Growing India’s fin-tech World

Paper: III

For Prelims: Fin-tech

For Mains: Science and Technology- Developments and their Applications and Effects in Everyday Life.

Context of News:

  • As fears of corona virus droplets on cash drive Indians towards digital payments, this growing use of Fin-tech comes with challenges related to privacy and security.
  • The accelerated growth of the digital economy in the country will find it difficult to sustain if users lose trust in the payment systems owing to these frauds.
  • Fintech market in India is likely to expand to $31 billion in 2020, Niti Aayog CEO Amitabh Kant said recently. As India is one of the fastest growing fintech markets globally.India is the only country in the world with over a billion mobile connections and biometrics, providing enough scope for penetration of fintech technology.

About Fin-Tech:

  • Financial technology, often shortened to fintech, is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance.
  • Fintech refers to the integration of technology into offerings by financial services companies in order to improve their use and delivery to consumers. It primarily works by unbundling offerings by such firms and creating new markets for them.
  • Fin-Tech is an industry comprising companies that use technology to offer financial services. These companies operate in insurance, asset management and payment, and numerous other industries.

Existing Prospects of Fin-tech:

  • India has the highest Fin-Tech adoption rate globally.
  • India is amongst the fastest growing Fin-Tech markets in the world. India ranked the highest globally in the Fin-Tech adoption rate with China. Digital payments value of $75 bn in 2020 is expected to grow at a CAGR of 20% till 2023.

Some of the most active areas of fintech innovation includes:

  • Crypto currency and digital cash.
  • Block chain technology, including Ethereum, a distributed ledger technology (DLT) that maintain records on a network of computers, but has no central ledger.
  • Smart contracts, which utilize computer programs (often utilizing the block chain) to automatically execute contracts between buyers and sellers.
  • Insur-tech, which seeks to use technology to simplify and streamline the insurance industry.
  • Robo-advisors, such as Betterment, utilize algorithms to automate investment advice to lower its cost and increase accessibility.
  • Unbanked/under banked, services that seek to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies.
  • Cyber security, given the proliferation of cybercrime and the decentralized storage of data, cyber security and fin-tech are intertwined.

Growth of Fin-tech:

  • There is no doubt India’s fintech market is on fire. The last decade has seen high levels of fund infusion into the Indian market, and despite a drop in overall volumes in 2018 and 2019; five of the top 10 fundraisings ever took place last year. The growth of the fin-tech market is aided by several macroeconomic factors such as:
  1. India’s booming economic growth
  2. Large population,
  3. Abundance of technical know-how and the
  4. Entrepreneurial drive of digitally savvy young technocrats,
  • According to NASSCOM things will continue to look up -with our fintech market potentially touching US$ 2.4 billion by 2020.

Way Forward:

  • Specialise for success:
  • In today’s digital economy, a whole new generation of fintechs, including nimble new start-ups with cutting edge technology have boomed alongside behemoths and are now valued more than many traditional banks and financial services firms. We are witnessing specialization in many of the global fintech centres.
  • India, is yet to find a niche to focus on or a specific area it’s known for, despite the mass availability of smart-technology talent. As different hubs emerge around the world and technologies become more mature, specialization will be key to further develop India’s fintechs and continue to lure billions of dollars in investments and talent.
  • Improve its attractiveness to new talent:
  • Along with developing expertise in specific areas, harnessing the right talent is key to the future of the fintech industry so that global investors and start-ups searching for advanced technology and skills know where to go.
  • The fintech ecosystem is attracting the world’s best brains and entrepreneurial minds, therefore, competition around the world to create a friendly environment for this talent to prosper is fierce. The same is true for the investment environment, which is just as dynamic, so collaboration between the government, investment community and startups is essential to make sure it’s the most competitive possible, or both talent and funds will fly to more attractive markets.
  • Take care of All:
  • Government should consider the differential impact on small businesses while formulating regulations under the law. Conducting cost-benefit analysis while making rules, and explicitly consider the impact on small businesses, among other factors. The cost-benefit analysis should be put in the public domain as is mandated in other countries.
  • India also needs to find a middle ground of privacy and digital economy growth. Privacy law should not disproportionately increase the cost of business for start-ups vis-a-vis big tech and other large incumbents.

