Siddharth Pai

Founding Partner, CFO and ESG Officer

3one4 Capital

siddarth@3one4capital.com

Prime Minister Narendra Modi’s team presented an ambitious agenda for initiation in the first 100 days of their third term. The calendar included bold policy changes, a steadfast commitment to job creation, sustainable growth, and a relentless push for technological innovation. It also included an emphasis on strengthening infrastructure and simplifying the business landscape.

As promised, the Modi administration has made significant policy changes and introduced various schemes to fuel India’s industrial and economic growth. In healthcare and family welfare, the Government has launched several groundbreaking initiatives, driving innovation, pandemic preparedness, and the development of indigenous medical solutions toward a more resilient Atmanirbhar Bharat (self-reliant India). To date, Infrastructure projects worth USD 36bn have been approved, spanning sectors from road construction to aviation.

The unveiling of the Annual Budget by the Finance Minister, Ms Nirmala Sitharaman was a significant event. The budget addressed major concerns with its grounded provisions. India’s ability to generate enough jobs to keep unemployment in check took centre stage, exacerbated by the election results that highlighted the issue as a significant emerging concern.

The concern is that despite a high growth rate, the scale of hiring may not be enough to meet the expectation gap. Unsurprisingly, the Annual Budget put forth several measures to increase employment and upskilling. The Economic Survey that was released a day before the Annual Budget highlighted that the Indian economy needs to generate an average of nearly 8 million jobs annually until 2030 in the non-farm sector to cater to the rising workforce. Needless to add, the heavy lifting insofar as job creation is concerned will need to mainly be done by the private sector.

Critical to unlocking India’s rural economic potential are several qualitative aspects of employment generation, such as targeted skill development. Currently, only 4.4% of the young workforce is formally skilled. Importantly, rising youth and female participation in the workforce is a significant opportunity to tap the demographic and gender dividend. Also, the agro-processing and care economy are promising candidates for generating large-scale employment. A combination of job creation, complemented by upskilling, will deliver on the enormous expectation from the Indian economy.

Another industry that can create large-scale employment opportunities is electronic manufacturing; it can possibly create 5.5 - 6 million jobs. A robust electronic manufacturing ecosystem is essential to helping India become part of the global value chain. The initiative would involve incentivising research and development, design, infrastructure development, and other aspects. It will need to be backed by a conducive business environment and robust policy support, including fiscal incentives and non-fiscal interventions. In the coming five years, the potential of this sector is estimated at USD 500bn in value terms; with USD 350bn from finished goods manufacturing and USD 150bn from components manufacturing. The export potential itself is a staggering USD 240bn with a domestic value addition of up to 35%.

As India addresses the electronic manufacturing challenge, the Digital Public Infrastructure (DPI) continues to make waves in other countries that could look at a similar transformation in their economies. India’s G20 task force has suggested that countries use the plug-and-play models to deploy certain DPIs to make their existing infrastructure universally applicable for the common good, while also ensuring their sovereignty and data ownership. In a recent report, the task force has highlighted that the country’s fast-growing DPI has enabled it to achieve in nine years what would have taken it fifty years to realise without the DPI. The achievement is measurable as India achieved 1.4 billion Aadhaar enrolments (a 12-digit unique identity number), facilitated more than 10 million daily e-KYC transactions, granted access to bank accounts to about 500 million individuals, and effected direct benefit transfers across various schemes that helped the government save a whopping USD ~41bn by plugging leakages.

Interestingly, the scale of opportunity in almost every sector seems to expand exponentially, which in turn acts as a catalyst for the economy to grow. Going by the announcements in the recent Annual Budget, India’s economic agenda for the next twenty-three years is full of multiple, high-intensity initiatives that will help pave the way for India to fulfil its aspiration of becoming a developed nation by 2047.

Rajesh Thakkar

Partner and Leader

M&A Tax and Regulatory

Deal Advisory Services

transactiontax@bdo.in

M&A in India

Between 31 July 2024 and 30 September 2024, around 153 M&A deals were announced, of which 58 M&A deals were closed. The aggregate value of deals announced is USD 5,099.29mn; dominated by 127 domestic deals (USD 2,314.12mn) and 26 cross-border deals (USD 2,785.17mn).

In terms of sectors (considering only closed deals), Information Technology sector saw deals worth USD 1,002.19mn, followed by Utilities sector with deals worth USD 489.31mn and Consumer Discretionary sector with deals worth USD 127.24mn.

Significant deals closed between 31 July 2024 and 30 September 2024

Rajesh Thakkar

Partner and Leader

M&A Tax and Regulatory

Deal Advisory Services

transactiontax@bdo.in

API Standardisation – Revolutionising cross-border transactions and customer experiences

API can create a seamless and secure payment network between consumers, businesses, and financial institutions in a real-time environment, while also enforcing an authentication mechanism and encryption protocols to enhance security. It also provides businesses and individuals insights into real-time currency exchange rates to manage forex loss, significantly reducing transaction costs and helping make calculated decisions. Moreover, API integration is controlled and integrated only among trusted partners, which enhances border access to customer data and provides faster innovation. The unified data also helps verify the AML (Anti Money Laundering) and CFT (Combating Financial Terrorism) transactions in real-time.

