How fintech related policies are impacting the Indian economy

Fintech played a pivotal role during the pandemic by utilizing digital payments to disburse credits and loans, while the global economy grappled with the aftermath of COVID-19. The Russian invasion of Ukraine further intensified existing uncertainties.

However, the recent International Monetary Fund (IMF) World Economic Outlook predicts that India will achieve a $5 trillion economy by 2026-27. This growth is attributed to the flourishing digital infrastructure and regulatory sandbox. The surge in digital adoption during COVID-19 positioned India as a leader in the fintech revolution. A report by MeitY in 2019 emphasized the role of fintech in India's journey towards a $5 trillion economy, estimating potential economic value creation of over $1 trillion from the digital economy.

India was ranked second by Cambridge in its 2018 Global Fintech Hub report. The Indian fintech market is projected to reach $150-160 billion by 2025, according to the Ministry of Finance. Remarkably, despite being relatively young in India, the fintech industry boasts an adoption rate of 87%, surpassing the global average of 64%.

Fintech has captured a significant market share, supported by a conducive environment fostered by the government and the Indian economy. It has disrupted the Banking, Finance, Securities & Insurance (BFSI) industry, paving the way for India's $5 trillion economy. Additionally, there is a rising trend in the valuation of fintech unicorns in India, with approximately 21 fintech entrants in the unicorn startup club, including a neo bank as the 100th unicorn.

Various stakeholders in the fintech and innovation ecosystem have taken multiple measures. The introduction of the regulatory sandbox framework in 2019 by the government helped mitigate risks during the pandemic-induced crash, particularly in retail payments, mobile-based banking solutions, and contactless transactions. This accelerated the adoption of the United Payments Interface (UPI), leading the Reserve Bank of India (RBI) to consider linking credit cards to UPI platforms.

Fintech has successfully penetrated the unbanked and under-banked segments of the population, where traditional banks have struggled. User-friendly, adaptable, and multilingual mobile banking interfaces have promoted transparency and financial inclusion, expanding the consumer base and driving economic growth. Consequently, RBI established an internal fintech department in January 2022 to promote orderly growth in digital lending, identify challenges and opportunities, foster innovation and incubation, and regulate the fintech market.

Furthermore, RBI has implemented policies under the regulatory sandbox to promote Small Finance Banks (SFBs), payment banks, and digital banks, focusing on credit facilitation, processing, and invoicing, particularly in underserved sectors. These initiatives align with the Digital India movement, NITI Aayog's Atal Innovation Mission, and the agenda for financial inclusion.

To achieve its $5 trillion economy goal, India needs to grow annually at a rapid rate of 12%, surpassing the 8% compound annual growth rate (CAGR). Technology infusion in the financial sector holds the potential to drive comprehensive growth in wealthtech, insuretech, and banktech.

Recent economic surveys from 2020 and 2021 also indicate increased fintech usage across all banking functions, facilitating data-driven lending decisions, efficient processing, and reduced operating costs, all contributing to India's journey towards a $5 trillion economy. As India aims for this milestone, it must heavily invest in knowledge and technology infusion, particularly in the BFSI sector.