Budget 2022 | Fintech, NBFCs Tax Norms, Liquidity

The finance ministry of the government of India presents a budget in the parliament every year. It displays the overall income and expenditure diagram of different government departments. It gives hints about the steps the government can take to maintain sufficient cash flow in the market, control the economy and make people’s life easier. This year, the union finance minister, Nirmala Sitharaman, will present her 3rd budget on February 1, 2022. Several NBFCs and Fintech companies are hopeful to getting tax relaxations and financial assistance from the upcoming budget.

The Role of Fintech and NBFCs in the Indian Economy

Many western economists and media organizations have been portraying India as an upcoming economic superpower for a long time. With 1.3 billion people, it is a lucrative market for all leading companies that need to sell their products and services. To accelerate India’s progress, we must appreciate the contributions made by NBFCs and Fintech firms. It’s the right time to talk about both of them in detail.

NBFCs And Their Role In the Indian Economy

In simple words, non-banking finance companies offer specific bank-like services and products. Still, they don’t have a license to act as a full-fledged banking organization. Such companies are registered under the Companies Act, 1956 of India. Many individuals in our country apply for different loans every financial year. But only a few of them can complete all the loan formalities and get the requested money from the chosen bank. Many people use NBFC loans as a last resort to get much-needed money.

Non-banking finance companies also trade in money market instruments, perform wealth management activities, underwrite stocks shares, and other obligations. Such companies are engaged in personal loans and advances, investments in stock/equity/shares/bonds/debentures and other govt securities, chit funds, leases, hedge funds, insurance business, and currency exchange. So it is safe to say that non-banking finance companies help people with money management and get small ticket personal loans during financial emergencies. Currently, approx 9,507 NBFCs are working in India and helping needy people in many ways-

The Role of Fintech Companies In India’s Economy

Presently, the government of India and different financial agencies are encouraging more and more people and companies to become a part of the formal economy. With this move, they want to digitalize the Indian economy as soon as possible and let people gain the fantastic benefit of web-based banking facilities. It wouldn’t be wrong to say that different fintech companies contribute to the overall development of India’s financial sector and its economy.

They Offer Tech Support To Banks And Financial Organizations.

In recent years, different banks in India are fast adopting the latest tools and technologies to offer the best quality banking services to a large number of customers in the shortest possible time. They are using biometric identification to mark the attendance of bank employees. Furthermore, they also use cloud-based services to maintain and update the data of many customers and prevent it from falling into the wrong hands. Chatbots and virtual assistants allow banks to answer frequently asked questions and satisfy customers instantly. All the innovations in the banking sector are likely because of fintech companies.

Also Read: Latest Fintech Trends: What To Expect In 2022? Expert Predictions!

Increased Digital Transactions

These days, many Indians are using digital methods to pay for products and services they purchase from online and offline sources. Approximately 63.97% of Indians use net banking to send and receive money digitally. Apart from this, nearly 200 million people use UPI payment apps to make digital transactions. Experts believe that by 2025, the total number of UPI payment apps users will cross 500 million. PhonePe, GooglePay, Paytm, Amazon Pay are quite popular among India’s tech-savvy people.

Tracking Money Movements

The Government of India and different banks are doing everything possible to digitize the Indian economy as soon as possible. There is a valid reason behind this aggressive campaign. Despite government efforts to increase the tax base, the total number of taxpayers in our country is around 82.7 million people, 6.25 % of the entire population. In the United States of America, 45% of its population abides by tax liability. Until recently, most business organizations and companies were accustomed to using cash in almost all transactions. The Government of India has made it mandatory for all business organizations to share their GST number and PAN Card details for large-scale transactions.

It also includes fintech companies in the tax collection process and tracking money movements. With the help of fintech Companies, different government agencies can keep a close eye on the money movement and compel companies or individuals to ensure tax compliance in all transactions. For example, the linking of PAN cards and Aadhar Card has enabled the government to stop the misuse of public money, track a large sum of undisclosed money held by multinational companies and influential people in the society, and reduce the amount of black money within the country. You can link your pan card and Aadhar card digitally- this is possible because of fintech Companies working in India.

Data Storage And Management

It is not easy for a bank to deal with its customers daily and pay sufficient attention to data storage and management activities. It is a time-consuming and mind-blowing task. Different fintech companies are actively involved in data storage and management. They have created useful and feature-rich apps for different Indian banks. It allows customers to use different banking services using internet-enabled mobile devices from any location and at any time. The important data about customers are automatically saved on the bank’s server. Bank individuals can use the data to interact with customers and provide them with different banking services in real-time. Fintech companies use the latest technologies to store and manage large amounts of data a bank may have.

Why Are Non-Banking Finance Companies And Fintech Firms Asking For Tax Relaxations And Liquidity Assistance?

If you carefully analyze the condition of India’s economy in the last five years, statistics are not promising at all. The government of India vowed to make changes to the economy and take gross domestic product up to $5 trillion by 2025. But things are not happening in that way. The introduction of demonetization and the GST rule contracted the Indian economy by 40%. In 2020-21, the country’s GDP decreased by 7.3%. Currently, the Indian economy has been struggling with the onslaught of covid-19. It is believed that the coronavirus pandemic wiped $200 to $300 billion off India’s economy.

