Budget 2022 | Innovations In Fintech, Expansion Of Digital Infra — What Digital Payments Industry Wants

The sector would welcome a GST exemption for merchants who accept digital payments; this measure will encourage further digital adoption, particularly in semi-urban and rural markets, says an expert

The Budget should include tax incentives to encourage the use of PoS/Micro ATM devices, which are more cost-effective and infrastructure-wise less demanding than ATMs, according to analyst. Image: Getty

New Delhi: India’s digital payment industry has witnessed a stellar show in the past few years. In their wishlist from the Union Budget 2022-23, the industry now wants the government to bridge the gap between financial institutions and users across the country.

In the Union Budget, Finance Minister Nirmala Sitharaman has an opportunity to further strengthen the payment ecosystem and lay down the government vision for financial inclusion via digitalisation. A look at what industry leaders want from the general budget to be presented in Parliament on February 1: 

Nikhil Sahni, division president, South Asia, Mastercard

In the Union Budget, we look forward to interventions to further accelerate the impact of Digital India on citizens, via promoting innovations in fintech, enabling digital infrastructure, and incentivising solutions with a focus on safety and convenience for both merchants and consumers. Investments in R&D to introduce newer products and diversify into underserved areas, especially in rural India, could be incentivised. Support towards technology skill-building initiatives in start-ups will go a long way in creating a viable fintech ecosystem. To ensure that the benefits of fintech and digital payments percolate to customers in rural India, the government could introduce initiatives to expand digital infrastructure: payment touchpoints, internet connectivity in remote areas, and make the digital ecosystem secure for individuals and businesses. This will facilitate speedy transactions and improve the overall payments ecosystem. Mastercard has consistently welcomed and supported policy initiatives toward incentivising digital over cash. Providing the right incentives to banks and merchants to further digitise the country’s payments and an economic model, which allows for investment in both issuance and acceptance, is key to further growing electronic payments in the country. Small businesses were severely impacted by the pandemic. We appreciate the government’s timely measures to support the recovery. We should continue the momentum by empowering small businesses with innovative digital financing solutions like supply chain financing, subsidising loan insurance for financial institutions which service the MSMEs, and continue to simplify GST slabs to further strengthen the sector. Incentivising asset-light innovations can enable millions of small business owners to adopt and benefit from digital payments. Finally, building awareness of digital payments and promoting financial literacy is critical to India achieving the vision of a $1-trillion digital economy. Mastercard, along with its partners, will continue its efforts towards this goal.

Akash Sinha, co-founder & CEO, Cashfree Payments

The upcoming Union Budget holds high significance, as the Indian economy takes strides towards its complete recovery and growth after the pandemic. This imperative will be greatly supported by enhanced financial inclusion and digitalisation which makes it crucial that appropriate measures are announced in this regard. It is heartening to see the government's recognition of fintechs’ ability to reach out to the unserved and underserved sections of the country, as evident from multiple initiatives in recent times. To further scale financial inclusion, it is essential that the government’s support is directed towards boosting digital infrastructure and innovation. Additionally, policy and regulatory efforts should be aimed at creating a favorable investment environment. While ensuring an appropriate degree of regulation, easing the investments in unlisted private businesses, especially in non-metro cities is crucial for convenient capital flow to technology start-ups towards their healthy growth. In the same respect, reducing the entry limits for Alternative Investment Funds (AIFs) and syndicates, aligning with the Government's allocation to priority sectors, will ensure fund infusion to businesses.

Poshak Agrawal, co-founder & CEO, Florence Capital (an ethical lending platform designed exclusively only for women)

The Union Budget for 2022-23 will be crucial for women as they have suffered disproportionately due to the Covid-19 pandemic. The government’s latest periodic labour force survey shows the unemployment rate for women was 11.8 per cent in Jan-Mar 2021, even before the second wave of the pandemic hit – as compared to 10.5 per cent in Jan-Mar 2020. The pandemic has forced more and more women to move to casual labor – 9.3 per cent in Jan-Mar 2021 as against 7.7 per cent in Jan-Mar 2020. So, the Budget needs to not just reverse this trend but create the ground for better formal sector job opportunities for women. This requires work from the ground up, including higher capital expenditure on education and health – issues that are key for women. A recent paper by the National Institute of Public Finance and Policy found that the gender budgeting for the 2021-22 Union Budget was only about 5 per cent of the total Budget. We hope that the Budget for 2022-23 will prioritize spending on gender budgeting to help reduce inequalities. We are hopeful that 2022-23 will be a year of greater financial inclusion and easier access to credit for more Indians at a personal and enterprise level. We welcome the changes at the top level from the government and sector-specific regulators.