• Revised Payment Services Directive (PSD2) – Enforcing and governing Banking and FinTech to adopt and integrate APIs allow consumers to use third-party providers for their payment and financial transactions services.
• Payment Card Industry Data Security Standard (PCI DSS) - Regular checks must be performed on the application's behaviour to detect logical vulnerabilities.
• Digital Operational Resiliency Act (DORA) - Article 3 states that it is essential to perform regular testing on vulnerabilities and authentication controls.

Regulators and FinTechs must come together to establish unified API standards that are adopted and governed so that various players can innovate under this framework and build better products for enhanced customer experience. The adoption of common API standards will continue to fuel the growth and evolution of cross-border ecosystems, while it enables seamless collaboration and data sharing across different platforms and geographies.

Regulators’ concerns around privacy and security should be leveraged to create secure solutions with a seamless experience. A standardised API framework/ guidelines also helps FinTechs align their security practices, to protect sensitive data against unauthorised access and potential breaches. It will also drive FinTechs to adopt better security standards to streamline authentication processes while utilising advanced security protocols/ methods like OAuth 2.0 and OpenID Connect. Such industry-enabled frameworks enhance the security of APIs as they provide secure token-based authenticated access. Standardisation also provides a better platform to integrate advanced encryption methods. Leveraging such encryption mechanisms, FinTechs can safeguard data exchanges, while ensuring compliance with local and cross-border regulations. Such standardisation may help FinTechs streamline customer experiences, where interfaces and data exchanges are consistent and predictable.

We need to establish accountability and responsibility by establishing standards and an overseeing body to govern and guide the institutions involved in the borderless payment world.

Siddharth Pai

Founding Partner, CFO and ESG Officer

3one4 Capital

siddarth@3one4capital.com

Standardising APIs in FinTech: Unlocking a World of Possibilities

At the heart of India's bustling FinTech revolution, where innovation and disruption strike a delicate balance, the power of standardised application programming interfaces (APIs) emerges as a beacon of progress. As a participant in this dynamic landscape, I've witnessed firsthand how these unassuming interfaces hold the key to unlocking a future where financial services are not just efficient and accessible, but truly transformative.

Fueling Innovation and Collaboration

Standardised APIs create a common language for financial institutions, start-ups, and regulatory bodies to communicate seamlessly. This interoperability is the foundation upon which innovative services are built, allowing for faster integration and reduced time-to-market for new products.  

India's Unified Payments Interface (UPI) exemplifies this perfectly. This standardised API has revolutionised digital payments, enabling real-time fund transfers across multiple bank accounts with a single mobile application. UPI's impact is staggering: in FY 2023, it processed over 117.6 billion transactions valued at more than USD 2.19tn

The Power of the Identity Stack

The standardisation of APIs has been particularly transformative for India's digital identity infrastructure. The India Stack, with its foundational layers like Aadhaar for identity verification and eKYC for remote onboarding, has created a robust framework that FinTech companies can easily integrate into their services.  

This standardised identity stack has been a game-changer for various FinTech sectors:

• PayTech: Seamless integration of identity verification has made digital payments more secure and accessible. UPI alone has over 260 million active users as of December 2023
• LendingTech:Standardised APIs for identity and financial data sharing have streamlined credit assessments. The Account Aggregator framework has enabled over 2.12 billion accounts to be linked for seamless data sharing as of June 2024
• InvestTech: Easy onboarding and KYC processes have lowered barriers to entry for retail investors. The number of demat accounts in India surged from 40 million in 2020 to over 120 million by September 2023, a 200% increase in just three years

Reducing Costs and Streamlining Operations

API standardisation significantly lowers operational costs for FinTech companies by eliminating the need for complex, custom integrations. Industry estimates suggest that standardised APIs can help organisations achieve a 30% reduction in integration time and a 40% reduction in integration costs

The Account Aggregator framework is a prime example of API-led efficiency. This standardisation streamlines the sharing of financial data between institutions, simplifying processes like loan applications and wealth management. By adhering to these standards, even smaller FinTech players can compete on a level playing field, accessing a broader customer base without the burden of developing proprietary systems for each financial institution they wish to connect with.  

Ensuring Regulatory Compliance and Building Trust

From a regulatory perspective, API standardisation is a powerful tool for ensuring compliance and managing risk. The Reserve Bank of India's (RBI) regulatory sandbox demonstrates how standardised APIs can facilitate innovation while maintaining regulatory oversight. Since its inception in 2019, the sandbox has enabled the testing of over 100 innovative FinTech products across multiple cohorts

Enhanced Security and Resilience

As a Cybersecurity practitioner, I'm particularly attuned to the security benefits of standardised APIs. They often come with built-in security mechanisms, simplifying the implementation of robust authentication, authorisation, and encryption protocols. This standardisation also streamlines troubleshooting and issue resolution, minimising downtime and reducing the financial impact of potential failures.  

The Road Ahead

In this API-driven wonderland, financial services transcend traditional boundaries. Imagine a day when your wearable device detects a surge of optimism and your investment portfolio automatically adjusts, shifting towards higher-risk, high-reward assets, capitalising on your confidence. API standardisation would become more of a catalyst, propelling us towards a future where financial services are as ubiquitous and accessible as the air we breathe.

NDTV Profit

testing@example.com

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