Union Budget 2024: India's Fintech Sector Seeks Regulatory Clarity, Growth Incentives

India’s fast-growing fintech industry, in its wishlist ahead of Budget 2024–25, is mooting for a clearer regulatory framework, exemptions and incentives to reduce capital costs, a focus on improving micro, small, and medium enterprises accessibility to credit, a uniform know-your-customer framework, and other tax benefits and goods and services tax subsidies. 

As Finance Minister Nirmala Sitharaman prepares to present the budget in July, pre-budget meetings are underway.

Fintech companies are looking for a clear and well-defined regulatory framework that establishes legal recognition, licensing procedures, and supervision. “This will create a level playing field with traditional lenders and build trust among customers and investors,” said Nilay Patel, founder and managing director at Easy Pay. 

Startups can benefit from a tax framework that offers exemptions and incentives, which can help reduce capital costs and improve profitability. Additionally, there is a need for stronger collaboration between fintech entities and traditional banks, he said. 

The industry also anticipates continued support to empower MSMEs and improve their access to credit. “We hope that the budget will include initiatives to boost the use of digital financial services, expedite fintech companies' regulatory compliance, and offer tax incentives to promote investment in fintech innovations. By taking these actions, we can together strengthen the financial ecosystem that promotes the growth of our country's MSMEs," said Raja Debnath, managing director at Veefin Solutions Ltd.  

There is also a need for more support in supply chain finance and fintech innovations, which have the potential to speed up the financial inclusion of small businesses. Increased cooperation between banks and fintech firms can help underserved businesses access financial services, he said. Hence, setting up targeted funding programmes and regulatory reforms that would make it simpler for small businesses to access financing is required. 

Further, India's preliminary interest in adopting the new legal framework under Model Law on Electronic Transferable Records, or MLETR, which brings digital negligible instruments into reality, along with fintech partnerships, has the potential to achieve digital financial inclusion for MSMEs, notes Sundeep Mohindru, promoter and director at M1xchange. 

“The budget should support insurers adopting TReDS quickly, activate the Credit Guarantee Fund Scheme for Factoring, or CGFSF, and create a buyer-less ‘second window’ for supplier financing,” he said. 

The industry is also highlighting the need for tax benefits and GST subsidies. Anand Kumar Bajaj, founder, managing director and chief executive at PayNearby, notes that specific measures, such as including a special 5% GST rate for startups working for last-mile empowerment, facilitate crucial financial and digital services for citizens. “We also urge a waiver of GST on all financial services made available from Business Correspondent (BC) outlets, income tax relief for the next seven years, and reduced import duty on essential financial services devices,” he said. 

The fintech sector is also reiterating the need for a uniform KYC framework. “We advocate for a uniform KYC framework to improve efficiency and financial inclusion. Recognising fintech's role, establishing a priority sector for borrower loans, and rationalising ESOP taxation will attract top talent and foster growth in emerging sectors,” said Ashish Goyal, co-founder and chief financial officer at Fibe. "GIFT IFSC and IFSCA are vital to creating a gateway for global capital, and we expect the government to continue preparing the financial sector with necessary resources and regulatory frameworks," he said.