Budget 2020-21: A specific liquidity policy (similar to the Priority Sector norms) for small start-up lenders and new-age NBFCs that are focused on key growth sectors will bring stability and allow the disruption to continue. Hence, the government must consider some selective support.
Budget 2020: As our nation continues to move to make its GDP worth $5 trillion from the current $3 trillion by 2025, every sector and participant has an important contribution to make. Perhaps, the retail financial services sector is one of the most integral elements in this equation. It supports consumer spending of the fast-growing and ambitious middle class, lends to small businesses, supports their growth and development, and also channelizes the liquidity flow towards capital markets, large corporations, and government projects.
A lot of progress has happened on this front in the past couple of years driven by regulatory changes, penetration of smartphones, and continued openness of Indians to novel ways of doing things. Right now, the entire country is looking forward to 1st February when Hon’ble Finance Minister Nirmala Sitharaman will unveil the national roadmap from her red-clad Bahi-Khaata. The fervor is specifically high within the Indian FinTech segment since the past one year has seen a mixed bag of news.
Here is what the segment is expecting from this year’s budget:
Easing Liquidity Crunch for small start-up NBFCs: Events that occurred last year have made liquidity an important differentiator to survival, especially of the new-age NBFCs/lenders who have been an important driver of disruption in the past 5 to 7 years. The government is cognizant and has intervened when needed. A specific liquidity policy (similar to the Priority Sector norms) for small start-up lenders and new-age NBFCs that are focused on key growth sectors will bring stability and allow the disruption to continue. Hence, the government must consider some selective support.
Differentiated regulatory norms and tax sops for Tier 2,3 and 4 locations: Penetration of lending, savings, payments, and insurance products in rural India or Bharat is far behind urban India. We have a long way to go in order to drive meaningful financial inclusion for the next 300 mn lower-middle-class Indians. The core issue is to build sustainable and independent business models that ensure proper education and customer protection. However, the cost of educating, acquiring, servicing and maintaining this segment as compared to potential revenues makes it a difficult and very long business case. Providing very specific relaxations in regulatory norms for small retail customers as well as tax benefits to participants engaged in these segments will allow the existing players and fintech platforms to significantly improve meaningful financial inclusion
Increase in deduction limit for middle-class savings: A great way to make our financial sector more robust is by increasing the overall deduction limit under Section 80C of the IT Act from Rs. 1.5 lakh to Rs. 3 lakhs for people with income less than Rs. 25 lacs. It will drive a sizeable consumer spend towards ELSS (mutual funds), long-term bank deposits, and life insurance. Also, including equity SIPs that have a 3 year lock-in period u/s 80C should be considered supporting regular savings and growth of equity markets.
Watch Video: What is the Union Budget of India?
GST reduction for participants focused on meaningful financial inclusion: A GST benefit could be provided to specific lenders, mutual fund distributors, insurance agents, and payment companies that support the development of financial inclusion in rural India, provide services to small businesses, or focus on a particular asset class.
Income Tax reduction to employees working in start-ups and small fintech’s: One of the biggest issues new-age financial participants is to attract & retain top talent when compared with very stable, large financial institutions that have stable business models, superior visibility in career path, and monetary constancy. Providing a 50 per cent reduction in tax liability for employees willing to take the risk to work in “Priority Financial companies” across lending, savings, and payments will increase the pace of disruption tremendously.
The year 2020 is going to serve as a critical milestone in our goal to become a $5 trillion economy, making this year’s budget a significant development that’s taking place of late. Let us hope for the best!
By, Varun Sridhar Lead, realme PaySa