India's Economic Survey 2023-24 Highlights Fintech Potential and Regulatory Challenges

Eco Survey calls for need to plug regulatory gaps in fintech sector

The Economic Survey 2023-24 calls for closing regulatory gaps in the fintech sector and aligning with global best practices. It emphasizes moving towards data-based lending instead of judgment-based lending, particularly for small businesses. The survey also suggests evolving a common approach for user data like KYC across regulators and highlights India's goal to become a 'fintech nation.' The Economic Survey has called for a need to plug regulatory gaps in the fintech sector and align towards global best practices. The survey also pointed out that it was important for digital lenders to move towards data based lending rather than judgment based lending. "There is a need for continuous review to identify regulatory gaps or overlaps and benchmark them with the best global practices," the survey noted. "In the medium term, efforts should be made to move towards data-based lending instead of judgment-based lending, especially for small businesses." The survey also said that an approach should be evolved for common user data, like Know Your Client (KYC) details across regulators. The Reserve Bank of India has been working towards developing a framework to manage fintech ecosystem in the country through its project Utkarsh 2.0. The regulator has instituted a working group to review rules governing fintech's. The survey also said that India is working towards its goal to become a 'fintech nation.' "The vision is for India to evolve as a 'fintech nation' with the highest number of fintech firms and the highest fintech adoption rate by incumbents fuelled by digital public infrastructure," economic survey said. India is among the fastest-growing fintech markets in the world, hailed as the third-largest growing fintech economy. In its recently released Financial Stability Report, the RBI raised the red flag on high delinquency levels of fintech lenders. "NBFC-Fintech lenders, have the highest share in sanctioned and outstanding amounts, also have the second highest delinquency levels, only below that of small finance banks," the RBI had said speaking about personal loans below Rs 50,000. Meanwhile, the survey also highlighted that the next big step in the coming years is likely to be towards Artificial Intelligence and Machine Learning (AI/ML), Decentralised Finance, Internet of Things (IoT), among others. "These have a vast potential to disrupt the digital payments ecosystem," it said. The economic survey also suggested that financial sector firms - public or privately owned - must become customer-centric. Without that, most quantitative metrics will remain elusive. With the objective of India emerging as a fintech nation, the Government has launched many flagship schemes such as the Digital India Mission and Make-in-India. Greater emphasis has been given to the creation of digital payments infrastructure (DPI) such as Aadhaar, e-KYC, Aadhaar-enabled Payment System, UPI, Bharat QR, DigiLocker, e-sign, Account Aggregator, Open Network for Digital Commerce, among others.

Fintech the cornerstone to help India achieve financial inclusion: Economic Survey 2023-24

Highlighting the role played by government-promoted open platforms and fintech players in the country's progress, the Economic Survey said India is the third largest fintech market in the world.The government wants to promote a data-based lending mechanism in the medium term to cater to the financial requirements of small businesses and spur growth, said the Economic Survey for 2023-24 tabled by finance minister Nirmala Sitharaman in Parliament on Monday. It said the government wants to build a centralised KYC (know your customer) mechanism across sector regulators to standardise this crucial aspect of financial services which helps in rightfully identifying the customers. Highlighting the role played by government-promoted open platforms and fintech players in the country's progress, the Economic Survey said India is the third largest fintech market in the world. "The next big step in the coming years is likely to be towards artificial intelligence/machine learning (AI/ML), decentralised finance, Internet of Things (IoT), etc., which have a vast potential to disrupt the digital payments ecosystem," the finance minister said in the Economic Survey. The document, presented a day before the Union budget, underscored financial services and their access to the masses as the cornerstone of the government's aim to make India a developed nation by 2047. The government wants to reduce the cost of financial intermediation which will eventually help drive financial inclusion, it said. Pointing to the technology innovations in the country, the Economic Survey said that through expansive coverage of DBT (direct benefit transfer) payments, promoting digital payments through Unified Payments Interface (UPI) and feature phone-based payment systems such as UPI123 and UPI Lite for low value transactions, the government wants to achieve financial inclusion. The Economic Survey added that government initiatives and scale of deployment of technology has helped reduce prices of delivery of services, like eKYC price has gone down to six cents (around Rs 5) from around $12 (Rs 1,000 approx) in the past. The government wants India to be at the forefront of the fintech revolution in the world, and platforms such as Aadhaar, eKYC, AePS (Aadhaar Enabled Payment Systems), BharatQR and DigiLocker have helped in timely delivery of financial services to the people, said the Economic Survey. It cited International Monetary Fund research, according to which the adoption of digital payments helps in accelerating economic growth by 2.2%.

