FinTech 2022: Indian Budget expectation; we ask the industry experts

By Puja Sharma

The finance minister of India is scheduled to present the Union Budget 2022-23 to Parliament on February 1. Here are some expectations the FinTech industry has for the Budget:

In November 2021, the government announced the Special Credit Linked Capital Subsidy Scheme for the MSMEs (Micro, Small, and Medium Enterprises) in the services sector.

Ketan Patel, CEO, Mswipe said “The SME sector is the backbone of Indian economy. In the upcoming budget, we expect the Government to make announcements that will empower small businesses, thereby reviving the economy from the impact of the pandemic. This should be extended to SMEs whose turnover is less than Rs. 5 crores as well as it will help them procure service equipment through institutional credit for the advancement of their technology.”

The Government should also look at tax breaks for companies providing technical support to MSMEs. At a time when we are expecting the third wave of Covid to hit economic activity and businesses are facing difficult times, the Government must take measures to meet the SME lending requirements. Subsidizing the cost of funds to NBFCs that focus on lending to small merchants for loans below Rs. 20 lakhs is a way to ensure easy access to credit.

“Besides, we expect the Finance Minister to increase credit guarantee for lending while also providing relief in terms of tax sops or subsidizing manpower costs for digital players to promote digital payments in tier 3 to 6 towns. Lastly, this Budget should further look at propelling the country towards a digital future. While multiple initiatives have been undertaken to promote digital payments, the Government must look at giving some form of incentive to small businesses to encourage the adoption of digital payments and further strengthen the payment infrastructure of the country, especially in smaller towns.” he added.

There was a 40 percent growth in digital payments across the country in a year through September 2021, according to the Reserve Bank of India’s (RBI) digital payment index.

Exemptions on procurement point of sale terminals, GST rates for rural banking agents remitting funds among households, and subsidies to compensate for the merchant discount rate (MDR) waiver are among some of the measures industry executives are keeping an eye out for.

Keeping in mind how the economy has again slowed down the world, everyone is waiting for some incentives to propel different industries forward. The accelerated growth seen by the FinTech and startup ecosystem in 2021 has shored up the need for a more focused approach towards sustaining the growth and protecting customer confidence.

“The growth in the digital payments sector and its adoption is the result of gentle taxation for self-serviced digital customers. To ensure that the same benefits reach the less tech-savvy citizens, our government should look at GST & TDS relaxation for the financial inclusion services offered through the Business Correspondent (BC) outlets across India. Waver of the GST and TDS will help the industry to reduce the cost of offering seamless financial services.” Mr. Ram Shriram, Founder of BharatATM said.

“In this budget, we also expect the government to possibly extend the ambit of the Start-up India Seed Fund Scheme to promote startups that have achieved a remarkable feat over the pandemic-hit period. Growth-oriented startups with proven capabilities could be aided with financial assistance for R&D, prototype development, and product or service trials,” he added.

Fintech players have already shown willingness to work with the government to curb the menace of illegal digital lending apps. Budget 2022 should introduce regulations that will help in greater credit access to MSMEs and curbing illegal activities while building trust in the digital lending process for the last mile. In line with the government’s goal of creating a digital economy, introducing credit schemes will incentivize the sector and help in providing timely credit to MSMEs that have struggled due to the lack of credit accessibility through traditional means of lending which has directly affected their business opportunity.

Lalit Mehta, Co-founder & CEO, Decimal Technologies said: “We have also seen a rise in the number of start-ups that have turned unicorns in the last year that showcases the potential of the startup ecosystem in India. We expect the government to introduce regulatory changes that would create an easy line of access for start-ups & MSMEs to secure credit from online lending players. This will further help in boosting our economy”.

2021 was a transformative year for the fintech industry with significant technology adoption in financial services. While traditional lending still accounts as a major credit provider in India, digital lending has picked up the pace with the ease of the process, less paperwork, and use of alternate data sources, making it a key enabler for the MSME sector.

“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 ₹ 50,000 a year can be waived off. We are positive that this Budget will consider the grim working conditions 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 democratization of digital payments in the country.” he noted.

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.

Mr. Bhavin Patel, Co-founder & CEO, LenDenClub said: “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 the 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.