India’s Budget For 2023: What It Means For Financial Services And Fintech Firms
I looked at the 2023 budget that India’s Finance Minister presented on February 1, 2023. On that day, India’s Prime Minister tweeted, “This year’s budget infuses new energy to India’s development trajectory.” I find that he was not far off the mark. The budget for 2023 does aspire to create an empowered, inclusive, technology-driven, and knowledge-based economy with solid public finances and a healthy financial sector. It focuses on improving the ease of doing business and will help drive the entrepreneurial spirit of the country. I looked at various budget announcements and will now present to you my take on the same.
Focus On Galvanizing An Effective AI Ecosystem
The Indian government will set up three centers of excellence for artificial intelligence in top educational institutions. It plans to realize its vision of “Make AI in India and make AI work for India.”
What It Means
It will help fintech firms create better customer experience and expand into otherwise “invisible” markets in tier 2/3 cities. They can enhance customer experience, for example, by providing personalized service and breaking barriers of language and geography.
KYC Simplification
It would be “risk-based” instead of the current “one size fits all” approach. Such approach will require Indian financial regulators to modify the existing know-your-customer (KYC) system that includes risk metrics. These metrics are expected to include insights from anti-money laundering, fraud, and other financial crimes.
What It Means
It can expedite the onboarding process, increase the focus on enhancing efficiency while managing risks, generate more potent insights from pooled data, and crack down on financial crime. In a nutshell, it will ensure more accurate and sophisticated verification to improve operational efficiencies of fintechs.
Expanded Scope Of DigiLocker For Individuals And Businesses
DigiLocker, for retail clients, will also be a one-stop solution for identification and address updates and reconciliation. For micro, small, and medium enterprises; large businesses; and charity trusts, it will securely store and communicate documents online with different authorities, regulators, banks, and other business entities.
What It Means
It means we can see increased convenience, streamlined processes, and enhanced security in financial services. This can further facilitate the operations of digital lending fintechs and unlock new possibilities in the area of client onboarding, underwriting, and servicing. Moreover, if done right, it will lessen the burden of compliance for both banks and fintechs. Above all, it will help service providers cut costs (though it is not clear how the government will allow fintechs to tap in).
PAN As A Unique Identification For Businesses
India’s tax ID, the Permanent Account Number (PAN), will serve as the universal identity for all digital systems used by designated government entities. This will bring further ease of doing business, and it will be facilitated through a legal mandate.
What It Means
We think that this can enable fintech companies to provide their customers with a simplified experience while assuring the security and protection of their data. This will also help digital leaders in banks and fintechs reinvent and improve the onboarding journey for business clients.
National Financial Information Registry
The government will set up a registry to serve as the central repository of financial and ancillary information. It aims to facilitate efficient flow of credit, promote financial inclusion, and foster financial stability. A new legislative framework will govern this public infrastructure of credit, and it will be designed in consultation with the Reserve Bank of India.
What It Means
The concept of a centralized database of consumer identity attribution data maintained by agencies, regulators, and regulated entities is an important step in ensuring effective customer verification and debt collection.
Digital Public Infrastructure For Agriculture
This open source, open standard, and interoperable public service will open up rural value chains for digitization and accelerate the agritech industry. The agriculture accelerator fund will further fuel agritech startups.
What It Means
Fintechs and banks could use these value chains and agritechs to get relevant data that they could use to offer credit and insurance to more than 40 million farmers at lower cost and risk.
Other announcements, such as outlay and focus on zero carbon emissions by 2070, will trigger the building of green fintechs, and the creation of the Ministry of Cooperation and the computerization of Primary Agricultural Credit Societies can further help in the digitization of payments and credit.
The budget for 2023 presents a futuristic view of the government’s vision for the financial sector and fintech industry. It shows that the government is very committed to its mission of a digital India. This is very supportive to the fintech industry. I believe that 2023 will be a pivotal year for financial services in India. It would be fascinating to see how banks could create a symphony of efficiency and the new innovations that fintechs will peddle.