We Have Lost Two Years’ GDP Due To Covid

Since 2020 when covid-19 is spread to all parts of the world, the Indian economy has been struggling. Due to lockdowns and restrictive measures taken by the government of India, several small and medium-scale industries collapsed. Many working professionals living in different cities had to migrate to their home states to protect their lives. This increased the overall unemployment rate in the country to a great extent.

Lack of Jobs In The Market

Currently, many people in the country are jobless. Despite having high degrees and several years of work experience, many professionals cannot get a job as per their qualifications. Unemployment has been an issue in India for several decades. But in recent years, this problem has taken a serious turn. Currently, the unemployment rate in India is 6.5 %. The urban unemployment rate is 8.2 %, and rural unemployment has increased to 5.8%.

Also Read: RBI’s Latest Report: Merged Public Sector Banks Riskier Than Unmerged Ones

State/UT	Current Unemployment Rate (Estimated)
Andhra Pradesh	5.6%
Assam	5.8%
Bihar	16.0%
Chattisgarh	2.1%
Delhi	9.8%
Goa	12.00%
Gujrat	1.6%
Haryana	34.1%
Himachal Pradesh	9.4%
Jammu and Kashmir	15.00%
Jharkhand	17.3%
Karnataka	1.4%
Kerala	6.7%
Madhya Pradesh	3.4%
Maharashtra	3.8%
Meghalaya	3.00%
Odisha	1.6%
Puducherry	6.2%
Punjab	6.8%
Rajasthan	27.1%
Tamilnadu	6.9%
Telangana	2.2%
Tripura	14.7%
Uttar Pradesh	4.9%
Uttarakhand	5.00%
West Bengal	7.3%

Rapidly Increasing Retail and Wholesale Inflation

These days, surprisingly, retail and wholesale inflation continues to increase by leaps and bounds. Currently, the retail inflation rate is between 5.5%-6% and it is likely to remain until April 2022. In the same way, wholesale inflation is 13.56%. The cost of all essential goods and services is at an all-time high. Ordinary individuals in India, who earn only basic income every month, are facing problems to optimize their monthly budgets to adjust to increased expenses.

Low Demands for Goods & Services

Since the coronavirus pandemic spread all across the globe, it has caused financial problems for a large number of individuals. A lot of people became jobless when the coronavirus pandemic was at its peak. Many people who had left metro cities due to job loss are still unemployed and are living in villages. In the last 2 years, almost all savings and cash reserves maintained by people have now vanished. Apart from this, companies are not offering good salary packages to working professionals. There are many people who are working on reduced salaries for a long time. As a result, they have cut all unnecessary expenses. This has decreased the demand for goods and services in the market. Companies and business organizations that manufacture and sell luxury items are facing tremendous losses every day because of the slump in the market.

Decreased Exports

Import and export is essential in order to ensure the availability of all goods and services in our country. All countries try to export more and more goods and services to reduce the current account deficit and maintain a sufficient balance of foreign currencies. For the last 2-3 years, India has been importing more goods and services and its export has decreased to a great extent. This had led to a sharp increase in budget deficits.

How Can The Government Benefit Non Banking Finance Companies And Fintech Firms?

Non-Banking Finance Companies and fintech firms are expecting relaxation from the upcoming budget. The government can benefit these companies in several ways.

Investor And Startup-Friendly Initiatives

The Industry expects that the government of India will consider providing some relaxation to non-banking finance companies and fintech firms to create a suitable system for their all-around development. The covid-19 pandemic has helped people push toward more and more digital solutions. In the last few years, the Indian D2C ecosystem has developed a lot. Now the government needs to encourage the industry with investor and startup-friendly initiatives. It is expected that the government will implement the e-commerce policy keeping the interest of customers and D2C retailers in mind. Experts say that the government must offer incentives and benefits to foreign investors so that they can enter the Indian D2C retail system.

Increased Cash Flow to NBFCs and Fintech Companies

Always keep in mind that the Indian economy has not recovered fully from the setback of Covid-19, economic slump, high unemployment rate. The government needs to take active steps that could increase cash flow to NBFCs and fintech companies. It will help them recover from the losses caused by Covid-19, the economic slump, and stabilize their financial condition.

GST Relaxation

Fintech companies are expecting GST relaxations from the government in order to recover from damages caused by Covid 19. An announcement regarding this will benefit fintech companies a lot. They are expecting the simplification of GST rules.

Comprehensive Debt Instruments To Startups and MSMEs

If bank funding is unavailable, the government must incentivize debt capital providers for startups and MSMEs. Fintech and NBFCs need sufficient debt funding to reach out to underbanked segments of society and generate lots of jobs for needy individuals. Always keep in mind that micro, small, and medium scale companies do most jobs in India. The government of India must pay special attention to this sector.

Conclusion

NBFCs and fintech companies are quite important for the all-around development of the Indian economy. The government of India must encourage these two industries as they create lots of jobs in our country. These two industries expect tax cuts, financial packages, and other relaxations from the upcoming budget.

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