What Fintech Sector Expects From Union Budget 2018

by Sohini Bagchi    Jan 29, 2018

union budget

On February 1, Finance Minister Arun Jaitley is all set to present the Union Budget 2018 for the fiscal year 2018-19. In the last couple of years, the fintech sector has started pinning a lot of hope on the budget. The Union Budget 2017-18 in fact was instrumental in actively promoting digital transactions in order to make India, a less-cash economy. Overall, a policy thrust was given to increase digital footprint in the country by capping cash transactions and by financially incentivising digital ones.

The Finance Minister whilst giving a push to digital transaction also recognised the significance of cybersecurity and therefore, proposed to set up a Computer Emergency Response Team for Financial Sector (CERT-Fin). While some areas have progressed and India is gearing up to become a cashless economy, there are still a lot of challenges that need to be addressed. It is therefore important to understand from experts what expectations they have from this year’s Union Budget.

Preferential tax rate for small businesses

“Today, a small merchant in India already enjoys one of the lowest cost structures in the world for accepting digital payments. However, merchants continue to be biased towards cash because of the tax impact (direct and indirect) of digital transactions, which leave a trail,” said Anand Ramachandran, CFO, TechProcess Payment Services (Part of Ingenico Group).

“The Government must consider a preferential tax rate for small businesses with majority (say 50%) income received through digital channels. This will eliminate the barriers cited by small businesses, expand the tax base, and accelerate the gains of demonetization. Government may also consider tax breaks for fintech companies which are making significant investments in the high volume, low margin digital payments market to provide innovative solutions to merchants and consumers,” he said.

Kumar Abhishek, CEO & Co-founder, ToneTag expects the corporate tax to be reduced for start-ups that are driving Make in India by investing in product development and manufacturing. “We expect a reduction in Income Tax for individuals working in companies promoting the startup ecosystem. Include measures to improve digital literacy and provide high-speed internet to every citizen and empowering them with access to mobile internet. We look forward to PM Narendra Modi’s project, Startup India, to get a major boost in the upcoming budget,” he said. 

Upgrading digital infrastructure

According to Manav Jeet MD and CEO, Rubique, “India’s fintech space has witnessed a considerable push in the last couple of years, owing to the strong, proactive policy level support from the government. Although, initiatives such as Jan Dhan Yojana, Aadhaar and the emergence of UPI has provided a good foundation for Fintech companies to cover the ‘last mile’ touchpoints, there needs to be substantial governmental push to boost India’s digital lending industry.”

Ravi B Goyal, Chairman & Managing Director, AGS Transact Technologies Limited, a provider of end-to-end payment solutions said, “The last few quarters have been transformational for the FinTech and Banking Payments Services industry in terms of increased governmental policy push such as Aadhar pay, UPI and others. These policy initiatives have not merely encouraged consumers onto digital platforms but has also promote financial inclusion. However, it would be appropriate to point out that cash would still co-exists along with increased push towards digitization. As cash continues to be the preferred mode for transactions, especially in semi-rural & rural areas, we strongly believe that the government’s pro-business policies will usher in a new era of prosperity providing stimulus to cash and digital payments alike.”

He states that the forthcoming budget should announce measures to upgrade digital infrastructure, especially with regards to the protection of data stored online so that consumer confidence is enhanced.

At the same time, Rajeev Agarwal, CEO, Innoviti Payment Solutions noted that hardware cost  is one of the bigger inhibitors to rapid and sustained expansion of digital payment acceptance amongst smaller retail merchants. “We hope the Budget takes a close look at options to reduce this friction. Conversely , if cash withdrawals from Banks were more actively dis-incentivised through surcharges, that would also help. An even more wide ranging move to push digital payments habit would be to allow individual tax-payers an annual personal income tax deduction claim for a specified percentage of their annual digital purchase spends.” said Agarwal.

Digitization of financial services

Aniketh Jain, CEO & Co-Founder of Solutions Infini Pvt. Ltd. believes, this year budgets are going to be significantly crucial as they happen post the year of notable reforms like Demonetization, GST implementation and insolvency and bankruptcy policy. This year budget also marks significant impact on the way our ecosystem functions. Bringing in policies that fosters growth in employment, direct tax reforms, creating more clarity on the way bitcoin operates and its significance on Indian economy can be familiarized for smoother functions.

The last year’s budget has taken various initiatives to improve the ease of doing business, controlling inflation, digitizing the financial and individual records. Increase in FDI (Foreign Direct Investment) is a pragmatic initiative that has opened up investments from various sectors. Government should capitalize on the growth trajectory of the past year to strengthen the existing framework of the policies and to create sustainable solutions that foster employment opportunities, transparent financial policies to make India USD 6 Trillion economy in a decade of time.”

“For the Budget 2018-19, we hope that the government will continue to push digitization of financial services and encourage consumers to use digital platforms for transactions. Initiatives such Aadhaar and UPI provide a good opportunity for banks, insurers, and fintech players to expand India’s efforts towards financial inclusion. Another area of focus should be reducing the cost of capital for the MSMEs by improving lenders access to low cost funding sources such as MUDRA & SIDBI and relaxing securitization norms” said Gaurav Hinduja, Cofounder of Capital Float.

Alok Mittal, President of Digital Lenders Association of India & CEO, Indifi Technologies & also an active angel investor expects that the budget will announce concrete measures for continued push and incentive for digital payments. He said, “Expanding the coverage of Mudraa and other credit guarantee schemes to cover new age business models and fintech platforms will help the sector to get more access to credit and digital existence. Secured API access to customer information using GST system and simplification around GST will be an additional benefit,” he said.

Need for greater financial inclusion

Sundararajan, Executive Director at i-exceed puts it, “Ours is a country that has realized the significance of digitization and acted on it. The demonetization act set the wheels rolling in a big way for Digital India. The growth of digital payments has accelerated since then. However, there is still a large section of population, especially from rural areas, who are unable to get the best out of these digital initiatives. Fintech players are coming up with interest innovations to support regional languages, voice based transactions and AI powered natural language processing to facilitate financial inclusion. With the 2018 fiscal budget, we expect the government to take more active steps in encouraging such innovations.”  

Manav Jeet commented, Budgetary measures such as push towards e-signature usage to verify the documents digitally, e-KYC and to ensure there is a complete paperless on-boarding of accounts; Increasing the limits on affordable housing and providing regulatory support to fintech organisations trying to simplify and digitize easy credit access to MSME industry, will not only help develop the financial infrastructure of the country but also strengthen the eco-system in order to take India to the next stages of Financial inclusion.”

Greater clarity on Blockchain/cryptocurrencies

The Blockchain and Cryptocurrency Committee (BACC) believes given the growth in the number of participants in Bitcoin and other cryptocurrencies, trading volumes, and rupees traded, it is time that the Government makes its stand known. Even if a detailed policy framework is not possible at this stage, an indication of the Government’s mind will help in the robust growth of one of the fastest growing sectors of Fintech. 

Ajeet Khurana has been named as the Head of BACC that commented, mining of Bitcoin and other cryptocurrencies presents a unique “Make in India” opportunity that can boost self-employment. In addition, Government support in this area will encourage import-substitution of mining hardware. At the same time, the concern is that despite its vast population and technical capabilities, India accounts for less than 1% of global cryptocurrency activity. Forward-looking policy framework will help India strive to assume a leadership position in cryptocurrencies.