I think government has its hands tied because the nature of cryptocurrency is such that it can lead to a lot of scams and discontent in a country like India. The anonymous nature of the related businesses attracts the worse type of scammers. If the government comes out with actual regulations, you would see an upsurge in the number of scams where shiny, scammy adverts will appear saying "certified by the govt of India" or something of that sort.

The government and more importantly the financial and law machinery isn't well-oiled enough to deal with and prevent such scams.

I doubt they have any options. They have put it under taxation as an interim measure while leaving the brave to try and earn in this market. The scammers will still scam but i guess the logic goes that they'll have to pay taxes when converting to fiat.

Recently there were reports about apps that act as loan sharks and utilize cryptocurrency payments. Those kind of scams will have a complete free run in India if they can catch enough people in the name of being able to use crypto for loan funds.

The situation is complex and would need dedicated resources and departments in RBI to regulate such players. Doubt its anywhere on the list of priorities for the government.