 


Corona lockdown and economic implications

Paper: III

For Mains: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context of News:

  • With more than 100 countries across the world have reported coronavirus cases and this virus becoming pandemic, India has cancelled various countries citizens’ arrival of European countries because of the pandemic.
  • The outbreak has affected people’s mobility, both within nations as well as travel across borders. Almost all countries have stopped accepting people from other countries and India is in Lockdown, this gives Indian Economy a next wave of shock to already fragile Indian Economy.

Implications of Lock down on Indian economy:

  • Possibility of rising Inequality:
  • Several studies have shown that in an epidemic, the risk of infection and death is greater for everyone in societies that have greater wealth and income inequality. The reason: while the poor are more vulnerable, epidemics do not respect the physical and social barriers between a society’s haves and have-nots, and therefore, everyone faces higher risks of infection. This is one of the several reasons that health experts are watching India closely.
  • The cost of a pandemic can be very large. The response should be large enough to reduce the effects of the pandemic once it emerges. Low-cost actions such as promoting good hygiene practices are a good place to start, but other actions such as quarantine and other interventions as advocated by epidemiologists, although disruptive, are probably cost effective.
  • Service Sector at Standstill:
  • The immediate pain of lockdown is being felt by the services industry. But as household discretionary spending starts falling, the manufacturing sector will also feel the pain. And even when the spread is contained domestically, with the virus spreading across Europe and the US, exports will also take a hit.
  • Loos of Job:
  • The International Labour Organization estimates that Covid-19 will destroy up to 25 million jobs. According to the United Nations Conference on Trade and Development (UNCTAD), it will likely cost the global economy between $1 trillion and $2 trillion in 2020. Even when the pandemic had affected only 500 people in India in early March, UNCTAD said the trade impact for the country could be about $500 million.
  • Restaurants have been reeling. The National Restaurant Association of India (NRAI) has recommended that its 500,000-plus restaurants can down their shutters till March 31. As a result, many are even asking employees to go on leave without pay.
  • Daily wage workers will be most affected:
  • About 75% of workers are either self-employed (rickshaw pullers, carpenters and plumbers, for instance) or casual workers who are not covered under any provision or get any paid leave, Many of them live life on the edge, earning and surviving on a daily basis. Vulnerabilities owing to Covid-19 are higher in urban areas as 25-30% of urban households comprise of daily wagers, mostly migrant workers.
  • Nature of India’s corporate landscape. At 75 million, MSMEs are the engines of growth and employment, contributing $1,183 billion to India’s GDP and creating 180 million jobs. But their world stands on shaky foundation. Just 7 million are registered. About 97% are small, employing less than 10 workers, with the biggest chunk having 1-3 workers (for instance, hawkers and roadside vendors).

Needs of Banking System in this crisis Period:

  • As the spread of the corona virus is creating a scare in society, business and markets ,what is need of an hour is monetary policy should look to relax NPA norms, increase liquidity and cut repo rate, the government should focus on limiting spread of virus, providing stimulus and not prioritise fiscal deficit.
  • Banks need relaxation in NPA norms and banks must be ready to be able to give them liquidity so that they can tide this situation.
  • There should be more than ample liquidity maintained, so that whoever needs the money gets it. Also, just like the rest of the world has done, a cut in repo rate is needed.
  • As for the fiscal is concerned, it is not a priority today and we have ways to bring it down over a period of time. But today the first thing is to control the virus and the difficulties it is creating. We definitely need a stimulus and need more spending to ensure the requisite facilities for healthcare is in place. We need more spending and more money to be given to daily workers and whatever concessions the companies require.
  • Several sectors such as hotels, restaurants and airlines say they are not in a position to pay taxes, both on income and on goods produced.

