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Budget 2021: Budget expectations of Fintech sector

Before the Finance Minister Nirmala Sitharaman presents the Union Budget in the Parliament on February 1, 2021.

Here’s what the Fintech sector expects from the Government:

Neel Juriasingani, CEO & Co-founder of  Datacultr:

“The pandemic has brought to fore an opportunity for immense innovation by startups and new-age technology companies and it is quite evident that the trend will only pick up in the year 2021. In the spirit of entrepreneurship, we hope, through this union budget, the government brings game-changing reforms, new policies, and regulations that will offer relief and tax sops to MSMEs and the startup ecosystem.

To talk about the Fintech industry particularly, the market has been largely expanding with new-age businesses emerging in the market opening up broader avenues to lending to high-risk and new-to-credit borrowers. The sector is on the cusp of a technological revolution; with the pandemic only accelerating the pace of tech adoption. The government must back this growth with favorable policies and encourage digitalisation to provide a further boost and expand financial inclusion across nooks and corners of the country”.

Narasimhan Raghavan, Director, Raag Technologies and Services Pvt Ltd (RTS):

“As the saying goes, every cloud has a silver lining. 2020 has been a game-changing year for the logistics sector. As we await the Budget 2021, we are expecting that the government will take further steps to strengthen the sector with reforms related to GST, and most importantly accelerate the implementation of initiatives under the Sagarmala and Bharatmala projects. It must be noted that logistics is also one of the highest employment-generating sectors currently. Therefore, the government must look at creating a thriving ecosystem for logistics leading to the overall economic growth.”

Varun Chopra, CEO & Co-Founder Eduvanz:

“The Union budget 2021 will be a ray of light for the Fintech sector as many players have seen a unique growth in the transaction volumes after the pandemic hit. The number of lending players has skyrocketed and with an increasing number of users applying for small-ticket-loans are expanding their way of considering digital offerings for various purposes such as education.

At present, India has over 2,147 active fintech players with more than 500 digital lending players. It is projected that the credit demand from consumers and MSMEs would be more than $1 trillion by 2023.

In order to reach a $5 trillion economy, lending needs a major push in the country and has to be accepted by a larger mass at a greater scale with institutional support. And to bring this change, the union budget 2021 should introduce few changes across the education and fintech sector to help the growth of the economy. Few changes like encouraging the spend on the digital infrastructure as demand increases beyond Tier 1 cities will enable a higher enrolment rate for online education.

Also, reducing the GST to 5% or so from 18% for the edtech firms, or by offering Budgetary concessions such as a GST waiver for digital transactions for education will ensure more participation in learning and skilling for the youth of India. All this will have a direct impact on the growth of the economy.”

Kunal Varma, CBO & Co-Founder, MoneyTap:

“With the COVID-19 pandemic causing a large pause in the global economy, Budget 2021-22 hopes to regain business confidence. With citizens’ incomes being drastically affected, tax relief would be a welcome move this year. An increase in the limit for tax deductions under section 80C would be good.

Considering inflation in the recent past, the previous limits are no longer relevant. This will boost spending or ability to invest, which the economy needs right now. The worst-hit industries such as trade, transportation, tourism, and hospitality would benefit the most from Govt. stimuli. Focus should be to first support existing businesses and additionally encourage entry by newer enterprises into these industries.

Retail investors could do with indexation benefits, along with some actual relief in the capital gains tax structure, which is long due, particularly for long-term capital gains taxes. This could be done by either reducing the threshold holding period for long-term capital gains computations or eliminating the min holding period requirement altogether.

We hope for continued ease of borrowing for our customers, with a focus on policies around enhanced digital-KYC measures for credible borrowers who are borrowing for amounts below a certain threshold. All things considered, we hope to see a balance of inflation control + growth from this budget, both of which are needed to kickstart the post-pandemic economy.”

Ketan Doshi, MD, PayPoint India:

For the Payments industry, the honorable Finance Minister should reconsider the complete elimination of merchant discount rate (MDR) on Rupay and UPI transactions which will support a sustainable growth in digital payments.

