family with overseas connections.

The technology exists. The demand is proven. The economic case is clear. What's needed now is regulatory innovation that matches India's technological leadership.

The world is moving toward more efficient, programmable money systems. India can choose to lead this transition or watch from the sidelines. For a country with such massive stakes in global remittance flows, sitting out this revolution seems like a luxury it cannot afford.

The question isn't whether stablecoins will transform cross-border payments – they already are, in jurisdictions that allow them. The question is whether India will participate in writing the rules for this new system or simply adapt to rules written elsewhere.

It's time to build the infrastructure that matches India's global ambitions.