Budget 2021: Startup ecosystem reacts to fintech provisions announced by FM Nirmala Sitharaman
Union Finance Minister Nirmala Sitharaman's Budget 2021 contained several incentives for the burgeoning financial technology industry, which saw monumental growth last year in areas, including digital payments, retail investments via online brokerage platforms, insurance buying, and digital banking, among others.
Some of these were:
- A Rs 1,500 crore scheme to develop, promote, and accelerate digital payments in the country.
- A 'world-class' fintech hub at GIFT City (Gujarat International Finance Tec-City) aimed at encouraging and developing innovative financial technology services and products.
- Setting up of development financial institutions with an outlay of Rs 20,000 crore in a bid to boost loan access for SMEs and MSMEs, and businesses working in the manufacturing and infrastructure sectors.
- Increasing the foreign direct investment (FDI) limit in insurance to 74 percent from 49 percent.
- Increase in limit for a tax audit, Rs 5 crore turnover initially, to Rs 10 crore to incentivise digital transactions and reduce the compliance burden.
Here's what startup founders, senior executives, investors, and experts think about the finance minister's fintech boost:
Hope the Rs 1,500 crore outlay is only for majority India-owned and operated firms - Anil Pinapala, Founder and CEO, Vivifi India
On the Rs 1,500 crore for promoting digital payment, we hope the implementation is biased towards Indian firms in line with the Aatmanirbhar Bharat philosophy. Google, which controls less than 40 percent of market share in India on payments, spent Rs 1,200 crore in rewards to its customers with the actual direct revenue of just Rs 72 crore.
We hope and urge that the Rs 1,500 crore incentive is only for the majority Indian-owned and operated firms and specifically excludes foreign-owned corporations from China and other countries.
Need for sustained measures that increase digital and financial literacy - Kunal Shah, Founder, CRED
The initiatives to create a fintech hub and an investment of Rs 1,500 crore to promote digital modes of payments help indicate the importance of solutions and innovations in fintech, to help ease payments, and incentivise spending and continue our lead and dominance in this space, globally.
With these provisions, however, there is a need for sustained measures that help increase digital and financial literacy, enabling more individuals to benefit from solutions made available to them. Incentivising the use of credit and educating Indians about the responsible use of credit through financial education will help promote consumption, contributing to economic growth, which is dependent on personal consumption.
Will lead to many opportunities for fintechs to innovate in the new normal - Harshil Mathur, CEO and Co-founder, Razorpay
2020 saw an 80 percent increase in digital payments, especially from Tier II and III cities, and the government has understandably focussed on capitalising on this momentum and incentivising the adoption of digital payments for the year ahead.
I believe the Rs 1,500 crore incentive announced will open a plethora of opportunities for fintechs to innovate for the new normal, leading to large scale adoption even in the smallest of towns and villages. I'm hoping the funds will be used towards developing alternatives to Zero Merchant Discount Rate (MDR) policy, and initiatives towards bringing digital financial literacy in vernacular languages. These will instil trust in the system and accelerate adoption from MSMEs and entrepreneurs who are apprehensive towards moving money digitally.
Will ensure financial inclusion of the masses - Vikas Garg, CFO, Paytm
The finance minister has presented a balanced budget that is aimed at maximum growth of all sectors in the coming year. The Rs 1,500 crore proposed scheme to incentivise digital payments is a welcome move that will accelerate the growth of cashless transactions in our country.
During the pandemic, digital payments emerged as one of the key enablers of empowerment at the grassroots and brought millions of people under the fold of the formal economy. Government's continued emphasis on increasing investment in infrastructure, insurance, and digital payments will ensure financial inclusion of the masses.
Hoping part of Rs 1,500 crore scheme goes towards alternatives to zero MDR - Dilip Modi, Founder, Spice Money
It was encouraging to see the ‘Sankalp of Aatmanirbhar Bharat,’ as well as inclusive, and sustainable development comes into focus right at the beginning of FM's speech. We had hoped for a boost to digital as it has the ability to bridge the gap between haves and have-nots when it comes to access to financial services. This was evident when the lockdown hit last year when the digital financial infrastructure came to the rescue of millions of citizens.