To further the Financial Inclusion in the country, I feel all transactions happening under PMJDY should be exempted from the GST levy. Bank accounts opened under PMJDY are basically of low ticket size. However, the operating cost to service this under-served community is very high till it reaches a substantial base hence the exemption.

This Budget should have enough measures to infuse liquidity, benefiting small and medium enterprises, especially those in the hinterlands. PSU banks must lead this mandates in partnership with FinTech’s – either through co-lending or lead-generation model.

Mr. Anil Pinapala, Member of  Fintech Association For Consumer Empowerment and CEO & Founder of ViVifi:

“One of the most pressing needs for the Fintech sector is cost-efficient capital, with the banks literally sitting on piles of cash that haven’t made it to the hands of small and mid-sized NBFCs either as a part of TLTRO 1.0 and TLTRO 2.0 it would be a great step in positive direction if the Budget forces the banks to ensure the funds flow to NBFCs especially the ones which are small and mid-sized on one hand while simultaneously easing the norms for getting Foreign Capital both as debt and equity. 

As the Fintechs address the credit needs of individuals and businesses which are not typically catered to by Banks, greater foreign participation in the financial system will address a chronic shortage in domestic capital that is willing to address the underserved segments.

Satyam Kumar, Founding Member of Fintech Association for Consumer Empowerment, CEO and Co-Founder, Loan Tap:

“India’s economy is changing drastically with the evolution of the digital landscape across industries. 

The pandemic has given an upward push to the fintech sector and has also given big opportunities to create one-stop solution platforms for all the consumers. 

As seen in the past budget sessions the government and RBI are working together and taking several initiatives to boost the fintech ecosystem. 

In 2021, we expect that the government will focus more on the development of digital infrastructure to enhance customer experiences, credit quality, and also streamline the growth in FY21-22.”

Mr. Nityanand Sharma, Co-Founder & CEO, Simpl: 

“The promising results of the COVID-19 vaccine and plans to roll it out at the earliest makes me optimistically confident that there will soon be a welcome improvement in our country’s economy. 

This further gives me hope that this year’s Union budget will include provisions to support and strengthen the fintech ecosystem. 

Recently, there has been a widening scope of the RBI’s co-origination model, and now our Finance Minister is asking banks to use this model to collaborate with fintechs and share lending risks equally. 

If this measure comes into effect, it’ll reflect a growing and necessary acceptance of the key role that fintechs play in the world of banking and finance. 

As a result, we anticipate that large, traditional banks and financial institutions will partner with fintech firms. These institutions will benefit from our new-generation digital lending technology expertise, and we in turn gain the advantage of solid structural backing and regulatory competencies that such large organizations provide. 

We also expect a concerted focus on increasing last-mile credit access for businesses, that will enable us to make a tremendous mass impact on end-users, as UPI payments did.

A key result of the pandemic was a huge upsurge in digital payments, leading to the need for quicker digital transformation through building relevant infrastructure and capabilities. 

Piecemeal solutions are not the answer, as they are not scalable in the long-term, so with support from the government, fintech companies will play an important part in fast-tracking digitalization comprehensively.”

Mr. Ankit Gera, co-founder, Junio:

“We are extremely hopeful for the upcoming Union Budget 2021 especially post Finance Minister Nirmala Sitharaman announcing that this budget shall be ‘unlike anything in past 100 years’.

The rise of fintech in India can be attributed to various macroeconomic factors, including the adoption of cashless society especially post COVID, extensive penetration of smartphones and a supportive regulatory regime. In the upcoming Union Budget, we hope that favourable policies are introduced to ensure large-scale penetration of credit instruments and spur demand in the economy by supporting consumption.

Further, we hope that the KYC formalities are relaxed since this comes as a huge challenge for fintech players in terms of their scalability. We also hope that there is a reduction in GST for the financial services industry in order to boost the entire ecosystem and transfer the benefit to consumers by lowering the overall transaction cost.

With the pandemic providing the necessary thrust to digital payments, there is an increased need for advancement of end-to-end infrastructural as fragmentary solutions may not sustain in the long run.”

