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The country can do wonders if all relevant stakeholders come together to devise and build plans and strategies that benefit all.
With India Inc. understanding the implications of the election results, the coalition government brings with it a whole set of new challenges. Modi 3.0 will be primarily about a delicate balance of populism and pragmatism. Over the past 10 years, the government has been fiscally prudent, and while the political challenges are the same, we are sure the government will continue on its path of fiscal prudence. While expectations from the July budget are many, I would want to limit my coverage of expectations to the following.
Banking and Financial Services Industry: Regulatory framework around Artificial Intelligence – Given the extensive use of Artificial Intelligence by many organisations, it is imperative to protect copyrighted content from different content creators as well the private data that belong to customers. Having a regulatory framework to protect the customers and copyrighted content of content creators would help create a more responsible ecosystem where their rights are respected. This could be incorporated as a part of the new Digital Data Bill that is proposed to replace the Information Technology Act, 2000.
Ease of doing business for Data Embassies: With the Data Embassy requirements specified within IFSC GIFT framework in Budget 2023, it would be worthwhile to push an initiative for providing a single window clearance for setting up Data Embassies within IFSC GIFT City. This would help India become the Data Embassy Capital of the world, given the country's internet infrastructure and competent professionals.
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 concerning 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 helpful. While initiatives around this are already underway by the banking regulator, a concerted push through a budget announcement will help.
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 incentivise Insurance Companies to come up capital efficient product offerings, furthering the country's innovation and financial inclusion agenda. An announcement of a government push in this direction will help accelerate these initiatives.
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 refinance facilities may be useful.
Rationalisation 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.
Setting up of accelerators by financial services regulators in the country: The regulators in India could consider setting up an accelerator to foster innovations through specified industry problem statements. The regulator could call upon the industry to identify the problem statements and call upon players to help solve for them. Creating a separate body or a department within an existing structure with some funds outlay could be a step in the right direction towards fostering innovation.
Continued focus on cross-border payment infrastructure: Given the global geo-political tensions and the potential for sanctions to upend the nation’s energy security or food security requirements, the government could potentially allocate funds for continued investments in the cross-border payment infrastructure as part of its larger Digital Public Infrastructure agenda.
Public Cloud through Digital Public Infrastructure for the Financial Services ecosystem: The RBI announced in its December 2023 monetary policy on public cloud for the financial services ecosystem. A more detailed announcement, with details around the charter for such a body and the expected funds outlay for the initiative, will help provide more clarity.
We are sure that the finance minister is listening to everything the industry says. The country can do wonders if all relevant stakeholders come together to devise and build plans and strategies that benefit all.
This article first appeared in The New Indian Express on 15 Jul 2024.