Budget Expectations 2021: Overhaul Of Banking Norms With Digital-Oriented Approach To Aid Fintech Sector

Budget Expectations 2021: From some tax breaks in GST for merchants that provide digital payments to strengthening the digital public infrastructure, here’s what the fintech industry expects from the Budget

New Delhi: 2020 will go down in history as one of the most memorable years but for all the wrong reasons. Tragedies and devastation caused by the Covid-19 pandemic defined the entire year. The fintech industry has been among those industries that have taken the brunt of the pandemic, which is perhaps the reason why it is looking towards the government with the hope of some relief.

While the government did take some steps to ease the pain that the industry was suffering, continuous, well-planned support is needed to revive the industry completely. The industry has supported the Indian economy greatly during the crisis and has, therefore, some fair expectations from the upcoming budget that Finance Minister Nirmala Sitharaman will be unveiling on the 1st February, 2020.

The industry expects the government to step up to the occasion and increase the stimulus, especially for the industries that have been debilitated by the pandemic. Digitization of services has played a key role in saving a plethora of businesses from the harsh impact of the lockdown. A complete overhaul of the banking system is needed with a more digital-oriented approach to make India a completely Digital Payments country.

Stress on digital movement

Now, that we finally have a vaccine on our hands, the government can focus on doubling the speed of economic recovery. Even though the pandemic has caused massive devastation, it has catalyzed digital adoption throughout the country. Even the businesses that were averse to going online have done so and are now realizing that they had been sitting on a gold mine all this time without even realizing so.

Tax benefits

To help the financial inclusion movement get some traction, the government can induce some tax breaks in GST for merchants that provide digital payments. It can also offer some tax benefits to the organizations that are contributing to the dream of digital India.

Fintechs startups have a great potential to give a boost to the Indian economy and the government should encourage them to invest heavily in R&D so that they can develop new and innovative products that can solve the financial issues that have been created by the Covid-19 pandemic. This can be done by offering tax benefits in the upcoming 2021 budget (e.g. exempting private investments).

Investment in technology

While the digitization of financial services is good news for the fintech sector and it does aid in making the entire process more efficient and hassle-free, there is an issue that needs to be addressed. Since a large amount of data is being created and stored on servers, we do need strict security measures that can plug any holes that might be present in the current infrastructure. The government should, therefore, consider investing in data security to devise tools and strategies that will make the digital payment platforms more secure.

By strengthening the digital public infrastructure the government will be able to encourage fintech companies and the lending segment as a whole, to create new digital products that will help improve financial inclusion. 

 If we take into account the fact that the Reserve Bank of India (RBI) has recently revised the guidelines on the co-origination model, we might see more partnerships between fintech companies and banks in 2021. These partnerships will allow both the banks and the fintech companies to benefit from each other’s strengths. It would also encourage people to trust fintech companies easily and help the industry to grow.

Inducing liquidity

Liquidity issues have also been plaguing the industries and the sector is expecting that government would focus on this and the upcoming budget will give a liquidity boost to the sector. Last year, the government had taken some steps to address this issue which had been preventing the banks from lending to NBFCs. A suggestion for the upcoming budget would be to partially guarantee bank loans to smaller NBFCs; this will provide comfort to the larger banks in terms of lending.

Lastly, we need to remember that even though the pandemic has catalyzed digital adoption throughout the country, we need to do everything we can to sustain the momentum. The government needs to ensure this by implementing the right fiscal and regulatory measures. Faster license approvals and clearances can help the fintech companies by a great deal – especially those that are in their early growth stages.

The government, so far, has emphasized the importance of financial inclusion. Hopefully, the upcoming budget will focus on this theme and help resolve the issues that the fintech sector is facing.

[Author Rachit Chawla is CEO & Founder at Finway FSC.]

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