Mr. Dilip Modi, founder of Spice Money:

“During the lockdown last year, the urban economy thrived on UPI payments and there was an uptick in digital modes of payments. But, in semi-urban and rural areas, where digital and financial literacy is still a work in progress, the banking correspondent or BC networks like Spice Money’s supported the essential service of cash transactions. Over 90% of our 5,00,000 strong entrepreneurial Adhikari network operates in rural areas where bank infrastructure and ATM availability is still a rarity.

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While encouraging initiatives such as PIDF by RBI have already been announced, in the upcoming Union Budget, we expect the government to announce a subsidy on MDR and POS devices. Waivers on MDR and POS are pertinent to encourage the expansion of these services via the BC network. Accessibility of financial services is a major gap in financial inclusion and POS terminals would be more sustainable than ATM infrastructure in semi-urban and rural areas.

Another key aspect, like many have echoed, would be taxes. The earnings of the underbanked population are hit with taxes levied on basic money transfers. The government should consider providing some GST relief on smaller transactions conducted on the BC network. A special provision on GST and TDS for the BC model will help create visibility for this business. Further, tax benefits to the rural end-customer on digital purchases will also help boost adoption of digital financial services in the low-income groups.   

The government showed support for the rural areas by deploying DBT schemes with the BC networks backing them by providing withdrawal services. The government should further this support by building BC networks as it will spell growth for the vision of Digital India beyond simple internet connectivity. It will allow more financial products and services to reach the remotest parts of India and accelerate the bridging of the gap in the access to banking services in India.”

Mr. Niraj Hutheesing, Founder and Managing Director, Cygnet Infotech:

“The ’21 Union Budget provides two big opportunities. Firstly, boost economic growth by scaling investment in digitization. 

Secondly, drive technology enabled rationalization of the country’s tax infrastructure. The former will bring employment and self-employment opportunities for the youth through digital initiatives of Start-ups and MSMEs. 

The latter will enable businesses to thrive in a simplified indirect- tax compliance regime powered by new technologies like hyper automation. 

This will also ensure that the funds collected through GST are used efficiently and help in generating economic growth in this financial year. It is important to have a set framework and policy for GST compliance for all businesses in India, let us see how the government addresses this.”

Mr. Amit Nigam, Executive Director & COO of BANKIT:

The beginning of 2020 showed a great downfall in the business across all the sectors. But it was a great year for entrepreneurs to take control of various situations. 

The FinTech Industry has seen more small businesses igniting at the remote level. More adaptability in people is seen in digital mediums for payments and financial management. 

This year we expect our government to build strong policies to encourage banks & financial institutions, where rural areas work with Fin-tech companies to expand their business digitally. 

BANKIT has been fortunate to be a part of this financial inclusion process. It has enabled various agents to take financial services to the unbanked and underbanked segments of the country.

With the 2021-2022 upcoming budget, we look forward to various such as the exemption of income tax for retailers from the income coming through financial businesses. 

Also, business correspondent (BC) agents must be exempted from GST charges that apply to the BC business. We feel that these agents & BCs facilitate the financial inclusion process and thus, act as a helping hand to the government in making India digital. 

This step will encourage more retailers to join the journey. Another change that we look forward to, that can help towards the same cause, is subsidies on devices like mATM, MPOS, etc. to help entrepreneurs can be encouraged to come forward for the cause.

The fintech industry expects a lower GST slab on banking, financial and remittances services as it will directly impact the unbanked and underbanked sector as well the banking correspondents in these areas by reducing the charges on these services. But this is very unlikely to happen as this will directly impact the GST revenue government earns from the banking sector.

The start-up ecosystem of India has seen various ups and downs throughout the year. We as a fintech start-up expect some special measures to revive the economy and help the startup with growing financially. 

The major pointer to look forward to in the upcoming budget is ease in taxes which can help lessen up the burden from small and new businesses.”

Mr. Raj N, Founder, and Chairman of Zaggle:

2020 has been a really difficult year for everybody, and especially so on the economic front. Individuals and organizations have faced the negative effect of the pandemic. 2021, hence comes with a lot of hope and expectations. 

The Government has tried to address the problems that have arisen because of the pandemic. But the situation warrants continued support for various industries including FinTech’s. The FinTech industry has been a great support to the entire ecosystem during this time of crisis. But we too have gone through pain. 

