Budget 2018: Unlocking India's potential in the fintech industry
Alok Mittal January 15, 2018
2017 has been a fantastic year for the Fintech industry in India, spurred on by the positive policy environment and the increasing penetration and deployment of new technologies. The Fintech industry has helped make digital payments a day-to-day reality in India, developing the most evolved digital payments system among countries including the UK, China, and Japan, according to a report by FIS, the US-based banking technology provider. The availability, adoption, and immediacy of payments has helped the value of transactions using digital wallets rise by 64% from December 2016 to December 2017. These Fintech companies have also increased the supply of credit to the crucial MSME sector, often financially excluded. Overall, the Fintech space has driven the Indian economy to a path of a more promising transformation into being inclusive and data-driven while rapidly driving growth and adding funds to the exchequer through taxation.
While progress has been made, there is still much ground to be covered - India must up the ante and more aggressively promote these trends to realise its economic potential in greater measure, and a positive Budget 2018-19 would be the best vehicle to achieve that goal. Here are some of the expectations of the Indian Fintech sector from the Finance Ministry for Budget 2018-19:
Sustained push towards a digital-first economy
While digital payments are now projected to supersede cash by 2022 according to industry reports, this remarkable momentum that has been created in the digital payments ecosystem will need more policy support to be sustained. The government has created crucial supply-side infrastructure - UPI, India Stack, eKYC, and Aadhar - but it must address demand-side concerns and continue to incentivise digital payments and their providers to help the ecosystem gain greater adoption and synergy.
The continued evolution of GST - simplification and data-sharing
GST is indubitably a great leap forward and a landmark tax reform, but it will need constant tinkering and evolution to help maximise its beneficial impact upon the nation's economy. The government has shown some alacrity in addressing concerns and assuaging doubts, but the Budget represents a fantastic opportunity to bring much-needed clarity in its implementation. Further, GST has created a hitherto unimaginable database of tax-paying businesses, representing a treasure trove of data that can be a huge benefit in determining the creditworthiness of applicants. Making the GST data accessible through a secured API to Fintech players that lend to the sector, credit bureaus, and legacy BFSI players would help create a more seamless credit process for countless MSMEs in the country.
According to the NSSO survey, only 4% of the 5.77 crore small business units surveyed at the time had access to institutional finance. The government, identifying this as a priority sector, created the Micro Units Development and Refinance Agency (MUDRA) Bank to provide much-needed credit to the sector. Mudra Bank looked to refinance and supply entities engaged in last mile credit delivery to India's MSMEs, facing an INR 32 billion shortfall in required finance, according to the International Finance Corporation. Unfortunately, this scheme doesn't apply to the many burgeoning Fintech players in the Indian market, looking to supply credit and digitize India's MSME sector. Further, even existing credit guarantee schemes in the country don't apply to the technology-driven business models of these Fintech players, leaving them without regulatory assistance even while engaged in achieving crucial policy goals for the financing of the sector. The government should expand Mudra and other existing credit guarantee schemes to cover Fintech this year to promote greater growth.
In 2017, India became the 2nd fastest country to adopt Fintech technologies in the world according to the EY Fintech Adoption Index - beaten only by China. China's remarkable growth in the last few decades has largely been driven by its massive disbursal of credit throughout the economy, and its keenness to adopt and deploy new technology to optimize systems. Fintech companies are helping MSMEs expand, grow, and go digital - a process that, according to a KPMG-Google report, would drive 5x more employment, increase MSME contribution to the GDP by 10 percentage points by 2022, and help India lay the foundation for a sustained period of economic growth and prosperity. This Budget comes at a crucial time for the Indian economy and its Fintech industry, the vanguard of digitization and technology-driven efficiency - the expectations enumerated above, and to what degree they are realised, would determine the course of the country's prosperity for years to come.
The writer is the CEO & Co-founder, Indifi Technologies Private Limited