Budgeting for growth

Catalyst for growth of all segments

A typical financial institution (FI) caters to the needs of the following business segments:

Business segments in the financial services industry

We assess the government’s efforts in these business segments pre- and post-Budget.

From 1 January onwards, the government waived the merchant discount rate (MDR) on transactions lower than 2,000 INR.¹ The aim was to promote small-ticket transactions, especially at offline merchant and kirana stores. Through the Budget, the government has decided to boost another use case of small-ticket transactions: toll and rapid transit. With fast tags having been made mandatory for new vehicles from December 2017, the Budget now talks about a national policy based on the ‘pay-as-you-use model’.² This is aimed at encouraging people to switch to digital modes, easing payment transactions at toll points and thus boosting connectivity. The initiatives should help boost digital payments in the small ticket size category, and contribute to the overall efforts towards increasing the share of digital payments in the country.

While initiatives such as Startup India and state-level FinTech policies are aimed at promoting an entrepreneurial culture in the country, the announcement of the following two schemes will contribute further to their growth:³

Going forward, we expect sustained efforts in the areas of taxation and ease of doing business to further promote the start-up ecosystem in the country.

The government has been driving the growth of small and medium-sized enterprises (SMEs) through a number of initiatives such as encouraging banks to lend more to this sector, providing Goods and Services Tax (GST)⁴ exemptions to intra-state small traders, and being positive towards the idea of green finance in the SME sector and the SME-focused sustainable development goals of the United Nations (UN).⁵

The SME sector has faced issues in accessing favourable credit facilities due to a limited track of credit history. While the Budget allocates 3 lakh INR under the Pradhan Mantri Mudra Yojana for loans to micro units, it emphasises the role of technology-driven initiatives in boosting the SME sector.⁶

Technology-led initiatives to boost the SME sector

The Budget has referred to Pradhan Mantri Jan Dhan Yojana (PMJDY) and Direct benefit Transfer (DBT) as one of the largest schemes in the world, aimed at boosting financial inclusion. Economic Survey 2018 discussed the contribution of innovative technology roll-outs such as the Unified Payments Interface (UPI) and Jan Dhan-Aadhaar-Mobile (JAM)⁷ to digitisation, especially in the rural segments. Budgetary announcements such as offering microinsurance and pension products to PMJDY accounts and extending the scope of Kisan Credit Cards to fisheries and animal husbandry farmers will bring a higher number of people into the formal banking channels. This should help further the objective of sustainable financial inclusion in the country.

One of the sectors ripe for innovation is the corporate segment. FinTech firms in the business-to-business (B2B) segment have seen increased interest from the funding community. The measures announced in the Budget should encourage further innovation in the corporate segment:

Boost to innovation in corporate segment

Overall, the Budget creates favourable conditions for growth in various business segments. Such sustained efforts are required to boost innovation across these five segments and accelerate growth.