Dilip Modi, Founder, Spice Money
The incentive of Rs 1,500 crore for digital payments is a move in the right direction. We are eagerly waiting to see what the scheme entails, and how the industry can benefit from it. We hope, a part of the fund goes towards fostering the banking correspondents (BC) network by introducing reimbursement schemes or alternatives to zero merchant discount rates (MDR), which has hampered the growth of the network and the payments ecosystem.
We also expect the scheme to have provisions for device subsidy to strengthen the micro ATM infrastructure in rural India. We believe it will accelerate the transformation towards an Aatmanirbhar Digital India, and bring about financial inclusion for underserved parts of the country.
We are also excited to see the innovations that emerge out of GIFT International Financial Services Centre to support rural financial infrastructure to be on par with urban India.
Fintech hub will bring together new tech such as AI, big data, blockchain - Seshadri Kulkarni, CEO of DigitSecure
The development of fintech hub in GIFT City and Rs 1,500 crore to promote digital payments clearly demonstrate the government’s strong commitment to a digital economy.
The government’s facilitation in setting up ‘world-class’ fintech hub will help bring together new technologies such as big data, AI, and blockchain to transform the way that financial services are delivered, making them cheaper, more efficient, more convenient, and more inclusive. The fintech hub will also help facilitate interaction and collaborative learning between regulators, innovators, investors, startups, and established players.
Budget provides several growth opportunities for fintechs - Prateek Mehta, Co-Founder, Scripbox
The allocation of Rs 1,500 crore towards financial inclusion should go towards improving our payments, lending and digital transactions infrastructure. This will go a long way in establishing our leadership in the fintech space.
There will also be opportunities that would come by on asset reconstruction, agri-tech, warehousing solutions, etc. Fintech companies will have a go at various slivers of these problem statements as opportunities will emerge in risk assessment, lending, collections, financing, etc.
Will attract more foreign investors - Rohit Garg, Co-founder and CEO, SmartCoin
The development of a world-class fintech hub will attract more international investors to invest in India. As proposed, the Budget announcement brings in the minimum loan size eligible for debt recovery under SARFAESI Act 2002, which reduced from Rs 50 lakh to Rs 20 lakh; which will help NBFCs to become eligible to be recovered by another under the Act.
GIFT City hub will draw more people to work in fintech - Bala Parthasarathy, Co-founder and CEO, MoneyTap
The government’s support in creating and promoting a world-class fintech hub at GIFT City will draw everyone’s attention, and can soon become the cradle of developing fintech companies. We do see enormous growth not only in that region or creating jobs but also in drawing more people to work in fintech.
The exposure can bring in more innovation, technical know-how, help companies thrive in a collaboration set up, attract many incubators, investors, accelerators, and ultimately help in creating an ecosystem for growth.
FDI increase in insurance will help boost insurance penetration in India - Murali Iyer, CEO and Principal Officer, InsureNearby
Increasing the FDI limit... is a welcome move by the government, which was long overdue. Providing equal rights to foreign partners will help open up the sector while offering the much-needed capital infusion. This will provide a huge fillip to employment opportunities besides helping boost insurance penetration, especially in the hinterlands of the country. Additionally, the move will also help Indian shareholders to find new buyers easily, thereby eyeing a smooth exit.
At just about four percent, India has one of the lowest insurance coverage ratios among the most populous nations, and this amendment is likely to put the industry back on the growth track from the present stagnation period.
Upscaling FDI in the industry will also encourage innovation-backed tools and technologies that will help drive inclusivity at the bottom of the pyramid. This is likely to boost growth and transformation and will put the insurance sector at par with the banking sector.
FDI will create more financial inclusion - Rajesh Jha, Co-founder and Director, PayNearby
The increase of FDI limit in insurance is an extremely favourable move for the industry. Considering the skewed nature of insurance penetration in the country, we require innovative, cost-effective tools to cater to the target audience, of which 90 percent is still unbanked and underbanked. The increased FDI limit will offer true metamorphosis for the sector as capital infusion will help businesses expand, aligned strongly with the government’s vision of financial inclusion.
(Disclaimer: This is a rolling story and will be updated as and when more inputs are received from Indian startups, entrepreneurs, and industry experts.)
For YourStory's multimedia coverage of Budget 2021, visit YourStory's Budget 2021 page or budget.yourstory.com