Economic Survey: India Envisions To Become 'Fintech Nation', With Maximum Fintech Firms

The document also suggested steps to further improve fintech adoption in the country, and pitched for adoption of a common approach for using customer data across regulators Riding on the back of the country's digital public infrastructure (DPI), India aims to emerge as a 'fintech nation' housing the highest number of fintech firms, the Economic Survey 2023-24 said. The country also aims to have the highest fintech adoption rate in the world, the Survey said.The Survey highlighted the key role played by DPI in the growth of the fintech industry and said that India is among the fastest-growing fintech markets in the world and is the third-largest growing fintech economy. It is pertinent to note that India has seen rapid adoption of digital payments like UPI and other fintech services in the last few years. Going ahead, the Survey said, artificial intelligence (AI) machine learning (ML), decentralised finance, Internet of Things (IoT) have the potential to further disrupt the digital payments ecosystem. The document also suggested steps to further improve fintech adoption in the country, and pitched for adoption of a common approach for using customer data across regulators.

Financial sector outlook appears bright, but needs tight vigil on vulnerabilities: Economic Survey 2023-24

The Economic Survey 2023-24 indicates a promising outlook for India's financial sector while cautioning against over-financialisation. It highlights a crucial transformation with a growing role for capital markets and diminishing banking dominance. The survey emphasizes the need for regulatory vigilance to mitigate vulnerabilities and support sustainable growth. Additionally, it underscores the importance of expanding financial services to promote investment, support MSMEs, and enhance financial inclusion. The survey also envisions India's evolution into a leading fintech nation with robust digital infrastructure and advanced technologies like AI/ML.The outlook for India's financial sector appears bright, but there is a need to keep a tight vigil on vulnerabilities as India can ill-afford the over-financialisation of the economy at this stage, said Economic Survey 2023-24 tabled in Parliament on Monday. The Indian financial sector is at a "turnpike moment", it said, adding that the dominance of banking support to credit is being reduced, and the role of capital markets is rising. For a country that aspires to be a developed nation by 2047, this is a long-awaited and welcome development, it said. "Being reliant on and exposed to the capital market, however, comes with its challenges and trade-offs. As India's financial sector undergoes this critical transformation, it must also brace for likely vulnerabilities and prepare itself with regulatory and government policy levers to intervene and hedge, as required," it said. Even as banks, non-banks and corporates battled balance-sheet excesses, the consequences of the credit boom of the first decade of the new millennium and the inevitable bust that followed in the second decade, the broad industry kept advancing the cause of financial inclusion and financial deepening, it added. "Moving forward, healthier corporate and bank balance sheets will further strengthen private investment. The positive trends in the residential real estate market indicate that the household sector capital formation is increasing significantly," it said. For a developing economy such as India, it said, the financial sector needs to support the banking sector and fill the gap in capital required for the economy's growth. "Therefore, the financial sector should expand at a pace that is in lockstep with economic growth. In particular, India can ill-afford the economy's over-financialisation at its current development stage," it said. As India embarks on the vision to become a developed country by 2047, it is imperative that financial intermediation costs decline globally, the survey prepared by Chief Economic Adviser V Anantha Nageswaran and his team said. It further said the financial sector needs to support capital formation and promote trade, business, and investments in MSMEs, enabling them to scale. "It also needs to provide insurance protection and retirement security to all citizens. The share of insurance and pension fund assets in GDP stands at 19 per cent and 5 per cent, respectively, in India, compared to a high of 52 per cent and 122 per cent in the US and 112 per cent and 80 per cent in the UK, leaving scope for further improvements," it added. The survey said that the next big step in the coming years is likely to be towards artificial intelligence/machine learning (AI/ML), decentralised finance, the Internet of Things (IoT), etc, which have a vast potential to disrupt the digital payments ecosystem. Further, it said the vision is for India to evolve as a 'fintech nation' with the highest number of fintech firms and the highest fintech adoption rate by incumbents fuelled by digital public infrastructure. "An approach should be evolved for common user data, eg KYC, across regulators. In the medium term, efforts should be made to move towards data-based lending instead of judgment-based lending, especially for small businesses," it said. The survey recommended that financial sector firms - public or privately owned - must become customer-centric. Without that, most quantitative metrics will remain elusive, it added.