Promoting fintech growth in the decade ahead: expectations from budget 2023

Over the past decade, the Indian government has taken proactive steps to support the growth of entrepreneurship and startups in the country. It is considered ahead of the curve compared to other global players.

In the fintech sector, the Indian government has actively supported the growth and development of fintech companies by providing a favorable regulatory environment, launching various schemes and initiatives, and promoting collaboration between the government, private sector and academia. Additionally, the Reserve Bank of India (RBI) has issued various circulars and guidelines to support the growth of fintech companies and encourage digital payments.

The Union Budget 2022 introduced ground-breaking reforms to accelerate the growth of the fintech sector.

Talking about reforms that specifically affected the fintech sector, Rs 1,500 crore was earmarked in the 2021-22 budget for a proposed financial incentive scheme to promote digital payment methods and increase the number of digital transactions. This financial support was continued for FY 2022-23 and allocated for compensating the revenue loss caused by zero purchase discount rate (MDR) on UPI, further developing the digital payment infrastructure and introducing innovative financial solutions in tier II and III cities and replenishment of the Rs 1,500-crore fund set of until 2021 operationalized the Payments Infrastructure Development Fund (PIDF). Such measures and more have set up an enormous backdrop for growth.

Currently, India’s fintech market is growing at the fastest rate in the world. There is talk of UPI becoming global and much more. All this has become a reality due to the current guidelines and measures governing the current fintech market in the country and these guidelines, with some subsequent changes, are strong enough to enable future growth in the sector.

Fintech opportunities in India are also huge and despite the world-beating growth rates, fintech has still not even scratched the surface. The next billion people in India remain underserved and the policies introduced in the Union Budget 2023 will determine the growth curve of the sector over the next decade and beyond.

The government is working in unison with the fintech industry to refine policy more favorably. The advent of UPI, real-time payments, digital wallets and new banks require reinventing the regulatory framework, and the regulators have been up to speed with it. Looking at the pace fintech is growing in India and with innovations happening every day, it would be better if the industry and regulators work hand in hand towards the guidelines.

Double taxation of ESOPs

Another area of ​​focus that affects not only fintech, but the startup ecosystem as a whole, is the double taxation of employee stock ownership plans (ESOPs). ESOPs are taxable as income below principal salary. However, they are counted as capital gains when sold in the market, forcing employees to pay additional tax in line with the tax slab. Since double taxation is imposed on exercising ESOPs and selling them in the market, it makes them less attractive to employees and creates a financial burden on startups. By exempting ESOPs from double taxation, the Indian government can create a more favorable environment for startups and indirectly make it easier for them to attract and retain top talent, which is critical for any company to sustain growth and drive innovation.

Promote savings and investments

While the upcoming budget may be aimed at increasing the growth of the Indian economy, special attention should be given to ease the challenges of the common man and the salaried class. As we are still recovering from a global pandemic and dealing with an ongoing global economic downturn, people are looking to government for answers to reduce unemployment, control inflation and make essential goods and services more affordable. The white-collar class is looking for some cheer on the personal income tax front.

The guidelines introduced in the upcoming budget will create a savings- and investment-oriented economy. Policies that encourage citizens to save and invest can help create a more stable and diversified economy.

When citizens save money, it helps create a pool of capital that can be used to finance investment in businesses, infrastructure, create jobs and promote economic growth. Investment opportunities can also help create a fairer economy by giving people access to the tools and resources they need to build wealth and achieve financial security. This can help to reduce income inequality and promote social mobility.

GST Exemption and Greater Incentives

Fintech startups in the country need more support from the government to ease their financial burden. GST exemptions for certain goods and services used by fintechs and other start-ups, such as software and IT services, help reduce costs and increase profitability. There is a need to simplify the framework for GST input credit in joint loan schemes, as it is common practice for fintech companies to collaborate with other financial service players. However, in the current GST framework, there is a potential loss of input credit in such schemes. By ensuring that incoming credit is fully provided for, it will help prevent revenue leakage and ultimately result in benefits being passed on to the end consumer.

To support the growth of fintech startups in the country, the upcoming budget should help ease the financial burden on fintech startups, which often have a long-term horizon to profitability. Additionally, a reduction in GST rates on services provided by fintech startups will reduce the burden on customers and small merchants, boosting the growing digital payments space in India. A recent Tracxn report stated that fintech start-ups’ fund-raising has decreased by 47% in 2022, highlighting the need for incentive schemes for domestic and foreign investment in the fintech space to grow the sector.

The Indian government should also consider reducing the angel tax to encourage more angel investors to invest in Indian startups and increase the amount of capital available to them. In addition, there is a need to increase the angel investor pool at the seed stage.

Promote digital payments and domestic players

Given the increasing use of digital payments through feature phones and smartphones among the masses, the government can take further measures to increase the use of digital payments among small businesses and consumers, offer subsidies to merchants who accept digital payments, and provide incentives to consumers to increase their use of digital wallets.

Creating a first-generation technology platform worth billions is a difficult task and any policy that gives Indian entrepreneurs a competitive edge over international companies will be a welcome step.

According to a finding by EY, India’s fintech market is expected to grow to $200 billion in revenue by 2030 compared to $50 billion in 2021. Many optimistic projections confirm that the fintech sector will help propel India to a $5 trillion economy by FY25. But to achieve this goal and reign as a leading global economy, we need to bridge the financial inclusion and infrastructure gaps at the grassroots level and build a more robust system from the ground up, and the policies introduced in the upcoming budget. will play a key role in achieving the same.

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Upasana Rupkrishan Taku is the Chairman of MobiKwik and CEO, Co-Founder and COO of Mobikwik Group.