Rohit Garg, CEO & co-founder, SmartCoin

The fintech landscape is changing tremendously on account of some significant measures. The allotment of Rs 1,500 crore for a new fund in Budget 2021 has further accelerated growth by incentivising businesses to offer digital payments to assist fintech businesses in thriving in the ecosystem. Last year’s budget was a testament to how the industry proved its worth during the Covid-19 crisis. However, there is still a long way to go with many more difficulties that must be addressed quickly and effectively. In recent years, digital lending start-ups have proven to be a huge asset to the country. The Union budget 2022 is all set to be announced soon. We eagerly anticipate increased spending on liquidity and guarantee programmes to help improve loan supply and make NBFCs more capital accessible. The NBFC sector is likely to grow more modestly this year and new capital is expected to be supplied to support this expansion. We look forward to working with a new era of NBFC/Fintechs beginning this year in which the government promotes more banks and larger NBFCs while also giving credit access to individuals who are yet not served by the banks.

Mandar Agashe, vice-chairman & MD, Sarvatra Technologies

There have been positive signs of economic recovery following the pandemic’s severe crisis. The government’s ongoing push has resulted in greater adoption of digital payments methods like UPI, AePS, QR codes, and others, and individuals have become accustomed to transacting digitally. Digital payments can expand their network to further parts of the country, and to do so; the budget must include bold policy interventions to build digital infrastructure, which will eventually aid in the digitisation of the entire economy. Since the country only has 5.2 million active POS machines, the Budget should include tax incentives to encourage the use of PoS/Micro ATM devices, which are significantly more cost-effective and infrastructure-wise less demanding than ATMs. Further, the sector would welcome a GST exemption for merchants who accept digital payments; this measure will encourage further digital adoption, particularly in semi-urban and rural markets, where digital payments are still scarce. In the end, we would hope the Budget put a special emphasis on advancing the country’s FinTech ecosystem as the FinTech industry can boost India’s economy to the position it deserves.

Anand Kumar Bajaj, founder, MD & CEO, PayNearby

The digital payments space has proved its mettle as a stable growth avenue during the pandemic. A positive impact was seen on digital payments due to benign taxation for self-service digital customers. To ensure the same benefits reach the less-savvy citizens, our government could waive GST and TDS for financial inclusion services at Business Correspondent (BC) outlets across India. A waiver in GST and TDS will help reduce the cost of offering seamless financial services and help high-end tech reach the technology-oblivious segment. We stand with the government’s intent of taking digitisation to the last mile and passing the GST waiver benefit to ‌end-users as this will push for greater financial inclusion and a digital economy in the country. Moreover, low-income citizens are mostly catered to by low-earning retailers who barely cross the value of taxable income, and hence, do not file IT returns to claim a refund of TDS. Thus, TDS is only a cost to them and not a refundable deduction because they do not know how to take a refund by filing returns. We sincerely hope that TDS for income below Rs 50,000 a year can be waived off. We are positive that this Budget will consider the grim working condition of the BC network and make the needful regulatory changes to ensure the viability of a community that has been vital in driving the cause of financial inclusion and democratisation of digital payments in the country.

Bhavin Patel, co-founder & CEO, LenDenClub

The economy is projected to gradually return to its previous trajectory, with fiscal priorities in the upcoming budget invigorating it. A regulatory body to oversee payment recovery is the need of the hour. An enhanced procedural aid to the legal recovery of repayments from digital borrowers to further protect the rights of those who lend money. Such a specialized government vehicle to oversee fintech could not only help startups run more effectively, following compliance requirements, but it would eliminate possible fraudsters. Returns from investments in Peer-to-Peer (P2P) Lending could be exempted from tax under Section 80C of Income Tax law, or a different provision could be carved out to reduce tax rates such as tax exemption for gains below Rs 20,000. This will encourage people across geographies to invest in P2P lending, making funds accessible on multiple platforms. P2P lending plays a significant role in empowering small businesses in India. Tax benefits in P2P lending will magnify the growth of businesses when capital from P2P platforms is diverted to the sector. The pandemic has resulted in significant job losses, primarily due to people's inability to keep up with evolving technology. The way the government is spreading awareness is remarkable. Further to that, setting up avenues for advanced technical education, for instance, could help it drive so much further. Presently, India requires professionals with technical and financial competence to conduct the Fintech revolution. More institutions that provide formal education and certifications are needed to create a skilled group of individuals required to grow P2P lending platforms and the Fintech industry.