I looked at the Budget 2023 that India’s Finance Minister presented on Feb 1st 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. Budget 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 in improving the ease of doing business and will help drive the entrepreneurial spirit of the country. I looked at various budget announcements and present to you my take on the same.
Focus on galvanizing an effective AI ecosystem:
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 fintechs 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 a ‘risk-based’ instead of current ‘one size fits all’ approach. Such approach will require Indian financial regulators to modify existing KYC system that includes risk metrics. These metrics are expected to include insights from AML, 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, it will also be a one-stop solution for identification and address update and reconciliation. For MSMEs, 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 area of client onboarding, underwriting, and servicing. Moreover, if done right it will lessen the burden of compliance for banks and fintechs both. 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. The PAN will serve as the universal identity for all digital systems used by designated government entities. This will bring ease of doing business; and it will be facilitated through a legal mandate.
What it means?
We think 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 to reinvent and improve the onboarding journey for business clients.
National Financial Information Registry:
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 credit public infrastructure, and it will be designed in consultation with the RBI.
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 good will open up rural value chains for digitization and accelerate the Agri-tech industry. The agriculture accelerator fund will further fuel Agri-tech startups.
What it means? Fintechs and banks could use these value chains and Agri-techs to get relevant data that they could use to offer credit and insurance to more than 40 million farmers at lower costs and risks over.
Other announcement like outlay and focus on Zero Carbon Emissions by 2070 will trigger the building of Green Fintechs and creation of the Ministry of Cooperation and Computerization of Primary Agricultural Credit Societies (PACS) can further help in 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 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 would create a symphony of efficiency and what new innovations Fintechs will peddle.