What Nirmala Sitharaman’s budget announcements mean for fintech firms

By Rishi Mehra

This would be the second successive budget speech that has delved so much on technology and the role it can play in different facet of our life. Presenting the Budget, Finance Minister Nirmala Sitharaman early into her speech talked about how the new economy is based on innovations that disrupt established business models.

She talked about how Artificial intelligence, Internet-of-Things (IoT), 3D printing, drones, DNA data storage, quantum computing, etc., “Are re-writing the world economic order. India has already embraced new paradigms such as the sharing economy with aggregator platforms displacing conventional businesses. Government has harnessed new technologies to enable direct benefit transfers and financial inclusion on a scale never imagined before.”

What was heartening to hear was that the FM talked about how it’s now cliché to talk about data being the new oil and that it is true that Analytics, Fintech and Internet of Things (IOT) are changing the way we deal with our lives.

So what did the FM announce to? To take advantage of the advancements in technology, Sitharaman proposed to bring out soon a policy to enable private sector to build Data Centre parks throughout the country. “It will enable our firms to skillfully incorporate data in every step of their value chains,” she said. Given the entire debate around data localization, this is a significant announcement. This is particularly true for the financial data of the citizens of the country. As fintech becomes more pervasive and goes deeper, it would be imperative to protect the data and ensure correct ownership.

Another important announcement was that all “public institutions” at Gram Panchayat level such as anganwadis, health and wellness centres, government schools, PDS outlets, post offices and police stations will be provided with digital connectivity. “Fibre to the Home (FTTH) connections through Bharatnet will link 100,000 gram panchayats this year. It is proposed to provide Rs 6000 crore to Bharatnet programme in 2020-21,” the FM said. The Bharatnet is an ambitious programme in aiming to connect a set of people that have not been a part of the internet mainstream. While they may be exposed to the internet on the mobile phone, they may not e generating any meaningful data that can help in building a profile of the person. One can hope, the aim to get public institutions on digital map can slowly help build a profile of an individual that can aid in financial decision making.

One of the biggest changes and a longstanding demand of the sector was tackled. Although not perfect, the TReDS platform has shown promise. Sitharaman said necessary amendments to the Factor Regulation Act 2011 will be made, “To enable NBFCs to extend invoice financing to the MSMEs through TReDS, thereby enhancing their economic and financial sustainability.” TReDS has managed to free-up working capital for SMEs and provided a modicum of relief through invoice financing. However, the number of active participant is still low and the proposal t allow NBFCs to take part will increase the depth of the system with regards to the number of players involved.

According to Adroit Market Research, the global factoring market is projected to reach $9,275.15 billion by 2025. The report says that, “Growing awareness, technological advancement, need for financing, efficiency in process of receiving payment for invoices, increasing trade activities between countries and growing small and medium enterprises are some of the major factors due to which the demand for factoring is expected to grow during the forecast period.” India has a lot of potential to get invoice discounting a prominent financial instrument.

While details are not very clear, the FM also talked about launching an app-based invoice financing loans product. “This will obviate the problem of delayed payments and consequential cash flows mismatches for the MSMEs.”

(The writer is the CEO, Wishfin.com)

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