Fintech has been a strong lever for financial inclusion in India. Over the last couple of years, Fintech businesses have played a crucial role in expanding the markets, especially digitizing some of the archaic processes across financial services.
UPI (Unified payments interface) is one such initiative that has put India on a global map and many of the developed economies are still trying to emulate this initiative. Out of 900+ startup deals and $11.5 billion total funding raised in 2020, fintech topped the chart with $2.1 billion worth of funding across 131 deal counts (Source: Inc42 Plus Annual Indian Tech Startup Report 2020.) I would not be surprised by 2025, if we have a FinTech NIFTY Index trading on the stock markets actively.
KYC is the first step in the customer’s journey of accessing financial products. I would request the finance ministry to initiate a simple and ‘onetime - lifetime KYC for all financial services based on either Aadhar or PAN. KYC completion for a bank account should be considered sufficient to buy mutual funds, equity, insurance, or any other financial products.
The recent rally of the indices has been powered by FII inflows. It is imperative that we build a strong domestic capital base. Equity markets are subject to Long-term capital gains (introduced a couple of years back), surcharge, cess, and STT. There is a strong need for rationalization here in order to channel domestic savings towards capital markets. Tax treatment on investments should be treated on a level playing field, irrespective of the underlying instrument. For e.g. ULIPs and mutual funds are taxed differently in the current regime. Overall, there is a need for simplification of the tax treatment of investments; currently, there is a lot of complexity for an average investor such as different slabs for different types, grandfathering, etc.
Insurance/protection has always been a recommended instrument in the financial planning process. However, most consumers still confuse insurance with investment and end up purchasing life insurance policies with inadequate life cover. Hence, a separate section for term insurance outside Section 80C should be created to incentivise taxpayers to buy term policies and thereby, get adequate life cover.
Access to affordable credit is primary to the growth of the economy. Fintech lenders can play a huge role in expanding credit in collaboration with banks and NBFCs; however, the government needs to provide stronger liquidity support to the fintech lenders. The government should also encourage banks to partner with fintech lenders on a co-lending/risk-sharing basis.
Fintech companies also tend to be startups. The government should reduce the compliance requirements of startups up to a certain review threshold. A robust capital raising environment is essential. Angel tax issue continues to be around; the government should repeal the clause once for all. While there has been a hint of overseas listing, the government should notify the detailed guidelines soon. Most of the capital is currently from foreign venture capital firms; there is a need to create a domestic capital pool for funding startups. This requires changes such as removal of surcharge on the sale of unlisted securities, certain tax exemptions for investments into startups through AIFs, etc.
Finally, the government should push for fintech companies to be able to access product manufacturing licenses, of course, with checks and balances. India can be at the forefront of creating truly digital banks, insurance companies, and asset management companies making innovative products and expanding markets.