Nirmala Sitharaman will match former PM Morarji Desai’s record of presenting a sixth successive budget on 1 February. The budget will set out government plans ahead of the April/May general elections.
A number of leading commentators give RBI their forecasts, covering digital lending and payments and the fintech sector.
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Arun Nayyar, CEO & MD & CEO at NeoGrowth Credit
“MSMEs are the driving force of India’s economic growth and prosperity. To fully unlock their potential, the upcoming Union Budget should focus on measures that would improve access to liquidity, skill development, and ease of doing business for small businesses. The government could also focus on encouraging the use of digital public infrastructure which will help improve access to credit for MSMEs. Digital payments are another crucial link in formalisation of MSME business operations. Continuing to encourage digital payments will improve the creditworthiness of these MSMEs.”
V Balasubramanian, CEO, FSS Cash Tech
“Given that this will be an interim Budget, I expect Finance Minister Nirmala Sitharaman to showcase the government’s vision leading up to the upcoming Lok Sabha elections. This government has always focused on making India digitally progressive. This is one of the reasons why we have seen digital payments grow exponentially over the last few years.
We’re now at a stage where customers expect digital payments to be fast, secure, and smooth. In this light, financial institutions and companies will have to use new-age technologies to meet customer expectations.
Cloud technology will play a big role here. RBI’s proposal to establish a cloud facility for the financial sector was a major move in this direction. I hope the FM furthers this in the Budget. We would like to see dedicated policies on cloud technology for payments. With the recent milestone achievement by the Reserve Bank of India (RBI) of digital rupee surpassing 1 million daily transactions (as on December 27, 2023), CBDC should be included as a part of financial inclusion in the budget this year. The government should also focus on expanding the reach of digital payments to the smaller cities and towns in India. What is now becoming the norm in urban India needs to be adopted across the country as well to take digital India to the next level.
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By GlobalDataGeorge Alexander Muthoot, MD, Muthoot Finance
Indian households possess up to 25,000 tonnes of gold which lies idle. It can be leveraged as an immediate and reliable source of financing to meet immediate personal or business needs. Granting ‘priority sector status’ to gold loans and allowing a ‘Gold linked credit line via UPI’ can go a long way to help households/small business owners meet financing needs and monetise idle gold jewellery.
We believe giving priority sector status to eligible gold loans will benefit the bottom of the pyramid and enhance financial inclusion. Typically, small borrowers need loans under INR50,000 (about 20 grams of gold collateral) for short durations like a year. Herein gold loan NBFCs can play an important role to fulfil the needs of small borrowers, self-employed, micro business owners, and help address their finance needs or working capital needs. Gold loans against jewellery also is a vital funding source for MSMEs. Gold loans provided by banks to farmers do get priority sector status, but not gold loans provided by NBFCs. Extending priority status to all micro gold loans (under INR50,000) by removing the current distinction between NBFCs and banks can enable gold loan NBFCs access to increased funding.
Gold linked credit line enabled via UPI
While banks offer credit line to companies like an overdraft, banks don’t have a small credit line product which can help address monthly short term finance needs and as a result the common man either keeps huge balance in savings account, or resorts to a credit card or a personal loan to meet immediate gaps in monthly finance needs.
We believe that a ‘gold linked credit line via UPI’ will be ideal. For this extending the UPI linkage (payment system) by NBFCs is the first requirement, and once this is allowed, gold loan NBFCs can extend a credit line to common man. Unlike a credit card, this product will work like a secured credit extended by NBFCs and also attract lower interest rate (of 12%-18%) as compared to a higher interest rate (of ~36%) on a credit card.
Anand Kumar Bajaj, Founder, MD & CEO, PayNearby
As we anticipate the Union Budget, the focus on Bharat, India’s rural heartland, takes centre stage. The journey towards a $5trn economy hinges on the transformation of these rural areas, driven by groundbreaking financial and digital solutions provided by leading fintech players. A robust tech stack riding on the back of a strong distribution network has opened doors for Bharat to access innovative financial and digital services. Our commitment to making banking, credit, assurance (insurance + asset), and e-commerce services accessible to Bharat is exemplified by the unique infrastructure we have built. However, for these services to reach citizens at the last mile, technology, security, trust, and government support are crucial.
Budget recommendations
- Tax benefits on total expenditure for fintechs involved in the financial empowerment mission. In light of this, we propose specific measures, including a special 5% GST rate for startups working for last-mile empowerment, facilitating crucial financial and digital services to the citizens. A GST subsidy, even a modest one, would significantly ease the reach of financial services and government benefits, encouraging innovation in the financial empowerment space.
- We also urge for a waiver of GST on all financial services made available from BC outlets, an Income Tax relief for the next seven years, and reduced import duty on essential financial services devices.
- With the majority of PayNearby’s BC network operating in tier II and beyond regions, serving as banking hubs in areas with limited financial infrastructure, this would ensure sustainable growth and motivate more last-mile retail banking agents to offer seamless services everyone, everywhere.