It is therefore important that the government considers and provides for the FinTech industry in the budget which can create a balance between revenue generation for the exchequer and ensure an enabling economic environment for the FinTech industry. 

Unless there is a hand of support in the form of adequate provisions to ensure the growth of FinTechs, there will not be a win-win situation for both sides. 

These are times to be brave and I expect the Government to rise to the occasion and further intensify the stimulus especially for the Industries which were more or less crippled because of the Pandemic. We all saw how Digital Payments and overall Digitisation helped India to overcome the crucial problem of access to one’s funds and allowed businesses to function without much trouble.

What India needs is an overhauling of the existing Banking system and believing in FinTechs to reach the last mile and make India a Fully Payments Digital Country.

We need Pragmatic, Bold, Goal-led, and continuous reforms on a sustainable basis to take India to glory and nothing better than to start with FinTechs – With Freedom comes Responsibility, Regulating the necessary processes but allow the businesses to operate with Freedom especially on the Neo Banks.”

Mandar Agashe, Founder, MD, and Vice Chairman, Sarvatra Technologies:

With the world’s largest immunization drive already underway, economic recovery will be the major focus of the government.

Despite the wreck created, the pandemic has offered a huge impetus to digital penetration throughout the country, which has accelerated in the unlock phase. It is therefore critical the budget draws out bold policy interventions to strengthen digital infrastructure which will eventually help in digitizing the overall economy.

The PoS terminal is financially, infrastructurally, and operationally far more affordable and far less demanding than an ATM.

However, with just 4 million POS machines active in the country, the budget should consider making devices such as the PoS terminal / mini ATMs’ the most viable acquiring infrastructure for banks and fintech companies by offering an incentive such as a tax subsidy. 

Additionally, tax breaks in GST for merchants providing digital payments and tax benefits for companies helping build a digital infrastructure for friction-free digital onboarding too will catalyze the financial inclusion movement envisioned by the government.

The government should also consider a dedicated fund to strengthen the digital infrastructure of co-operative banks across the county which will offer a big boost to a more inclusive financial system.

Budgetary concessions such as a GST waiver for digital transactions along with incentivization, especially in semi-urban and rural India will further augment cashless payments.

UPI has been a breakthrough, home-grown technology and it is important we replicate its success through newer and more innovative technologies.

Fintechs and technology startups should be encouraged to invest more in R&D to introduce newer products and diversify into newer geographies. The upcoming budget should therefore consider offering tax benefits such as private investments being exempted.

Besides, considering the amount of data being created and stored across industries growing at unprecedented rates, enhancing the security infrastructure to protect and manage data seamlessly should be another focus area.

In the post-COVID world, digital infrastructure will be a game-changer for companies and countries and therefore it is important we take timely measures to ride this wave.”

Swastik Nigam, Founder & CEO, Winvesta:

Last FY, the Finance Minister introduced a TCS of 5% on all outward remittances above Rs. 7L. This measure was to create an audit trail on the money that is remitted under LRS.

However, this has resulted in fewer investors remitting money due to the capital outlay that they need to do early in the year. The challenge is that this has stunted the participation in the overseas capital markets – and the investors are not able to monetise the gains as much as they’d have liked to.

A 5% TCS is very high to create an audit trail. It would be more reasonable to consider a smaller value (say 2%), so that the investors aren’t being penalised for remitting the money. This can be offset through a marginal increase in capital gains tax on Short Term CG on overseas investments – this will help boost the marginal tax collected by the government, rather than the upfront load cost of investing.

The FM should also consider ways to make cross-border investing as easy as possible, and set out a policy for it. This will aid India’s image as being more open – to both attract capital as well as make it easier for cross-border flow of capital.

We should also hope to see how the Finance Minister supports the remote working policy. As the economy has cooled, businesses need an ability to swiftly open an ability to be a business, without being tied down with paperwork, while also being incentivized to employ people quickly.

In other geographies, we’ve seen this in the form of relief / grants and waivers. We’d be keen to see how the FM pushes reforms through the budget to solve for this as well.

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