This year on February 1, 2024, only an interim budget will be presented, as the full budget will only be presented post the formation of the government in May 2024 post the elections. Given that this year’s budget is a vote on account budget, expectations are rife that the announcements will be largely made with an intent to provide continuity to previous announcements and not look at new initiatives which have a significant outlay. In a world which is fraught with geo-political tensions impacting global supply chains, resultant inflation in the form of rising food and energy prices, climate change and its second order impacts, exchange rate volatility, rising financial stability risks – the government’s response to them may be reflected in the budgetary announcements. It is with this lens, that our expectations have been arrived at.
Every year, we come up with a wish list and as the industry comes up with a wish list, I no longer envy the Finance Minister's job given the delicate balancing act that the finance minister needs to undertake during these exercises. There are 10 expectations that we have from the interim budget of this year:
- Public Cloud through Digital Public Infrastructure for the Financial Services ecosystem – The RBI had made an announcement in its last monetary policy on public cloud for the financial services ecosystem. A more detailed announcement on the same with details around the charter for such a body with the expected funds outlay for the initiative, will help provide more clarity.
- Climate Finance – We expect the government to announce some initiatives that would further the cause of climate finance in the country. While initiatives around green deposit and green lending have been 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 around setting up of refinance facilities with respect to the same may be useful.
- Co-operative 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 that are still fresh in people’s memories, a road map for strengthening co-operative banks – either through consolidation or transition to alternate structures such as Small Finance Banks may be useful. While initiatives around this are already underway by the Banking regulator, a concerted push through a budget announcement will help.
- Data Privacy – 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 the data privacy rules with vigor will bring greater clarity to the real economy ecosystem. An announcement with respect to the same is thus expected.
- Continued focus on cross border payment infrastructure – Given the geo-political tensions globally and the potential for sanctions to upend the nation’s requirements around energy security or food security, the government could potentially allocate funds for continued investments in the cross-border payment infrastructure as a part of its larger Digital Public Infrastructure agenda.
- Investment in mobility infrastructure for GIFT City – With GIFT City, within which the International Financial Services Centre is set up, the access to global finance has been possible. However, for the purpose of attracting more talent to GIFT City, the government would need to have continued focus on building the mobility infrastructure to facilitate movement of talent in and out of GIFT City.
- Risk Based Capital structure for Insurance Industry – A Risk Based Capital Structure focus for Insurance Industry from the current rudimentary framework of just having a multiple of capital, would incentivize Insurance Companies to come up capital efficient product offerings, furthering the innovation and financial inclusion agenda in the country. A government’s push in this direction through an announcement, will help accelerate these initiatives.
- Incentivizing adoption of Central Bank Backed Digital Currency – The government’s digital first agenda should focus on Incentivizing Banks to adopt CBBDC amongst their customers. Incentivization in the form of reduced PSL targets could be one of the means of the promoting the same amongst the Banks. The Banks could look at the same instead of opting for Priority Sector Lending Certificates.
- Rationalization of tax rate for Foreign Banks – There exists a large disparity between the tax rates applicable for Indian Banks vis-à-vis foreign banks and doing away with the same, would help foreign banks invest more capital in the country, promoting competition and attracting more capital in the long term.
- Set up of a separate inter-regulatory co-operation framework for Fintech – The Fintech ecosystem is getting bigger with presence across deposits, credit, investments, insurance and crypto thereby spreading across the domains of multiple regulators like RBI, SEBI, IRDAI. While the regulators are working closely with each other, to ensure that innovation and financial stability risks are balanced, it would be worthwhile to consider setting up a separate inter-regulatory co-operation framework specifically for FinTech, given the kind of innovation that is happening continually within the ecosystem.
While the expectations are many, we have always seen the government listening in into the market expectations and taking decisions. While this is an election year, we are sure that some of the expectations, even if not covered now, will get addressed in the post-election budget.
This article first appeared in ET BFSI on 20 January 2024.
