Union Finance Minister Nirmala Sitharaman on February 1 presented the first Budget of ‘Amrit Kaal’, which envisions a prosperous and inclusive India, as we move towards 100 years of independence. Among achievements made in the previous year, the strides in digital payment were emphasised and highlighted as key indicators of financial inclusion and formalisation of economy.
The Budget highlighted that India has a robust infrastructure for fintech services, enabled by the public infrastructure which includes PM Jan Dhan Yojana, Video KYC, Aadhaar, India Stack and UPI. UPI transactions have clocked Rs 7,400 crore digital payments amounting to Rs 126 lakh crore in 2022, which is a whopping 91 per cent and 54 per cent growth in volume and value compared to 2021. While there were no pathbreaking announcements for fintech and payment sectors in this year’s Budget, there are few significant areas that can prove to be beneficial for the sector in the long run.
The Budget has allocated Rs 1,500 crores to the Ministry of Electronics and Information Technology for promotion of digital payments. This amount was Rs 200 crore in the previous budget and was increased to Rs 2,137 crore in the actual outlay. Given the impetus on digital payments by the government, it is expected that the actual outlay for this year would also be higher. While it is safe to assume that the machine has started to roll and is slowly becoming self-sustaining, there is a lot of work yet to be done in financial inclusion.
There are around 26 crore unique users for UPI in India which constitutes 18.5 per cent of the population. While the scale is unmatched for any other mode of payments across the world, more spending will be necessary for promoting digital payments among under-banked and unbanked, not just with UPI, but also with other mode of payments as well. Increase in outlay is also important to incentivise and compensate financial institutions and payment service providers as they absorb losses to create and maintain large infrastructure for the payment rails due to zero MDR.
The proposal to expand the scope of Digilocker to allow more documents and simplification of KYC will enable more fintech innovations. This is important for a country like India where large segment of population is still underbanked. Ease of onboarding and removing friction in the digital journeys will encourage more people to transact and avail financial services digitally. Using PAN as a common business identifier will help streamline the KYC process for businesses and will minimize the hassles associated with multiple documents, increase adoption of digital financial services in MSME sector. This will in turn augment the efforts to expedite formalization of the economy and increase payments in digital mode.
Announcement on National Financial Information Registry is a timely step. With increased digitization, more individuals and businesses are now transacting digitally. This can enable end to end data led digital journeys in credit disbursements. This can also have a positive reinforcement effect on digital transactions as businesses will see higher benefits from transacting online. As the government and RBI create a legal framework for this, it is necessary to address any data protection and privacy concerns so that there is trust and good will associated with the new system.
The Budget also announced a comprehensive review of existing financial sector regulations. This can be seen in the context of financial services players pointing out fragmented and siloed nature of regulations. This is especially beneficial for fintechs as optimal regulations can minimize the regulatory risks and enable new innovations. This can also bring down the cost of compliance and complexities for large financial institutions. Public consultation is also a welcome step and gives a clear message that the government is taking a participatory approach to regulations.
The concept of data embassies to be set up in IFSC will strengthen India as a data storage and processing hub. This can enable large companies and other nations to set up back-end data infrastructure for digital transactions, which will have diplomatic and economic implications for country and financial services industry.
This year’s Union Budget proposes to create an enabling environment for inclusive growth of fintech and payments sector by strengthening institutions at the same time encouraging and incentivizing MSMEs, cooperatives and other businesses to transact digitally. Even though, the industry was keen to look at the progress of certain initiatives such as Digital Rupee, PIDF, Digital banking units, crypto regulations, etc., announced in the earlier Budget, this year’s Budget covered many fundamental aspects for the sector which were necessary to be addressed.
(The author is partner (financial services consulting) at Grant Thornton Bharat)
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