How Union Budget 2024 Can Supercharge India’s Fintech Sector

As Finance Minister Nirmala Sitharaman gears up to the Narendra Modi-led NDA government’s 11th Budget in July, the nation awaits with bated breath, hope, and expectation. While the Indian economy has recovered from the aftershocks of Covid, registering a GDP growth of 8.2% in the financial year 2023-2024 (FY), there is considerable anticipation after precursor that the Budget would be an “effective document of the government’s far-reaching policies and futuristic vision” of a prosperous India or Viksit Bharat.

While every Budget brings its air of expectations, this would surely be the opportune moment to bring impetus to the fintech sector and unlock its next growth phase. Through specific regulations, electronic payments, and increased credit assistance for MSMEs, the fintech sector is essential for financial inclusion and economic development. With over 6,000 fintech businesses, India is the global hub of innovation and boasts of the third largest ecosystem. This Budget has the potential to create a more resilient economic future by merging the Digital India agenda with the capabilities of the fintech sector, fostering innovation and growth.

Adding The Unbanked Populace To The Formal Economy

The National Strategy for Financial Inclusion 2019-2024 data highlights the need to bridge the gap between traditional finance and underserved populations. With financial inclusion central to the fintech sector, the Budget must focus on introducing measures, and expanding the digital infrastructure in rural and remote areas is crucial for ensuring everyone has access to basic financial services.

Moreover, targeted subsidies and incentives for fintech companies would go a long way in developing products for low-income groups and could drive innovation aimed at addressing the unique challenges faced by these populations. By aligning business interests with social goals, the government can create a win-win situation where financial inclusion becomes both a viable business proposition and a driver of inclusive economic growth.

At the same time, access to financial services can promote investments in human capital, decrease susceptibility to economic shocks, and create more employment opportunities. For example, most Indians who live in emerging metros and small towns, including MSMEs, find it difficult to obtain credit via conventional lending channels on time because they lack basic banking facilities and credit history.

As per RBI’s classification, tier-3 and tier-4 cities have populations between 10,000 – 49,999 people. These are the cities that lack access to financial products and services. These localities face challenges due to limited financial literacy and inadequate banking infrastructure. Due to their low penetration, improving access to diverse financial services in these regions is crucial.

Continue to Empower MSMEs

It is essential to support MSMEs as they are the backbone of the economy, and the Budget should prioritize facilitating smoother credit flow for them, alongside offering incentives for small-sized banks. This strategic approach will empower businesses in Tier 2 and Tier 3 cities, providing them with the necessary resources to thrive. The government has already allocated substantial funds to support MSMEs; for instance, the Interim Budget earmarked ₹22,137.95 crores, including a ₹9,000 crore infusion into the Credit Guarantee Fund and a ₹10,000 crore fund for technology and infrastructure development. Incentives for MSMEs, fiscal support for banks, and digital credit assessment can bridge the credit gap and boost MSME contributions. The Union Budget presents an opportunity to enhance regulatory frameworks, introduce improved tax benefits, and boost infrastructure for digital payments, thereby catalyzing MSME growth and facilitating digital integration.

Establishing A Well-Defined Regulatory Framework

A well-defined regulatory framework can significantly benefit fintech companies, as clear and concise regulations can help emerging fintechs establish themselves despite limited time and resources. A streamlined framework can promote innovation and development rather than force businesses to navigate legal complexities. The Open Credit Enablement Network (OCEN) is anticipated to establish a strong credit flow to merchants across India, including Tier 2 and Tier 3 cities. Additionally, a uniform KYC framework would be crucial to reducing compliance costs and enhancing operational efficiency.

Strategic Partnerships

The Budget stands to gain significantly from prioritizing partnerships between large public sector banks (PSBs) and fintech companies. Such alliances could leverage the respective strengths of both sectors, integrating the extensive reach and credibility of PSBs with the advanced technologies of fintech firms, thereby yielding substantial benefits for the underbanked population. PSBs have invested substantially in transformative technologies such as AI and blockchain to enhance customer engagement and operational efficiency. Additionally, policies supporting innovation and the deployment of fintech solutions would play a pivotal role in advancing the objective of financial inclusion.

Integration with AI

Government investment in AI-driven solutions promises to bridge language barriers across India, particularly by promoting economic opportunities in rural areas. Beyond rural settings, AI’s transformative impact extends to urban India, revolutionizing customer service and enhancing overall efficiency.

As we await the Budget, the expectations for measures that will unlock the full potential of the fintech sector are high. With the right policies and investments, this Budget can pave the way for a fintech landscape that is more advanced, inclusive, and integrated into the broader economy. This is an exciting time for fintech, and with the anticipated support, the sector is well-positioned to drive significant economic and social progress, in the years to come.

Authored by: Bipin Preet Singh, Co-Founder and CEO, MobiKwik

Disclaimer:The views expressed in this article are those of the author and do not represent the stand of this publication.