Union Budget 2022-23: There should be measures to ease liquidity flow to NBFCs, fintech and empower customers to avail credit products that could boost the sector
Union Budget 2022-23 comes at a very crucial time, as the economy attempts to bounce back and unlock rapid growth. Considering the significant contribution of fintech in the country’s financial inclusion bid, it is essential that appropriate considerations be given to enable the sector to operate efficiently.
In recent times, the government and regulators have announced multiple initiatives to support the fintech sector, which indicate their mindfulness regarding the sector’s tremendous potential to extend effective financial offerings to the underserved sections. While financial inclusion and digitalisation have been key areas of focus for the government, the emphasis is only likely to become more prominent in the upcoming Budget and the time to follow.
Here are a few things that fintech and NBFCs are expecting from the Union Budget:
Promote creation of active banking population
Both policy and regulatory efforts from the government and Union Budget need to focus on creating an environment that favours and encourages investments. A banking population that is aware of their investment options and invests in different financial products is the need of the hour. Investing in fintech and supporting their growth would yield no results if a majority of the population remains unbanked or inactive despite having a bank account.
As of March 2021, India’s financial inclusion rate was a meagre 53.9 percent. Further, around 48 percent of bank accounts in the country are inactive and 190 million adults do not even have a bank account. While ensuring an appropriate degree of regulation is essential, easing investments in unlisted private businesses, especially in non-metro cities, will lead to a much-needed boost in capital flow and healthy growth of the economy.
Build policies to help attract foreign investment
In the first half of 2021-22, the FDI equity inflows have already registered a 4 percent year-on-year increase, with computer and IT, automobile, and services sectors attracting the largest FDI. It is only natural to expect that Union Budget 2022 will take this success into consideration and find ways to further it.
Last year’s Budget significantly reduced the corporate tax rate to 22 percent for domestic firms. Extending a similar reduction in the rates to foreign businesses would help to attract and scale foreign investment and enhance the funding of crucial domestic programs. Also, policies that help relax KYC norms and reduce the number of restrictions to allow more open buying of stocks could help attract foreign portfolio investments (FPIs).
Liberalise tax regime, increase fund inflow
An overhaul of Alternative Investment Fund (AIF) taxation leading to one comprehensive tax code, reducing the entry limits for AIFs and syndicates, combined with the unlocking of domestic institutional capital, is imperative to create an environment that is conducive to the growth of fintech.
Increasing tax relaxations and benefits along with low-cost funding would automatically increase ease-of-doing-business. Putting in place a few measures to ease the liquidity flow to NBFCs and fintech and empowering customers to avail credit products could also help further the growth of fintech.
Allow, support safe cross-border investments
Despite an increasing level of interest among the younger generation of investors, the monetary and fiscal policies of the countries involved as well as legal requirements often pose an obstacle to such investments. Focusing on initiatives that will attract foreign investment in India, while at the same time making it easy for Indian investors to build global portfolios can help push economic growth.
Policies that help create an environment where investors can educate themselves and overcome the inhibitions that come with investing in a foreign country can help Indians diversify their portfolios and invest in foreign markets. Allocating funds for platforms that help make cross-border investments in a legal and safe manner is also something fintech will expect the Union Budget to do.
Encourage innovation, boost digital infrastructure
The government’s continued focus on creating digital infrastructure and increasing digital adoption has led to the emergence of fintech. Union Budget 2022 will be expected to keep up to that. After all, there’s already been a massive spike in the adoption of digital payments, especially through our homegrown UPI interfaces, in turn proving that the Indian population is all for widespread digital adoption.
The government will also need to concentrate on increasing digital literacy, improving internet connectivity, and building a more holistic ecosystem within which merchants, vendors, or even contractors are digitally connected with the end-user and in a position to make digital payments. More investment in digital literacy and connectivity, sufficient incentives, and targeted outreach programs for rapid mass adoption of digital channels is needed to ensure a seamless and complete transition from a primarily cash-led to a digital and cashless economy.
While these are only a few of the expectations the country has from the Budget, there’s no doubt that the whole Indian populace is banking on the Union Budget 2022 to bring the country’s economy back on track. To sum up, one can’t help but reiterate one thing: Reforms that focus on financial inclusion combined with policies that promote wealth creation and protection for the marginalized, are what is needed to accelerate India’s growth to a $5 trillion economy.
The author is CEO & Co-Founder, Cashfree Payments. Views are personal.