7 Key Fintech Takeaways from India’s New Budgetby Rebecca Oi February 9, 2023
The Union 2023-24 budget, presented by the Finance Minister of India, Nirmala Sitharaman is a landmark event that holds immense significance for the country’s financial sector, particularly regarding fintech.
India is one of the fastest-growing fintech markets globally, with an adoption rate of 87 percent, compared to the worldwide average of 64 percent.
This trend is projected to continue, with the fintech market in India expected to reach US$1 trillion by 2030.
Here are the seven key fintech insights from India’s 2023-24 Budget that are crucial for understanding the country’s future direction of the fintech landscape and its impact on the overall financial sector.
The digital rupee to be issued by the Reserve Bank of India
One of the most significant announcements made in the budget was the introduction of a digital rupee. The Reserve Bank of India will issue the digital rupee from 2022 to 2023.
The use of blockchain technology will make transactions more transparent, secure, and accessible, especially for those who are unbanked or underbanked.
Taxation of cryptocurrencies
The budget proposed a 30 percent tax on cryptocurrencies, regardless of whether they are held for short-term or long-term purposes. In addition, any income from the transfer of virtual digital assets will also be taxed at the rate of 30 percent.
The budget has also proposed to provide for TDS (Tax Deducted at Source) on payments made concerning the transfer of virtual digital assets at a rate of 1 percent of the consideration above a monetary threshold. These measures will provide clarity and stability for India’s cryptocurrency market, which has been largely unregulated.
Setting up of Digital Banking Units
The budget has proposed setting up 75 Digital Banking Units (DBUs) in 75 districts across India. This will significantly improve financial inclusion, especially in rural areas where limited access to banking services.
The DBUs will provide essential banking services to citizens, including savings accounts, remittances, and insurance. The government’s goal is to reach as many people as possible, and this initiative will help bridge the gap between the urban and rural populations regarding access to financial services.
Post Office Core Banking System
The 2023 budget has included a proposal to connect all post offices in India to the core banking system. This will enhance financial inclusion and accessibility, particularly for individuals living in rural or remote areas, allowing for more widespread access to banking services.
The post office network is one of the largest in India, and this initiative will allow people to access essential banking services, including savings accounts, remittances, and insurance.
Focus on digital payments
The finance minister emphasised that the financial support for the digital payment ecosystem, announced in the previous years’ budgets, would continue from 2022 to 2023.
She stated that there would be a focus on promoting digital payments and encouraging the use of payment platforms that are economical and user-friendly.
This will help drive the adoption of digital payments in India, benefiting both consumers and businesses. The government’s focus on digital payments will help make transactions faster, cheaper, and more convenient, especially for those who are unbanked or underbanked.
Expansion of DigiLocker Services
Expanding DigiLocker services is another positive step that will allow fintech companies to securely store and share documents online with various authorities, regulators, banks, and other entities.
This practical initiative will save costs for fintech companies and simplify the Know Your Customer (KYC) process, making it easier for them to conduct business operations.
The government has proposed expanding the range of document types stored in the individual’s DigiLocker.
Individuals currently have access to DigiLocker for the creation and safe storage of digital versions of documents from central and state governments, banking and insurance providers, health certificates, and transportation documents such as driving licenses and vehicle RCs.
This is a game-changer for fintech companies as it will allow them to authenticate users and grant access to financial services digitally. The expansion of DigiLocker services will benefit individuals, banks, and financial institutions by providing a secure and efficient way to store and share data online.
Video-based Know Your Customer
The government has allowed fintech to conduct video-based KYC in line with its Digital India mission. The DigiLocker, being a government-verified service, will simplify the KYC process compared to a private service provider.
The Union Budget 2023-24 presents a new approach to the KYC processes in the financial sector, shifting from a “one size fits all” method to a “risk-based” approach.
The financial sector regulators are also encouraged to implement a KYC system that aligns with the objectives of the Digital India initiative, making the process more streamlined and adaptable.