Today, India stands as the third-largest fintech hub and is at the forefront of global economic growth. Fintechs across the nation have consistently over performed and demonstrated remarkable development. Part of the reason for this feat is the regulatory support and government policies for the industry.
The fintech sector is now expected to contribute an additional USD400 billion to the nation’s economy in the next seven years. In support of this projection, the Union Budget 2024 has unveiled a progressive development roadmap for the fintech sector, putting a special emphasis on digital innovation and techcentric growth.
After the previous budget focused on empowering agriculture and micro, small and medium enterprises (MSMEs) the fintech leaders were consistently expressing their anticipation of the budgetary announcements directed toward the nation’s financial landscape.
The budget provided extended benefits for young startups, dedicated funding for tech-savvy growth, and a focus on the digital lending infrastructure.
UPI transactions have taken the world by storm. In the past seven years, the solution has managed to capture a 20 per cent market share of retail payments. Supporting this shift from cash to digital, the budget expressed plans to shift more government spending for schemes and programmes onto digital transaction methods. Over Rs. 2.7 lakh crore (USD50 million) has been allocated for digital direct-benefit transfers (DBT) to bank accounts rather than physical cash transfers.
This scheme opens opportunities for technology players to take over with innovative payment solutions and even disrupt traditional banking channels.
However, digital still has a long road to compete with cash transactions. The current currency in circulation (CIC) levels stand at a massive 12 per cent of GDP, signaling the need for a fundamental shift to embrace the digital dream.
To expedite this transition, the budget has also set out funds for skill development, youth empowerment, and other steps to promote financial inclusion. The initiatives help build a smarter, more productive workforce – the nation’s biggest asset.
In the previous year’s budget, Rs. 1500 crore was allocated in incentives to the fintech and banks. This year, the fintech industry was keen on incentives beyond capital infusion to support the sector’s digital infrastructure.
Highlighting this view, Aditya Gupta, founder and CEO of Credilio stated: "The government's focus on fortifying digital financial infrastructure demonstrates a commitment to advancing financial technology."
Consequently, the budget announced an increased focus and spending on infrastructure development. This could serve as a strong support to non-bank financial companies (NBFCs) and other fintech lenders who cater to this area.
The budget announced a dedicated allocation of Rs. 1 crore as 50-year interest-free loans to fund and empower technology-driven growth throughout the nation.
For lenders, this serves as a unique opportunity to facilitate loan disbursements. This can, in turn, extend the market for lenders and increase healthy competition and innovation in the sector. Using this approach, fintech lending institutions will not only facilitate growth in the sunrise sectors but also create new opportunities for themselves.
In support of the startup ecosystem the budget extended tax benefits until March 2025, and outlined plans to attract more investments from sovereign wealth funds and pension funds.
The two moves collectively signal a confidence boost for the fintech sector and fundraising startups. With this, the sector can expect easier access to capital and industry-leading mentorship, facilitating innovation and developments across new-age fintech platforms.
The increased access to credit and investments is also expected to advance startup development, supporting further innovations and advancements across the sector.
While the budget holds promising measures for the fintech lending industry, there was a lack of specific attention towards the NBFCs. This can potentially create uncertainty in the sector and impact respective investor sentiments.
However, it’s important to note that these announcements have come in the year of general elections, for which the financial minister had already declared that there will be few major announcements. It’s crucial to keep a close watch on how the budgetary announcements play out post-election.
Photo: India's budget puts a special emphasis on digital innovations and techncentric growth.