Union Budget 2020: Reduction in personal income tax, more emphasis on digital and financial literacy, and additional channels in rural and other underserved areas for last-mile access will help boost the country’s consumption.
Union Budget 2020: India’s fintech revolution is creating transformational waves across the country’s financial ecosystem. As the government continues promoting the digital economy in full swing, we are getting closer to the objective of ‘less-cash’ society every day — and fintech stands at the forefront of this movement. In fact, fintech has become synonymous with financial inclusion in India today, be it in terms of payments or lending. However, while the fintech space continues to grow, few roadblocks like the liquidity crisis, taxation issues, etc. are affecting it in terms of revenue and working capital.
Even though a slew of initiatives like introduction of the RBI sandbox, lowered corporate tax rate, rapid digital adoption, etc. have positively impacted the sector, the current Indian economy needs a lot more substantial measures to be undertaken to address the instability and to continue treading on its path towards becoming a USD 5 trillion economy in the next five years.
Considering the highly instrumental role the fintech space has come to play in driving the inclusive economic development of India, here are some reforms that the fintech industry expects the government to usher in the upcoming Budget:
Focus on consumer spending
One of the biggest challenges right now is the decrease in consumer spending, which has declined for the first time in four decades. Appallingly, the year 2019 also marked the fall in food consumption for the first time in decades, and the real-term consumption expenditure is at an all-time low. While an upswing in consumption will help boost India’s growth to a great extent, the three major factors affecting the story are income, aspirations, and access. Since income and aspirations are loosely related, the fastest ways to increase consumer spending would be to empower people with more money in hand and to provide them with avenues even in the lesser-penetrated areas. Reduction in personal income tax, more emphasis on digital and financial literacy, and additional channels in rural and other underserved areas for last-mile access will help boost the country’s consumption.
A boost for the digital economy
Financial inclusion remains a critical concern for the country, and digitization has the potential to effectively address the same. While demonetization had bolstered India’s digital growth story, a significant chunk of users is gradually moving back to cash, especially in Tier-II and Tier-III cities. There is a need for another push in the domain, be it in terms of promoting digital payments or improving the supporting infrastructure. The government should, therefore, introduce budgetary concessions for digital transactions along with incentivization, thus reducing dependency on cash. At the same time, a push on security standards for platforms offering financial services is necessary for people to gain confidence in dealing with digital currency.
Further tax relief
While lowering the corporate tax rate to 22% has helped businesses scale up their operations considerably, there lies a need for the government to maintain the same to enable liquidity of funds. Once funding flows revert to their normal levels, fintech startups will be able to invest more in R&D, introduce newer products, diversify, and expand to newer geographies. Tax benefits need to be offered in terms of the exemption, and private investments in the fintech space need to be exempted from undue tax burdens.
Clarity on zero MDR
In last year’s budget, the Finance Minister had announced the introduction of zero merchant discount rate (MDR) imposed on merchants when accepting digital payments. While this may encourage more merchants and consumers to adopt digital channels, there still is no clarity on the revenue model as to who will bear the cost of enabling the digital infrastructure. Therefore, clarification on zero-MDR will help smoothen things out to a great extent.
More clarity on e-KYC
Further, there needs to be greater clarity on KYC fulfillment as well. eKYC or digital KYC eliminates the need for paperwork, easing customer onboarding, enabling procedural convenience and simplification of the document collection process. Thus, all the regulated entities should be provided access to Aadhaar-based eKYC to increase overall productivity and reach.
These are some of the expectations that the fintech industry has from the 2020-21 Budget, apart from ease of compliance and a conducive environment for introducing innovations. The ‘new decade’ marks a crucial period that will define the economy’s revival and upliftment, making this year’s budget all the more important.
By, Autko Bhattacharya, Co-Founder, ePayLater