How Union Budget 2024 Could Supercharge India’s FinTech Sector

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

While every budget carries an air of expectation, this would certainly be the right time to give a boost to the fintech sector and unlock its next phase of growth. Through strong regulation, electronic payments and increased credit support for SMEs, the fintech sector is essential for financial inclusion and economic development. With over 6,000 fintech companies, India is a global innovation hub and boasts the third largest ecosystem. This budget has the potential to create a more resilient economic future by combining the Digital India agenda with the capabilities of the fintech sector, supporting innovation and growth.

Adding the unbanked population to the formal economy

The National Financial Inclusion Strategy 2019-2024 data highlights the need to bridge the gap between traditional finance and underserved populations. As financial inclusion is a central element of the fintech sector, the budget must focus on implementing measures, and expanding digital infrastructure in rural and remote areas is crucial to ensuring access to basic financial services for all.

In addition, targeted subsidies and incentives for fintech companies would greatly contribute to the development of products for low-income groups and could drive innovation to address the unique challenges faced by these populations. By aligning business interests with social goals, government can create a win-win situation where financial inclusion becomes both a viable business proposition and an engine for inclusive economic growth.

At the same time, access to financial services can promote investment in human capital, reduce vulnerability to economic shocks and create more employment opportunities. For example, most Indians living in growing metropolitan and small town cities, including SMEs, find it difficult to get credit through conventional lending channels in a timely manner because they lack basic banking services and credit histories.

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As per RBI classification, tier 3 and tier 4 cities have a population between 10,000 and 49,999 people. These are cities that lack access to financial products and services. These localities face challenges due to limited financial literacy and inadequate banking infrastructure. Given the low penetration, improving access to diversified financial services in these regions is crucial.

Further support for SMEs

It is important to support SMEs as they are the backbone of the economy and the budget should prioritise facilitating smoother flow of credit to them as well as offering incentives to small banks. This strategic approach will empower businesses in tier 2 and tier 3 cities by providing them with the necessary resources to grow. The government has already earmarked significant funds to support SMEs; for example, the interim budget has earmarked ₹22,137.95 crores, including ₹9,000 crores for Credit Guarantee Fund and ₹10,000 crores for technology and infrastructure development. Incentives for SMEs, fiscal support to banks and digital credit scoring can bridge the credit gap and increase SME contributions. The Union Budget provides an opportunity to strengthen the regulatory framework, introduce improved tax benefits and strengthen infrastructure for digital payments, thereby catalysing SME growth and facilitating digital inclusion.

Establishing a well-defined regulatory framework

A well-defined regulatory framework can bring significant benefits to fintech companies as clear and concise regulations can help emerging fintech companies establish themselves despite limited time and resources. A streamlined framework can promote innovation and growth rather than forcing companies to navigate regulatory complexities. The Open Credit Enablement Network (OCEN) is expected to establish a strong credit flow for merchants across India, including tier 2 and tier 3 cities. Moreover, a uniform KYC framework would be key to reduce compliance costs and increase operational efficiency.

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Strategic partnerships

The budget can benefit greatly from prioritizing partnerships between large public sector banks (PSBs) and fintech firms. Such alliances could leverage the respective strengths of both sectors, integrating the broad reach and credibility of PSBs with the advanced technologies of fintech firms, thereby bringing significant benefits to the underbanked population. PSBs have invested significantly in transformative technologies such as AI and blockchain to enhance customer engagement and operational efficiency. Moreover, policies that support innovation and adoption of fintech solutions would play a key role in achieving the goal of financial inclusion.

AI Integration

Government investment in AI-based solutions promises to overcome language barriers in India, especially by promoting economic opportunities in rural areas. Beyond rural areas, the transformative impact of AI extends to urban India, revolutionizing customer service and increasing overall efficiency.

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

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Author: Bipin Preet Singh, Co-Founder & CEO, MobiKwik

Reservation:The views expressed in this article are the author’s own and do not reflect the position of this publication.

Strategic partnerships

The budget can benefit greatly from prioritizing partnerships between large public sector banks (PSBs) and fintech firms. Such alliances could leverage the respective strengths of both sectors, integrating the broad reach and credibility of PSBs with the advanced technologies of fintech firms, thereby bringing significant benefits to the underbanked population. PSBs have invested significantly in transformative technologies such as AI and blockchain to enhance customer engagement and operational efficiency. Moreover, policies that support innovation and adoption of fintech solutions would play a key role in achieving the goal of financial inclusion.

AI Integration

Government investment in AI-based solutions promises to overcome language barriers in India, especially by promoting economic opportunities in rural areas. Beyond rural areas, the transformative impact of AI extends to urban India, revolutionizing customer service and increasing overall efficiency.

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

Author: Bipin Preet Singh, Co-Founder & CEO, MobiKwik

Reservation:The views expressed in this article are the author’s own and do not reflect the position of this publication.