Union Budget 2021: Grant fintechs access to liquidity through the development of PSU funds, say experts
The financial health crisis of 2020 has already forced the government to introduce a series of economic sustainability initiatives in the form of policies and packages. Since 2014, the government has supported digital payments and placed digital enablement as the pillar of the next wave of growth through financial inclusion. Statistics also demonstrate that cash is the king in most of the business sectors.
Fintech businesses discussed with Firstpost a set of steps that the government should announce to improve the market.
Praveen Agrawal, Co-Head India, OakNorth
We assume that the key focus of this budget will be technology as a way of empowering diverse industries and promoting appropriate financing alternatives for micro, small and medium-sized enterprises (MSMEs). There will also be a high emphasis on building job opportunities for the younger segment, by cultivating an innovation climate in the start-up region. MSMEs have been the main employer and growth engine for the Indian economy to date but have been adversely impacted by the COVID-19 crisis due to systemic liquidity problems, combined with high funding costs. With only a limited proportion of MMEPs having access to the formal credit system, large portions of MMEPs face labour capital shortages and refinancing restrictions, considering the formal financial assistance offered during the recession. We are optimistic that this budget will include specific steps to improve the start-up space, in particular fintech, which proves to be highly successful and efficient in collaborating data and putting together market players to create a healthier lending ecosystem.
Praveen Paulose, MD and CEO, Celusion Technologies
Pandemic has also driven people to be more digital in 2020 so that Internet access and mobile penetration (digital infrastructure) to India’s Tier 2/3 cities are more penetrated by Digital India initiatives. We would like to see speeding up and promoting the introduction of regulatory sandboxes and core programs such as the CKYC/Account Aggregator.
For example, this might generate new value for the banking and financial services industries in terms of customer engagement and core operations.
Ketan Doshi, MD, PayPoint India
For the payment sector, the Finance Minister should rethink the full abolition of the market discount rate (MDR) for Rupay and UPI transactions, which would promote sustained growth in digital payments. In order to further the financial inclusion in the region, I feel that all transactions under the PMJDY should be excluded from the GST levy. The bank accounts opened under the PMJDY are fundamental of low ticket size. However, the running cost of the program to this underserved population is very high before it has achieved a substantial basis, thus the exception. Budget 2021 should have adequate steps to infuse liquidity to support small and medium-sized enterprises, especially those in the hinterland.
Udit Garg, Founding Member, Goal Teller
The government may, in the forthcoming budget, concentrate on, inter alia, imposing a COVID cessation on high net individuals (HNIs) or firms to bridge the projected budget deficits. We feel that instead of enforcing an additional cessation on HNIs, which still bear the brunt of the updated surcharge prices, GOI should raise the new cessation rates from 4% to 5% across all taxpayers. This could contribute to a total rise in tax inflows of between 6,000 and 7,000 crores. The government should concentrate on privatization and enhancing the performance of vital PSUs (with management bonus programs) to increase government inflows.
Mahesh Ramamoorthy, MD, Banking Solutions, International Market, APAC, FIS
In Budget 2021, the government must have substantial incentives for the promotion of digital payments, which are expected to accelerate the transfer of cash to digital. The fintech sector plays a crucial role in delivering financial services to grassroots sectors. Farming, MSME. Encouraging creativity and market emphasis in these sectors is crucial for India to achieve the target of a $5 trillion economy. The government must promote fintech through a regulatory process that promotes the model of private-public-partnership. It will go a long way to providing savings to customers.
Yogi Sadana, CEO, CASHe and Founding Member, Fintech Association for Consumer Empowerment
A strong wish list includes tax relief, technology sops and infrastructure investment by fintech to expand credit penetration in the region, enabling expanded collaboration between fintech start-ups and banks to support other sectors by structured lending, and establishing a fund with PSUs and major private banks to boost liquidity and access to finance. We would like to see the budget placed in place provisions that would make it easier for fintech to have access to liquidity by setting up a fund within the PSU and big banks to lend to the fintech and start-up ecosystem without the need to have hard collateral that is the present bottleneck.
Vivek Iyer, Partner, Grant Thornton Bharat LLP
The finance ministry has been speaking about the Banking Investment Company (BIC) model since 2014. The mega holding company framework to keep all government shares in public sector banks will not only add transparency and improved governance but will also relieve fiscal pressure as the BIC will help collect capital more efficiently. Hope that this will come to fruition in the Union budget for 2021.