India has the highest fintech adoption rate globally. The industry has seen exponential growth in the latter half of the previous decade when the wave of digitization and 4G internet connectivity swept the country. With an adoption rate for fintech services of 87%, the country trumps every superpower, with an average global rate of adoption of 64%. It has taken into account the rapid pace of the India growth story and has been able to provide favourable changes for stakeholders and the common man. A shot in the arm by the Finance Minister on the 1st of February 2023 has helped the industry revive its growth after a muted year and a funding winter.
The budget has raised expectations for the fintech industry that sought several regulatory reforms and incentives. The one thing that helps small businesses and MSMEs breathe and survive is capital. The budget has fulfilled just that. A 9000 crore capital infusion for 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 to the real economy will pack a punch for the frontrunners and help them operate efficiently across a spectrum of opportunities.
Enhanced financial inclusion: The fintech sector has been given a level playing field for both offline and online lenders in the industry. Assistance from the government is a priority for fintech to nurture closer partnerships with banks and financial institutions and enhance the strength of the current co-lending model. This can lead fintech to serve the unmet financial wants and needs of those segments and sections of the population which are not the core targets of traditional financial institutions and banks.
Source: RBI website
Liberalization of the tax regime: The services that are provided by the fintech companies are taxed under section 65(12) of the Finance Act, 1994 and they are susceptible to a GST of 18%. In the Union Budget 2023, the industry has received a concession in taxes levied and zero GST up to a threshold of a turnover by a company. Deductions under various sections to all small businesses and SMEs boosting the overall demand for the fintech sector have also been provided.
Relaxation in the criteria for issuance of ESOPS: ESOPS form the core of a wide range of start-ups as a way to compensate its employees. This is because FinTechs try to reinvest their surplus cash into the business for growth and expansion. Major tax reliefs on the sale of ESOPS were given to startups in budget 2022. The fintech industry has received a relaxation in the criteria of such tax reliefs so that a wider range of young startup companies may reap its benefits.
Rationalization of the GST input credit framework: The fintech industry has received a rationalization in co-lending arrangements of the GST input credit framework. This arrangement has led to an invariable and potentially larger loss of input credit in the current GST framework. This will lead to a stoppage of leakages in the revenue for fintech companies and these benefits can consequently be passed on to their end customer.
A push for digital India: The budget has further enhanced the scope of the digital economy in this country. The setting up of 5G labs for research and development operations, incentivising the top institutes in the country to delve deeper into artificial intelligence and machine learning will help sharpen the focus on the wave of digitization. The 7000 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 fastrack the dispute resolution processes. Numerous unresolved and pending cases in India will also be heard in a shorter timeline with the help of such processes. These measures taken have incentivised the country to additionally enhance its digital footprint across the world.
The much anticipated infrastructure push: The union budget has accelerated the growth in the infrastructure segment by allocating Rs. 10 lakh crores to this industry. This is 33% more than the sum allocated last year. The railways have seen the highest allocation ever with the outlay going up to Rs. 2.4 lakh crores. These measures along with a 35000 crore budget allocation towards green transition investments has 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 contributing to the incessant growth of the country. Acting as a bedrock to our economy onto which further technological advancement to Artificial Intelligence and Machine Learning can be built, fintech provides all the necessary tools for progression into a more advanced society. Therefore, assisting the industry with exemptions and incentives is vehemently important for the Indian economy to reach the aspired $5 trillion figure mark.