Key Expectations from the Travel Banking Ecosystem in the 2024-25 Budget
The upcoming 2024-25 budget is set to shape the economic vision of the Modi 3.0 government, aiming to accelerate reforms towards India’s goal of a $5-trillion economy and ‘Viksit Bharat’ by 2047. According to the Reserve Bank of India (RBI) reports a remarkable 90-fold surge in digital payments over the past 12 years, highlighting the widespread adoption of digital financial services across the country.
Furthermore, travel has become the major contributor to outward forex transactions from India, comprising 53.6 percent of total remittances in FY24. This marks a significant increase from its 1.5 percent share in FY 2013-14 and 35 percent in FY 2018-19.
As India embraces this digital shift, the budget policies ahead will play a crucial role in reshaping our financial landscape. Here’s a comprehensive look at some key expectations from the travel banking ecosystem where reforms could drive progress:
1. Digital Banking Licenses: Introducing digital banking licenses to enhance financial inclusion, foster innovation, and streamline banking operations. This initiative aims to leverage technology for better customer experiences, reduce operational costs, and meet the rising demand for digital financial services, aligning with the government’s push towards a digital economy.
2. Credit Card under TCS: Bringing credit cards under the TCS is expected to ensure a level playing field with other payment instruments. This move would provide consistent regulatory oversight, enhance transparency, and prevent misuse, aligning credit card usage with other forms of international remittances for balanced financial governance.
3. Reduction of TCS: To alleviate financial strain on students and retail travelers and boost global business, Niyo anticipates a reduction in TCS from 20% to 1% (at par with the crypto industry) on international transactions above the threshold in the upcoming budget. Also, increasing the threshold from INR 7 lakhs to INR 10 lakhs would be further beneficial.
4. Increasing LRS limits: Keeping in mind the increasing inflation, an increased LRS limit would be beneficial for cross-border transactions. It was last revised in the year 2015 and it should be increased to $500k.
5. UPI P2M MDR: Introducing a small MDR on UPI P2M large merchant transactions is expected to help the ecosystem cover operational costs. This move ensures the sustainability of UPI services, supports continued innovation and maintains a robust payment infrastructure while balancing merchant and consumer interests.
6. Policies to promote credit on UPI: Special policies to promote Credit on UPI are expected to increase convenience. These policies could include incentives for credit providers, streamlined credit approval processes, and partnerships with fintech firms, fostering a more dynamic and accessible credit ecosystem within the UPI framework.
7. Incentives for lending new to credit: It’s been increasing for new-to-credit users to get a lending product. Getting some policies supporting it would enhance the coverage for the banks and it increase credit accessibility to users.
8. Removal of Angel tax: The angel tax continues to haunt startups by imposing a significant financial burden and creating uncertainty. The removal of the angel tax will significantly help the startup ecosystem.
9. Deferring tax liability for startup ESOPs, till exit: Deferring tax liability for startup ESOPs until exit is expected to benefit employees by delaying the tax burden until they realise gains.
This year’s budget is a crucial chance to boost economic growth through progressive reforms in the financial sector. By embracing digital changes, enhancing regulatory frameworks, and incentivising innovation, India can create a strong and fair financial ecosystem driving sustainable development and global competitiveness.
By- Swapnil Bhaskar, Chief of Strategy at Niyo