The COVID-19 pandemic has given a fillip to the adoption of digital payments as more and more consumers realized the benefits and convenience they have to offer.
Finance Minister Nirmala Sitharamantoday proposed a Rs 1,500 crore scheme to develop, promote, and accelerate digital payments in India, following the sharp rise in online payments during the COVID-19 lockdown.
The Government’s decision to boost entrepreneurship and digital payments in India is a testament to its commitment to realize its vision of an economically self-reliant nation.
The Union budget 2021 has lot of encouraging initiatives for the startup ecosystem and meets some of the expectations of the Fintech industry.
“I welcome the Rs 1,500 crore scheme announced by the Hon’ble Finance Minister in the Union Budget 2021 to promote digital payments as it will help create a robust and dynamic payments ecosystem in India’s emerging digital economy.
The extension of tax holiday by one more year to March 2022, along with capital gains exemption, will boost startups by helping them tide over the economic crisis unleashed by the COVID-19 pandemic. Furthermore, the proposals to incentivize OPC incorporation along with measures like the removal of the restrictions on paid-up capital and turnover or reducing residency limit is in sync with the government vision of encouraging and catalyzing entrepreneurship in India,” said Madhusudan Ekambaram, Co-Founder & CEO, KreditBee and Co-Founder, FACE (Fintech Association for Consumer Empowerment)
The finance minister added that a ‘world-class’ fintech hub at GIFT City (Gujarat International Finance Tec-City) — located on the banks of the Sabarmati River — will be set up to encourage and develop innovative financial technology services and products. The hub will help create around 1.5 lakh jobs for the youth.
Mandar Agashe, CMD, Sarvatra Technologies said, “We are happy that aspiring entrepreneurs and small businesses will benefit from the measures government has taken including broadening the definition of start-ups, simplifying regulations, providing income tax exemptions amongst others. We believe that this announcement will give start-up economy a boost!
Also, considering digital has changed the way transactions are done, Fintech is an important thread for financial inclusion, hence creation of Fintech hub in GIFT ISFC will help companies step up their activity, grant them incentives, help them raise more funds, and create more collaboration opportunities for growth. These initiatives are likely to create a strong foundation for cashless payments and pave a path for robust and sustainable growth for the industry. Besides, the move to provide financial incentive to promote digital mode of payment will further give boost to digital transaction.”
The banking sector has been hit hard by the COVID-19 pandemic and the economic slowdown caused by it 2020. While the Reserve Bank of India (RBI) has taken various steps to revive this all crucial sector, the central government is mulling creating a ‘bad bank’ for the banking sector.
Considering infrastructure needs long term debt financing, a professionally managed Development Financial Institution will act as an enabler, while an Asset Reconstruction Company and Asset Management Company will usher in consolidation in the sector. Additionally, Debt Financing of InVITs and REITs by Foreign Portfolio Investors will help boost much needed liquidity in the sector, whereas reduction in taxes and measures for affordable housing will spur consumption and growth at the retail level.
The budget also offers big boost to the startup sector. Besides extension of a tax holiday, extended capital gains exemption for investment in start-ups by another year will help the sector attract more funds. This will encourage more entrepreneurs to join the bandwagon while also evading the cumbersome compliance procedure.
Anand Kumar Bajaj, Founder, MD & CEO, PayNearby said, “Considering the challenging year faced by the Indian economy, the Ministry of Finance has put up a fine balancing act. While initiatives to support digital payments are few, the budget showcases a strong intent to continue driving a less-cash ecosystem. On one hand, the Union Budget 2021 has various encouraging initiatives that will propel aspiring entrepreneurs and boost small businesses. On the other hand, it renders a lot of focus on uplifting the lower stratum of the society which includes the migrants, gig workers and farmers among others. The pandemic-induced economy has played an important role in dispelling the long-held scepticism regarding the gig workforce’s efficiency and dependability.
The proposal to extend social benefits to gig economy workers and farmers along with a portal to register their details will pave the way to formalise the sector and create employment avenues amid a robust ecosystem to fulfil the government’s Aatmanirbhar vision. Furthermore, initiatives such as the development of a world-class fintech hub at GIFT, investor charter and a dedicated fund of Rs 1,500 crores for digital payments are extremely encouraging as they will augment innovation within the fintech industry and accelerate the pace of a financially inclusive, cashless economy. we are eager to explore the new and exciting opportunities that will emerge.”
Murali Iyer, CEO and Principal Officer, InsureNearby commented, “Increasing the FDI limit to 74% from the current 49% in the insurance sector is a welcome move by the government which was long overdue. Providing equal rights to foreign partners will help open up the sector while offering the much-needed capital infusion. This will provide a huge fillip to employment opportunities besides helping boost insurance penetration, especially in the hinterlands of the country. Additionally, the move will also help Indian shareholders to find new buyers easily, thereby eyeing a smooth exit.
At just about 4%, India has one of the lowest insurance coverage ratios among the most populous nations and this amendment is likely to put the industry back on the growth track from the present stagnation period. Upscaling FDI in the industry will also encourage innovation-backed tools and technologies that will help drive inclusivity at the bottom of the pyramid. This is likely to boost growth and transformation and will put the insurance sector at par with the banking sector.”
The increase of FDI limit in insurance is an extremely favourable move for the industry. Considering the skewed nature of insurance penetration in the country, we require innovative, cost-effective tools to cater to the target audience of which 90% is still unbanked and underbanked. The increased FDI limit will offer true metamorphosis for the sector as capital infusion will help businesses expand, aligned strongly with the government’s vision of financial inclusion.
To summarize it’s an extremely well structured and a forward looking budget encompassing all sectors and detailed steps for implementation. The ground level reforms in Health Infra, Agriculture, finance, education sectors have been supported by the necessary acts and regulations from the top level. The Development Financial Institution, Increase in FDI in insurance and the PSE and PSB divestment will provide the much required boost to the financial sector. Tax consistency and transparency are a big relief for tax payers. The budget comes when India is trying to get its growth back on track and create enough jobs for its workforce. Hence, we think, its overall a growth budget providing huge employment opportunities for the Indian economy. The development of Infrastructure is fundamental to the revival of the economy and this continued boost from the government will have a multiplier effect on various sectors that provide material & equipment for construction & development. We believe that the Infra sector will be at a great advantage as each sub sector, shipping, railways, roads, energy and power has been addressed with specific reforms. Also, the introduction of DFI and a Single security market code will enhance the liquidity in the secondary markets and enable smooth capital market operations. Overall, the budget is poised to bring us closer to the dream of an AatmaNirbhar Bharat and positioning India as an alternative global destination for manufacturing and innovation.