Govt steps to Fight Corona Virus:

  • Some state governments have announced measures. They are a combination of cash transfers for workers in the informal economy, and provision of food. For instance,
  1. Uttar Pradesh government has announced direct cash transfers for daily wage labourers in the construction sector, and self-employed cart owners, small shop owners and rickshaw pullers, in addition to one month’s stock of food grains for vulnerable sections.
  2. The Delhi government has announced the provision of meals for the homeless, and enhanced rations and pensions for vulnerable socio-economic groups.
  3. The Kerala government has announced a Rs 20,000 crore financial package, of which Rs 14,000 crore is for clearing pending arrears, and Rs 500 crore is towards a health package.
  • The state’s move aims to cover loan assistance, pensions, and subsidised meals. Other states could adopt similar measures. Jan Dhan accounts could be used for targeted cash transfers, while excess stocks maintained with the FCI could be disbursed though the public distribution system.

Way Forward:

  • No, doubt our economy will be at its all time low due to lockdown but the biggest concern as of now is control of the spread of the corona virus and, in the sequence of events; this has to be solved first. We should support the lockdown and I think that if more lockdown is necessary, it must be done till we see the flattening of the curve in the number of new cases.
  • If we are able to flatten the curve, then there are other benefits that flow in. Today, oil, commodities which are India’s major imports is a major benefit to us. India also not too much involved in global trade, so if global growth goes down, everybody will be hit, but India will be hit a little less. And if we can take appropriate actions and sort the issues one by one, then in the end we will come out as one of the shining countries.
  • Problem is that India’s GST collections are expected to be way below their targets, as also the corporate and personal income tax collections, given the ongoing slowdown made worse by the pandemic.
  • Lower crude prices have a positive impact on India’s current account deficit and inflation. In the unfortunate event that the corona virus situation worsens, the gains to India from the sharp crude price drop may well be offset by the demand destruction that would occur due to slowing economic activity.
  • Given that the country is the world’s third-largest crude consumer and imports close to 85% of the oil that it consumes, any fall in oil prices is a relief, as the import bill comes down

 


Parliament adjourned sine die due to corona virus

Paper: II

For Prelims:  Adjournment sine die.

For Mains: Parliament and State Legislatures Structure, Functioning, Conduct of Business, Powers & Privileges and Issues Arising out of these.

Context of News:

  • Both Houses of Parliament were adjourned sine die on 23/03/2020, nearly two weeks before schedule, as the Budget Session was curtailed due to the corona virus pandemic.

About Adjournment:

  • Adjournment of the House: An adjournment terminates the sitting of the House which meets again at the time appointed for the next sitting. An adjournment also signifies brief break of the sitting of the House which re-assembles at the appointed time on the same day.
  • “Adjournment sine die”: Termination of a sitting of the House without any definite date being fixed for the next sitting.

Difference between ‘Adjournment’, ‘Prorogation’, and ‘Dissolution’:

  • Adjournment Sine Die:
  • Adjournment sine die means terminating a sitting of Parliament for an indefinite period. In other words, when the House is adjourned without naming a day for reassembly, it is called adjournment sine die. The power of adjournment sine die lies with the presiding officer of the House.
  • The presiding officer of a House can call a sitting of the House before the date or time to which it has been adjourned or at any time after the House has been adjourned sine die.
  • Prorogation:
  • Prorogation means the termination of a session of the House by an order made by the President under article 85(2)(a) of the Constitution. Prorogation terminates both the sitting and session of the House. Usually, within a few days after the House is adjourned sine die by the presiding officer, the President issues a notification for the prorogation of the session. However, the President can also prorogue the House while in session.
  • All pending notices (other than those for introducing bills) lapse on prorogation and fresh notices have to be given for the next session.
  • Dissolution:
  • Dissolution ends the very life of the existing House, and a new House is constituted after general elections are held.  Rajya Sabha, being a permanent House, is not subject to dissolution. Only the Lok Sabha is subject to dissolution.