Budget 2021 - Breaking down the benefits of a fintech hub
Presenting the Union Budget 2021 on February 1, Finance Minister Nirmala Sitharaman said: “The government will support the development of a world-class fintech hub at GIFT IFSC.”
This year’s Union Budget is visionary for a multitude of reasons, but the above statement by the finance minister possibly stood out the most for fintech startups and enthusiasts.
As per Invest India, the global average rate of fintech adoption rests at 64 percent, while that for India soars high at 87 percent.
A step in the right direction
The government’s plan to support a fintech hub at GIFT IFSC (often referred as the GIFT city) holds potential for two key reasons. Firstly, the idea of creating a fintech hub in addition to the existing infrastructure at GIFT IFSC; combined with a host of tax benefits for Indian startups as well as foreign funds (investing in India) makes a strong proposition for prospective startups to set camp in the city.
Secondly, as Mumbai and Bengaluru have fast emerged as global finance and IT hubs, respectively, the GIFT city can surface as an independent leader to prominently place the Indian fintech ecosystem on the global fintech landscape.
Execution is key
One of the indispensable elements with regard to the establishment of this fintech hub remains its execution. Currently, in spite of the tremendous progress attained, the Indian fintech sector grapples with numerous issues — lack of effective regulation, the accessibility of Indian fintech advancements to a major population of rural India, strenuous compliances that deter fintech entrepreneurs from setting their businesses (especially the ones with lesser capital), and finally, fewer fund raising avenues.
Add to this the fact that the idea behind GIFT city was conceived back in 2007 and, while there have been positives, it is yet to boast of any massive job creation. The next few years would be crucial in this regard as the advent of metro railways to aid transportation, attracting higher foreign investments, and the arrival of global companies to set up their branches in the GIFT city could be key drivers that stand to benefit the proposed fintech hub.
If planned meticulously, the fintech hub at GIFT city could lend huge impetus to global engagement with Indian fintech startups, a great deal of knowledge sharing and forming viable partnerships with our international counterparts, in addition to facilitating structured industry-wide mentorship programmes.
In the long run, developing an efficient database comprising of Indian fintech companies, increasing the ease of starting business in this hub, introducing regulation in fintech to the extent possible, and hosting global events aimed at collaboration and fundraising could be the key developments that could work wonders for Indian fintech startups. Given that the government will support the establishment of this hub, a step further could be to set up an industry body comprising of leaders across the fintech industry, other fintech hubs, investors, key global firms, domestic financial regulators, and the like.
Fintech hubs — A peek around the globe
Among other things, a fintech hub carries immense promise in terms of connecting a nation’s fintech ecosystem with its global counterparts — something that fintech startups may struggle to single-handedly succeed at. Fintech industry bodies such as Innovate Finance (UK), China Fintech (China), and planned fintech hubs such as the Dubai International Financial Centre FinTech Hive (Dubai) have emerged strongly over the past few years providing great impetus to their national fintech ecosystems.
They facilitate unique programmes that support fintech and facilitate collaborations. China Fintech, for instance, organises fintech tours that give people an opportunity to closely witness the various developments brought along by the fintech industry in China.
What more does Budget 2021-22 hold for fintech?
A pragmatic facet of this Budget is the coherence amongst various proposals. The increase in the tax audit limit from Rs 5 crore to Rs 10 crore may seem to benefit startups and small businesses, but it is also advantageous to fintech at large, since this limit is applicable to organizations which transact 95 percent through digital payments.
In another welcome move, Rs 1,500 crore has been earmarked towards a scheme intended to boost digital payments.
In the long run, striking a balance amidst regulating fintech and easing complicated compliance procedures would be pivotal. While certain other asks of Indian fintech sector may still be unanswered, the proposal for development of a world-class fintech hub at GIFT IFSC paves a hopeful way forward for fintech startups.
For YourStory's multimedia coverage of Budget 2021, visit YourStory's Budget 2021 page or budget.yourstory.com.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)