This year on February 1, 2024, only an interim budget will be presented, because the full budget will be presented only after the formation of the government in May 2024 after the elections. Considering that this year’s budget is a vote on an account budget, expectations abound that the announcements will be made mostly with the intention of giving continuity to previous announcements and not looking at new initiatives that have a significant expense. In a world that is full of geopolitical tensions affecting global supply chains, resulting inflation in the form of rising food and energy prices, climate change and its second-order effects, exchange rate volatility, rising financial stability risks – the government’s response to them. can be reflected in the budget announcements. It is with this lens that our expectations have been arrived at. Every year, we come up with a wish list and because the industry comes up with a wish list, I no longer envy the job of the Finance Minister because of the delicate balancing act that the finance minister has to undertake during these exercises. There are 10 expectations we have from this year’s interim budget:
1. Public Cloud through Digital Public Infrastructure for the Financial Services ecosystem – The RBI has made an announcement in its latest monetary policy about public cloud for the financial services ecosystem. A more detailed announcement of the same with details around the charter for such a body with the expected monetary outlay for the initiative, will help provide more clarity.
2. Climate Finance – We expect the government to announce some initiatives that will advance the cause of climate finance in the country. While initiatives around green deposit and green lending were underway, it would be important for the government to focus on transition finance, which is the key requirement to move away from traditional carbon-intensive energy frameworks to low carbon footprint frameworks. Initiatives on setting up refinancing facilities with respect to the same may be beneficial.
3. Cooperative Bank Consolidation Plan – Given the sub-par governance frameworks within the co-operative banking ecosystem in India and some of the challenges of the past with respect to co-operative banks which are still fresh in people’s minds, a road map to strengthen co-operative banks – whether through consolidation or transition to alternate structures such as Small Finance Banks can be useful. While initiatives around this are already being taken by the Banking regulator, a concerted push through a budget announcement will help.
4. Privacy of data – With the Digital Data Protection Act, 2023, the framework for data privacy and confidentiality is set in the country. However, defining a regulatory body that will enforce data privacy rules with vigor will bring greater clarity to the real economy ecosystem. An announcement regarding the same is thus awaited.
5. Continued focus on cross-border payment infrastructure – Given the geopolitical tensions worldwide and the potential for sanctions to overturn the nation’s demands around energy security or food security, the government could potentially allocate funds for continued investments in the cross-border payment infrastructure as part of its larger Digital Public Infrastructure agenda. .
6. Investment in mobile infrastructure for GIFT City – With GIFT City, within which the International Financial Services Center is located, access to global finance was possible. However, in order to attract more talent to GIFT City, the government should have continued to focus on building the mobility infrastructure to facilitate movement of talent in and out of GIFT City.
7. Risk Based Capital Structure for Insurance Industry – Focus on Risk Based Capital Structure for Insurance Industry from the current rudimentary framework of only having a multiple of capital, would encourage Insurance Companies to come up with capital efficient product propositions, promoting the innovation and financial inclusion agenda in the country. The government’s push in this direction through an announcement will help accelerate these initiatives.
8. Encourage adoption of Central Bank Backed Digital Currency – The government’s digital first agenda should focus on Encouraging Banks to adopt CBBDC among their customers. An incentive in the form of reduced PSL targets could be one of the means of promoting the same among the Banks. The Banks could look at the same instead of opting for Priority Sector Loan Certificates.
9. Rationalization of tax rate for Foreign Banks – There is a large disparity between the tax rates applicable for Indian banks versus foreign banks and to remove the same, would help foreign banks to invest more capital in the country, promoting competition and attracting more capital in the long run.
10. Establishment of a separate inter-regulatory cooperation framework for Fintech – The Fintech ecosystem is expanding with presence across deposits, credit, investments, insurance and crypto, thus spreading across the domains of multiple regulators like RBI, SEBI, IRDAI. While the regulators work closely with each other to ensure that innovation and financial stability risks are balanced, it would be worth considering establishing a separate inter-regulatory cooperation framework specifically for FinTech, given the type of innovation that is taking place. continuously within the ecosystem.
Although the expectations are many, we have always seen the government listen to the market expectations and take decisions. Although this is an election year, we are sure that some of the expectations, even if not covered now, will be addressed in the post-election budget.
This article is written by Vivek Iyer, Partner and National Leader, Financial Services Risk, Grant Thornton Bharat. All opinions expressed are personal.
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