Why is Budget 2022 a great push?
The focus on growth through infrastructure development, both physical, is a standout feature of the FY23 Budget proposal. It is heartening for supporters that digitalization is now one of the main themes running through many government spending initiatives.
It is now widely acknowledged that access to the internet is a critical tool for a nation’s socio-economic development, particularly in a post-pandemic world. With the majority of India’s population living in rural areas, inclusive and sustainable growth will be impossible without the world-class infrastructure to support rural connectivity.
Since the Prime Minister revealed the Digital India program on July 1, 2015, our broadband penetration has surpassed the folklore levels of 750 million Indians, and our internet usage has risen to among the highest in the world.
The country is now prepared to enter the next phase of the digital revolution. Without a doubt, the path to Digital India 2.0 will be fraught with challenges, such as strengthening digital infrastructure, upskilling and re-skilling the workforce, and developing India’s own digital applications to solve real-world problems in education, healthcare, agriculture, energy, and many others.
The transaction records in a blockchain cannot be altered in any way, and the ledger is transparent and authentic. The CBDC is a digital form of fiat currency that can be transacted using blockchain-backed wallets and is governed by the central bank. It enables the user to conduct domestic and cross-border transactions without the involvement of a third party or a bank.
The digital rupee can be used for various purposes, including programmable payments for subsidies and faster lending and payments by financial institutions. Interoperability and increased usage of the Digital Rupee may also have a positive impact on faster real-time cross-border remittances.
Along with the development of digital infrastructure, it is encouraging to see the government putting equal emphasis on inclusive digital economic growth through the launch of several new initiatives.
The DESH e-portal for upskilling the existing workforce will provide old economy employees with new-age opportunities for employment and entrepreneurship. At the same time, the Digital University initiative with world-class educational content to upgrade teachers with the latest digital tools will help prepare our strong student base for tomorrow’s world.
National Digital Health Platforms, which include digital registries of health providers and health facilities, unique health identities, and universal access to health facilities, will improve the general public’s access and quality of healthcare services.
In the meantime, the government has announced that any income derived from the transfer of digital assets will be taxed at a rate of 30%. This will have an impact on all cryptocurrency and non-fungible token profits (NFTs). “Except for the cost of acquisition, no deduction regarding any expenditure or allowance shall be allowed in computing such income.
“Furthermore, any loss incurred due to the transfer of a virtual digital asset cannot be offset against any other income,” she added. The government has also provided for TDS on payments made concerning the transfer of virtual digital assets at the rate of 1% of such consideration in order to capture transaction details. The gifting of virtual digital assets is also proposed to be taxed in the recipient’s hands.
All 1.5 lakh post offices in India will be linked to the core banking system in the fiscal year. This will allow for financial access to post office accounts via net banking, mobile banking, and ATMs, as well as online transfers of funds between post office accounts and bank accounts.
It is worth noting that this proposal stems from the August 2014 National Mission for Financial Inclusion (NMFI), which aims to provide universal banking services to every unbanked household based on the guiding principles of “banking the unbanked, securing the unsecured, funding the unfunded, and serving unserved and underserved areas.”
In her speech two years ago, Honorable Finance Minister Smt. Nirmala Sitharaman stated that the digital revolution had placed India in a unique leadership position globally. It has, indeed. India is now one of the few countries with a robust public digital infrastructure.
The country has also been very optimistic about digital payments. The volume of digital transactions increased by 39.64 per cent to 304.06 in September 2021, up from 217.74 the previous month.
To commemorate the 75th anniversary of Indian independence, 75 digital banking units will be established in 75 districts across the country by Scheduled Commercial Banks (SCBs). This would accelerate financial inclusion, and banks may gain better access to liability pools from newer consumer sources in those geographies.
According to a 2017 RBI Working Group on FinTech and Digital Banking Report, customers were rapidly adopting technology in their daily lives, owing to increased internet and mobile penetration, the availability of low-cost data plans, and the shift from offline to online commerce. According to this report, “the form of retail financial services is completely dictated by consumers, and as consumers evolve, so will retail financial services.”
As a result, innovation is a push for initiatives that will expand digital infrastructure, improve internet connectivity, increase payment touchpoints, and improve cybersecurity in order to make the digital ecosystem safe and secure for individuals and businesses.
The larger question to be answered is whether this is a precursor to the idea of the digital bank proposed by Niti Aayog’s discussion paper and the purported RBI’s lack of interest in this idea. With the Finance Minister proposing the idea of digital banking units, FinTechs, which could potentially morph into digital banks, will be closely watching the details of how it would be shaped.
Ease of doing business will be another critical factor for the sector, which can be achieved through state and central level policies in the form of incentives, regulatory clearances, and labour laws to boost the country’s entrepreneurial wave.
The government’s acknowledgement of the impact and effectiveness of fintech companies in reaching out to unserved and underserved populations has boosted the industry. India’s payment infrastructure has seen significant improvements, particularly with the introduction of new payment mechanisms and interfaces. Card tokenization will play an essential role in further securing the ecosystem, and the RBI’s push toward card-on-file tokenization is greatly appreciated.
Edited by Prakriti Arora