A quiet transformation is underway in India's massive remittance market, which reached a record $135.46 billion in fiscal year 2025 - with overseas Indians increasingly turning to stablecoins like USDT to bypass traditional banking channels and capture better exchange rates.
The shift, while still modest in scale, has caught the attention of money changers, regulators, and market observers who see it as emblematic of broader tensions between cryptocurrency innovation and India's cautious regulatory approach to digital assets.
At the heart of this emerging trend lies a simple price discrepancy. USDT (Tether), a stablecoin pegged 1:1 to the US dollar, consistently trades at a 4-5% premium in India compared to official dollar exchange rates. While one US dollar converts to approximately ₹88.60 through traditional channels, one USDT fetches around ₹93 on Indian peer-to-peer platforms.
This persistent premium creates a tangible arbitrage opportunity. A sender converting $1,000 to rupees through banks would yield approximately ₹88,600 for recipients. The same amount converted to USDT abroad and sold in India brings roughly ₹93,150 - a difference of ₹4,550 that money changers and early adopters are beginning to exploit.
The mechanics are straightforward but operate entirely outside formal financial channels. A money changer in Dubai or New Jersey purchases USDT on international exchanges, transfers the tokens to a digital wallet controlled by an Indian counterpart, who then sells them to local crypto buyers through peer-to-peer deals on Telegram or domestic exchanges.
Some participants avoid India's 1% tax deducted at source (TDS) on crypto transactions by operating informally, while others use regulated exchanges, pay the tax, and still profit from the spread. The earnings typically get shared between operators and customers.
Why the Premium Exists
Several factors sustain India's USDT premium. Regulatory restrictions on banking channels for crypto transactions make it difficult for Indian traders to easily deposit rupees into trading accounts, driving demand for dollar-denominated stablecoins as a substitute.
Additionally, USDT serves multiple functions beyond remittances. Traders use it to hedge against volatility by converting holdings during market uncertainty. Users also employ stablecoins for payments on offshore gaming and betting platforms, creating steady demand that keeps prices elevated.
Market estimates suggest that approximately 3-4% of India's total remittance flows may have shifted from traditional banks to stablecoins, though precise figures remain elusive given the unregulated nature of these transactions.
RBI's Stance and the CBDC Alternative
The Reserve Bank of India maintains a consistently cautious position on private cryptocurrencies, viewing them as potential threats to monetary sovereignty. RBI Deputy Governor T. Rabi Sankar warned in October 2025 that "stablecoins carry a huge risk of replacing your currency and policy sovereignty" and emphasized that they "do not serve a purpose that can't be done better with CBDC."
Instead of embracing private stablecoins, India is advancing its own digital rupee (e₹), a central bank digital currency that began pilot programs in December 2022. The RBI launched deposit tokenization trials on October 8, 2025, marking a key phase in scaling the CBDC for broader use.
The digital rupee aims to provide the efficiency and accessibility of stablecoins while maintaining full central bank control. Unlike USDT or USDC, which are issued by private companies, the e₹ represents direct RBI liability with government backing - theoretically offering greater security and regulatory clarity.
For cross-border transactions, India is exploring interoperability with other nations' CBDCs. The UAE, home to millions of Indian workers, is developing a dirham-based digital currency. Once operational, the two systems could be linked, providing Indians in the Gulf with faster, cheaper, and fully legal remittance channels.
Finance Minister Signals Shift
In an unexpected development, Finance Minister Nirmala Sitharaman told the Kautilya Economic Conclave in October 2025 that nations must "prepare to engage" with stablecoins, warning that countries risk being left behind if they fail to adapt to digital currency transformation.
"No nation can insulate itself from systematic change," Sitharaman stated. "Whether we welcome these shifts or not, we must prepare to engage with them."
The remarks represent a notable shift in tone from resistance to readiness, signaling that India may be moving toward structured engagement rather than blanket prohibition. Sources suggest upcoming guidelines could require tax compliance, custody standards, and reserve verification for stablecoins operating in the Indian market.
Private Sector Experiments
As the RBI develops the digital rupee, private companies are exploring their own solutions. A Bengaluru-based firm recently announced plans to create an INR-backed stablecoin collateralized by government bonds. If listed on foreign exchanges, such a token could enable Indians abroad and foreign importers to send value directly to India more efficiently than traditional banking rails.
Industry observers note that some service export payments already occur in stablecoins, operating outside India's official Export Data Processing and Monitoring System - a workaround that highlights both the demand for crypto-based settlement and the challenges regulators face in monitoring these flows.
Regulatory Response Intensifies
Regulators are becoming more alert to digital financial products operating in grey areas. The Securities and Exchange Board of India issued a stern warning on November 8, 2025, cautioning investors against "digital gold" products offered by unregulated platforms.
SEBI clarified that such products "operate entirely outside its purview" and carry significant counterparty and operational risks, with no investor protection mechanisms available.
The warning reflects a broader regulatory philosophy taking shape in India. As Aishwary Gupta, Global Head of Payments at Polygon Labs, noted: "SEBI's caution on digital gold isn't random, it's regulation by hindsight. For nearly a decade, digital gold operated in a grey zone... Now, with over ₹10,000 crore in circulation... SEBI's move feels more like pre-emptive containment than a warning. India's clearly preparing for a regulated framework for tokenized assets."
Final thoughts
For now, stablecoin-based remittances remain modest and largely unmonitored. Traditional banks aren't yet concerned, but regulators are acutely aware of both risks and opportunities.
India maintained its position as the world's top remittance recipient in 2024, accounting for 14.3% of global flows and far outpacing second-place Mexico's $68 billion. With the Indian diaspora numbering 18.5 million globally and remittances forming 3-3.5% of GDP, any significant channel shift could have macro-economic implications.
If the RBI's digital rupee achieves widespread adoption and becomes interoperable with foreign CBDCs, it could eventually displace both traditional and crypto-based remittance routes with a faster, cheaper, sovereign alternative. Until then, the quiet shift toward stablecoins will likely continue as senders and money changers exploit arbitrage opportunities that traditional finance has been unable to close.
The tension between innovation and control that defines India's crypto stance is playing out in real time in the remittance corridor - with billions of dollars, millions of families, and the future of cross-border payments hanging in the balance.