Budget 2023: Ease of compliance and regulations will propel innovation in financial services space
Ever since 2014, the Government of India, led by Prime Minister Narendra Modi, has consistently emphasised the significance of a knowledge-based digital economy, focus on MSMEs, culture of entrepreneurship, and ease of doing business in the country.
The Union Budget 2023 presented by the Union Minister of Finance Nirmala Sitharaman echoed the same sentiment.
The government’s persistence for the formalisation of the Indian economy is now paying off, as the homegrown phone-based interoperable payments system UPI clocked 7,400 crore digital payments worth 126 lakh crore in 2022. This is close to a 90% jump, both in volume and value terms, as compared to 2021.
UPI is a one-of-its-kind success story in the world that exemplifies how to enhance the ease of payments for lakhs of small merchants as well as consumers from every nook and corner of the country. However, there is still a lot more headroom for the adoption of digital payments as close to 85% of retail payments in India are still in cash.
Below are some key measures announced by the finance minister that will encourage startups and small businesses and enable them to play a more meaningful role towards the India@100 vision.
1. Ease of taxation norms and compliance: Over the years, India's startup ecosystem has grown from strength to strength and become the third largest in the world. The Union Budget 2023 aims to further support this ecosystem by extending the date of incorporation for income tax benefits to startups from 31.03.23 to 31.3.24. It further provides the benefit of carrying forward losses on change of shareholding of startups from seven years of incorporation to 10 years. Since it takes a considerable amount of time from the inception of a new-age business to taking it to a profitable scale, the move will directly benefit startups that are in the early days of their journey.
2. Simplified KYC norms and measured regulations to support the financial services sector: The digitisation of financial services have played a crucial role towards financial inclusion and last-mile delivery of various public and private sector services. Through the budget, the government has iterated its continuous commitment to drive growth for the sector. Overlapping and iterative KYC norms have been a major hurdle for lakhs of consumers and small businesses to adopt digital financial services offered by various providers.
Thus, a future-ready 'risk-based' KYC system that uses PAN as the common business identifier will significantly reduce the documentation burden and will drive adoption. Moreover, the finance minister emphasised the need for a one-stop solution for reconciliation and updating the identity and address of individuals maintained by various government agencies, regulators, and regulated entities. Thus, fintech companies onboarding consumers and small merchants can easily complete the KYC process with minimal documentation.
In this budget, the finance minister has reimagined the government's DigiLocker services for the fintech sector. This will further aid the growth of the sector. Last but not the least, the government has clearly shown an intent to simplify, ease and reduce the cost of compliance for fintech companies by requesting the financial sector regulators to conduct a comprehensive review of existing regulations, along with time limits to decide the applications under various regulations. Given that the fintech sector is witnessing several business models which did not exist earlier, such an exercise will provide more clarity to innovative entrepreneurs.
3. Positioning India as a global leader in the fintech space: In this budget, FM Nirmala Sitharaman proposed plans to encourage countries looking for digital continuity solutions to set up data embassies at the GIFT City that will further help position India as a global leader in the fintech industry. Furthermore, technological advancements can give us the edge as we strive to become a $ 5 trillion economy. The announcement of the setting up of Centres of Excellence for Artificial Intelligence will fuel the focus on technology and innovation. Also, the National Data Governance Policy that will bring in innovation and research by startups and academia will enable access to anonymized data that further enhances safety, security, and trust quotient for fintech businesses.
Nalin Negi is CFO and interim CEO, BharatPe