Union Budget 2021: Allocation of Rs 1,500 cr to boost digital payments will take fintech sector a higher notch

Benefitting fintech. Reuters

A lot was expected from Budget 2021, especially to negate the economic impact of the pandemic. The finance minister has created a fine balance between available resources and requirements to usher in economic growth. Keeping Atmanirbhar Bharat as the keyword, the Budget has spelt out a vision of making India a self-reliant nation.

The fintech industry has been playing a pivotal role in providing financial services to Small and Medium-Sized Enterprises (SMEs) and Micro, Small and Medium Enterprises (MSMEs). The allocation of Rs 1,500 crore to boost digital payments is just what was required to take fintech as a sector to the next level. This will help companies push for innovation in a big way.

The digital payments space has seen good growth over the last few years and this move will increase the adoption of E-payments and promote a digital mode of payments in the smaller cities, too. The entire fintech industry from lending, automation of the financial processes, digital payments, P2P lending, neo banks and the collaboration between the banks and fintechs will benefit from this move.

The move to set up a fintech hub in GIFT City (Gujarat International Finance Tec-City) is a welcome move.  In fact, there is a need to create more such hubs in the country for fintechs to expand. The decision is a clear validation by the finance minister that fintechs are an important part of the banking ecosystem. It would be really important to accord industry status to this sector as for the first time fintech is being acknowledged and this will provide a great boost to the players across the country.

Two public sector banks and one general insurance company will be privatised and LIC will be listed on the bourses in the financial year 2021-22 as part of the consolidation in the banking and insurance sectors. The Budget has announced Rs 20,000 crore recapitalisation of PSU banks, a constructive move.

Since the pandemic has largely affected the MSME and SME sector, with Budget 2021, MSMEs and startups will have better access to financing and the provision of Rs 15,700 crore for the Ministry of Micro, Small and Medium Enterprises in the Budget is again an optimistic move.

The move to set up an Asset Reconstruction Company and Asset Management Company to consolidate and take over the existing stressed debts is a very good one. It will help in managing and disposing of the assets to Alternate Investment Funds and other potential investors for eventual value realisation resulting in the cleaning up of bad books of public sector banks. Fears about the introduction of Wealth Tax and increase in Long-term Capital Gains tax have been allayed.

Many other announcements which are important and notable including the changes in the regulatory and compliance front like no restrictions on paid-up capital; turnover of one-person companies (OPC) to allow such companies to grow will help startups; and also the change in days for computing residency status of NRIs. The finance minister has paid adequate attention to the stressed assets of the banking industry. Up to 74 percent of foreign investments in the insurance sector will be a big boost to the banking, financial services and insurance (BFSI) sector.

It is a budget with no negatives and many positives. Recognising fintech as an industry would have been much sweeter but overall, it is a 360-degree growth for the fintech sector.

The writer is Founder and Chairman of Zaggle