The draft wanted users to store all encrypted communication for at least 90 days and make them available to security agencies, if required, in text form.
The move was criticised on the Internet with many expressing fears that enforcement agencies with easy access to encrypted information could compromise security and privacy.
Defending the decision, Prasad said the government under the leadership of Prime Minister Narendra Modi has promoted social media activism.
"The right of articulation and freedom we fully respect, but at the same time, we need to acknowledge that <g data-gr-id="41">cyber space</g> transaction is rising enormously for individuals, businesses, the government and companies," he said.
The Minister, however, maintained there is a need for an encryption policy which would apply to those who are involved in encrypting a messaging product "for a variety of reasons".
"I wish to make it very clear that there are two issues.
One, <g data-gr-id="48">creation</g> of encryption. Many companies send messages in an encrypted form. Other is those who are consumers of applications like WhatsApp, social media and other platforms available in the cyber domain.
"The purpose of this encryption policy relates only and only to those who encrypt. This has to be made very clear. As far as ordinary consumers of applications are concerned, they do not fall in this domain. Because (for) those who encrypt, for a variety of reasons, there has to be a policy regulating the manner of their encryption," he said.
Prasad said while the government supports freedom on social media, "some sort of encryption policy is being followed all over the world, particularly in free democratic societies".
Stating that there are obvious concerns of security, he said, "We in India are lacking any sound policy on encryption.
A proper expert committee recommended, within the ambit of the Information Technology Act, that we need to have a proper encryption policy."
Medianama Founder and volunteer for 'Save The Internet' forum, Nikhil <g data-gr-id="47">Pahwa,</g> said the country needs an encryption policy to protect information and privacy citizen.
"Unless there is <g data-gr-id="45">court</g> order, private information should not be handed over to law enforcement agencies. It is <g data-gr-id="44">responsibility</g> of businesses to keep citizen's information secure.
"If I am communicating with a doctor it is communication between a consumer and a business which does not mean it should not be kept private. There is need <g data-gr-id="55">to to</g> protect <g data-gr-id="54">citizen</g> from snooping done by NSA or any foreign entity," he said.