Few start-up sectors are as intrinsically linked to policy and regulation as fintech. Traditionally one of the hottest sectors in terms of funding, fintech in India has had a love-hate relationship with policymakers and regulators so far. However, come February 1, 2023, the Union Budget could give it a fresh lease of life, especially across underpenetrated and underserved segments like MSME lending, neobanking, alternative investment, rural finance, etc.
Besides the usual demands for pushing investment and capital deployment in start-ups, what really are fintech founders expecting from Finance Minister Nirmala Sitharaman in this year’s Budget?
Business Today asked some of them to weigh in.
Bipin Preet Singh, Co-Founder & CEO, MobiKwik, said, “The Indian government is ahead of the curve when it comes to promoting entrepreneurship and start-ups but there are some additional measures that could further bolster the growth of the Indian start-up ecosystem. For example, there is a need to address the current taxation regime imposed on ESOPs. While ESOPs get treated as a perquisite and are taxable as income under head salaries, they also get counted as capital gains when sold in the market, compelling employees to pay an additional tax in line with their tax slab. Doing away with this dual taxation in the upcoming Budget will help start-ups retain quality talent, thereby going a long way in further boosting the start-up ecosystem in India.”
Some of the key areas of focus in Union Budget 2023-24 should be around supporting sustainable growth, keeping in check inflation, and attracting foreign investments into key growth sectors, stated Saurav Ghosh and Vineet Agrawal, Co-founders of Jiraaf (an Accel-backed alternate investment platform).
They further elaborated, “Also, bringing parity to Long-Term Capital Gains (LTCG) taxes between equities and debt/real estate investments would help fixed-income investments grow, and boost investor confidence in long-term investment products. For the fintech sector specifically, the country should continue to spend and support the digitization drive whether it is payments via UPI or neo-banking and OCEN (open credit enablement network) framework or tech-enabled insurance and wealth platforms.”
Some founders reckon it’s time for the government to set up a fintech regulatory body given how the sector has evolved.
Vikas Garg, Co-founder and CEO, Paytail (an instant credit platform), said, “In terms of regulation, a dedicated regulatory body for the fintech domain would give a more extensive idea in terms of formulation of credit policies to ensure proper risk management and reduce delinquencies. Fintech companies are navigating the country's path towards financial inclusion, where the robust tech-stack in combination with the strong distribution network is going to ensure the availability of financial products across the country.”
“We are also hoping for tax subsidies that would support more investment in the fintech sector, thus facilitating creation of innovative technologies for better credit provision,” he added.
Support for MSMEs
Echoing his sentiment on tax breaks for MSMEs, Ritesh Jain, Co-Founder of Flexiloans (an MSME-focused digital lending platform), said, “Many small business owners need help to succeed and in accessing credit. These challenges can limit the growth and potential of the MSME sector, which plays a vital role in the economy. The government can support the MSME sector by increasing lending to these businesses. This can be achieved through various means such as creating dedicated lending programmes, providing guarantees or subsidies on loans, or expanding the availability of government-backed financing.”
“The government could also consider enhancing the scope of the guarantee programme for MSME loans. This could provide government guarantees on a portion of MSME loans, reducing the risk for lenders and making it easier for these businesses to access credit. It could even set up a fund to subsidize the interest rates on MSME loans, making it more affordable for these businesses to borrow,” he explained.
Indian MSMEs are witnessing sustained push from the government towards digitisation of their business functions. In Budget 2023-24, the government may also consider announcing a full-fledged integration of different portals such as e-Shram, Udyam, etc. servicing the MSME sector, according to Rahul Raj, Co-founder of FloBiz (a neo-banking platform for MSMEs).
“All necessary registrations, such as those for forming a business, opening a store, registering for GST, obtaining an MSME etc., should be handled through a single window. That will enable MSMEs to make significant time, effort, and financial savings,” he explained.
Raj also said that “announcements with respect to providing MSMEs with a flexible line of credit is one of the essential requirements” from this Budget. “Existing mechanisms such as Factoring and TReDS have not been very successful in facilitating credit access to micro enterprises. Micro and small enterprises face severe short-term capital needs because of challenges in the supply chain and delayed payments. There is an expectation that Budget 2023-24 may come up with different targeted interventions to resolve supply chain finance concerns,” he added.
Some investors also called for the easing of tax and regulatory structures for the start-up sector. “It will help improve the domestic industry's competitiveness, making it easier to invest, and providing a more certain regulatory environment,” said Manu Rikhye, Partner at Merak Ventures.
“This year, the government should also streamline the focus to encourage investors and create a regime that makes it a better environment for domestic participation. Expanding the Fund of Funds (FoF) programme and aligning the capital gains taxation with public markets will further induce greater participation,” he added.
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