Budget 2023: Reviving the fintech revolution

India has the highest fintech adoption rate globally. The industry has seen exponential growth in the latter half of the previous decade as the wave of digitization and 4G internet connectivity swept the country. With a fintech services adoption rate of 87%, the country trumps every superpower, with an average global adoption rate of 64%. It has taken into account the rapid pace of India’s growth story and has been able to bring about beneficial changes for stakeholders and the common man. A shot across the bow by the finance minister on February 1, 2023 has helped the industry revive growth after a subdued year and a funding winter.

The budget has raised expectations for the fintech industry which sought more regulatory reforms and incentives. The only thing that helps small businesses and MSMEs to breathe and survive is capital. The budget has fulfilled just that. A capital infusion of Rs 9,000 crore into this sector has come at impeccable timing. This will help significantly reduce the cost of funds for these companies and lighten the weight on their balance sheets. These incentives, when implemented practically in the real economy, will pack a punch for the frontrunners and help them operate efficiently across a spectrum of opportunities.

• Improved financial inclusion: The fintech sector has been given a level playing field for both offline and online lenders in the industry. Assistance from the authorities is a priority for fintech to nurture closer partnerships with banks and financial institutions and strengthen the strength of the current co-lending model. This can lead to fintech serving the unmet financial wants and needs of those segments and parts of the population that are not the core targets of traditional financial institutions and banks.
• Liberalization of the tax regime: The services provided by the fintech companies are taxed in accordance with section 65(12) of the Finance Act, 1994, and they are liable to a GST of 18%. In the Union Budget 2023, the industry has received a concession in taxes and zero GST up to a threshold for a company’s turnover. Deductions under various sections to all small businesses and SMEs which increase the overall demand for the fintech sector have also been provided.
• Relaxation in the criteria for issuing ESOPS: ESOPS form the core of a wide range of start-ups as a way to compensate their employees. This is because FinTechs try to reinvest their surplus cash into the business for growth and expansion. Major tax breaks on the sale of ESOPS were given to startups in Budget 2022. The fintech industry has been given a relaxation in the criteria for such tax breaks so that a wider range of young start-ups can reap the benefits.
• Rationalization of GST input credit framework: The fintech industry has been given a rationalization in co-loan arrangements by the GST input credit framework. This arrangement has led to an inevitable and potentially larger loss of input credit in the current GST framework. This will lead to an end to leakages in the income for fintech companies and these benefits can consequently be passed on to their end customer.
• A push for Digital India: The budget has further strengthened the scope of the digital economy in this country. The creation of 5G laboratories for research and development operations, and encouraging the best institutes in the country to delve deeper into artificial intelligence and machine learning, will help sharpen the focus of the digitization wave. The 7,000 crores spent for implementation of e-courts according to Priyank Kothari, the director at Arvog, is a “game changer”. He believes this will strengthen governance and speed up dispute resolution processes. Numerous pending and pending cases in India will also be dealt with in a shorter timeline using such processes. These measures have encouraged the country to increase its digital footprint worldwide.
• The much-awaited infrastructure: The Union Budget has accelerated growth in the infrastructure segment by allocating Rs. 10 lakh crores to this industry. This is 33% more than the sum that was granted last year. The Railways has seen the highest allocation ever with the outlay going up to Rs. 2.4 lakh crores. These measures along with a budget allocation of Rs 35,000 crore for investments in green transitions have cemented a platform for superior infrastructure.

Fintechs today form a prominent part of the financial ecosystem in India. They are one of the most powerful engines that contribute to the incessant growth of the country. Fintech acts as a foundation for our economy upon which further technological advances in artificial intelligence and machine learning can be built, providing all the necessary tools to evolve into a more advanced society. Therefore, it is extremely important to assist the industry with exemptions and incentives for the Indian economy to reach the required $5 trillion.

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